ECONOMY

Croatia’s public debt/GDP ratio posts decline

ZAGREB (Reuters) – Croatia’s public debt has continued to fall as a proportion of gross domestic product, slipping to 46.8 percent of GDP in the first quarter from 49.6 percent over 2006 as a whole, a senior finance ministry official said yesterday. The European Union candidate country’s public debt was 126.8 billion kuna (-17.32 billion) at the end of March. «We see the results of steady efforts to keep the debt under control,» the official told Reuters. The public debt/GDP ratio in 2006 was its first time below 50 percent on an annual basis in several years, which the official said was evidence of successful fiscal consolidation efforts. But analysts maintain that the trend was a cyclical rather than structural phenomenon. «At the moment we have steady economic growth, but it is questionable how the figures would look if the growth trend were not so positive,» Hrvoje Stojic of Hypo Alpe-Adria-Bank said. Croatia’s GDP has grown at between 4 and 5 percent per year since 2000. This year Croatia, which hopes to join the EU around 2010, plans to cut the fiscal deficit to 2.8 percent of GDP from 3 percent in 2006. It aims to apply for the eurozone immediately after EU entry and hopes to adopt the single currency two to three years later. The criteria for the eurozone require public debt to be below 60 percent of GDP, while fiscal deficit must be lower than 3 percent of GDP. The central bank has kept inflation under control at around 2 to 3 percent and holds the national kuna currency in a managed float regime, allowing it to fluctuate at between 7.20 and 7.45 kuna to the euro. Prime Minister Ivo Sanader’s government has in recent years focused solely on issuing kuna-denominated local bonds, in an effort to reduce foreign debt and converge with the Maastricht criteria, which take into account interest rates on papers in domestic currency. In the past, most local bonds were denominated in euros but paid for in the kuna. Sore points of the local economy remain slow structural reforms, too high state subsidies and high external vulnerability. Croatia’s foreign debt amounts to almost -30 billion, or some 86 percent of GDP, while the current account deficit is just a touch below 8 percent of GDP.