Croatia's general government debt at the end of July 2015 was HRK 289.1 billion or 87% of the estimated GDP for this year, according to the latest figures from the Croatian National Bank (HNB).

General government debt in July 2015, compared with June 2015, increased by HRK 6.1 billion or 2.2%, while compared with July 2014 it went up by HRK 18.2 billion or 6.7%.

The monthly increase was partly due to the latest government borrowing on the domestic market, analysts at Raiffeisenbank Austria said on Tuesday, recalling that the Ministry of Finance had issued a HRK 6 billion bond in July to pay off due debt.

Figures show that the monthly increase of total public debt was mostly due to increases in domestic loan liabilities by HRK 3.38 billion and long-term government securities by HRK 3.35 billion, while short-term security liabilities were reduced by HRK 610 million, the RBA analysts said.

The marked increase in public debt in July, both on the monthly and the annual level, is primarily the result of growing central government debt, which reached HRK 284.1 billion. Compared with June 2015, central government debt increased by HRK 6.8 billion or 4.2%, and compared with July 2014 it rose by HRK 11.3 billion or 7.3%.

At the same time, deleveraging was recorded on the local government level in July for the second month in a row. Local government debt was HRK 5.2 billion, down by 1.8% from June 2015 and by 6% from July 2014.

Poor fiscal consolidation and a potentially high budget deficit could lead to a further rise in public debt, which could reach 90% of GDP, the analysts said. The price of election promises might put an additional strain on public debt sustainability, which ultimately closes the circle of weak economic growth, a large share of the public sector in the economy and a growing risk of the so-called snowball effect.

According to the latest figures from the Ministry of Finance, in the first eight months of the year total consolidated central government expenditure on interest payment exceeded HRK 8 billion, which was as much as 12.2% more than at the same time last year. The two-digit annual increase in interest expenditure, which is nearing 4% of GDP, requires much stronger growth to reduce growing risks of public debt becoming unsustainable, the RBA analysts concluded.

 

(EUR 1 = HRK 7.6) 

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