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Croatia: 2012 Budget Deficit Revised

Published: October 23, 2013; 18:22 · (Vindobona)

Because of the different EU methodology, Croatia had to revise its budget gap. The fiscal situation remains critical.

Croatia: 2012 Budget Deficit Revised / Picture: © Vindobona.org

After an initial estimate of 3.4% of GDP, the 2012 budget deficit was revised to 5% of GDP. This year, Croatia´s budget deficit will reach 4.5% of GDP, the Croatian Ministry of Finance stated. At the moment, Croatia´s public debt quota comes at 66% of GDP. This year, the deficit is expected to come at 4.5% of GDP.

Since 2008, Croatia´s economy did not show any progress. This year, Croatia is expected to leave the recession behind. However, the expected growth forecast had to be cut to 0.2% from 0.7% in spring.

Croatia´s Minister of Finance Slavko Linic explained that the country would not absorb another fiscal shock. In the past, austerity measures proved harmful, he said recently. As a result, a widening fiscal gap in the short term is the better alternative, he said. In 2014, the budget deficit is estimated to reach about 5.5% of GDP.

As Croatia´s sovereign debt rating was cut to junk status, the country has to pay high interest rates. The yields for the dollar bond are expected to reach about 6.5%. The financially stricken country, which needs the funds to cover its excessive budget deficit, is still seen as potential bail-out candidate.

In case of a bail-out by the IMF, Croatia would face substantial social cuts and a massive rise in taxes. Until now, Croatia´s government could prevent such a scenario. According to analysts, this is only a question of a few months.

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