Croatia's gross foreign debt at the end of August totalled 47.8 billion euros, which is close to 110% of the estimated GDP in 2015, and even though it was almost 3% down on the month, it continued to grow on the year, at a rate of 4.1%, show the latest statistics from the Croatian National Bank (HNB).

Compared to July, the gross foreign debt was 1.5 billion euros down, but compared to August 2014, it went up by 1.9 billion euros. With the exception of two month, the foreign debt has been growing since November 2013, analysts of Raiffeisenbank Austria (RBA) said.

The Croatian Chamber of Commerce (HGK) said the monthly drop in the foreign debt was owing to seasonal improvements, notably a higher inflow of money into banks during the tourist season. However, this year those improvements were weaker than in the summer of 2014 and the debt continued to grow on the year.

The relatively strong annual growth of the gross foreign debt is mostly due to growing obligations towards foreign creditors in the general government sector whose foreign debt at the end of August was HRK 15.9 billion, accounting for one-third of the total gross foreign debt. Even though in August it dropped by EUR 316 million or 2% compared to July, the general government debt was up 1.4 billion euros or 9.6% compared to August 2014.

The annual increase in the foreign debt, dating back to May 2009, thus continued, RBA analysts said.

The HGK said that the need for new borrowing to finance the high budget deficit and surplus funds in the banking sector resulting from subdued credit activity in the first eight months of this year had resulted in the general government's foreign debt rising by 486.6 million euros, while the foreign debt of other monetary financial institutions dropped by 615.1 million euros.

Owing to more favourable borrowing conditions on foreign markets, a part of companies, notably big ones and companies whose ownership is connected with foreign investors, have been using the possibility of foreign financing and the foreign debt of other domestic sectors consequently increased by 101.3 million euros, while the debt of private non-financial companies rose by 317.2 million, the HGK said.

The consolidated increase in the gross foreign debt in the first eight months of this year was 1.2 billion euros. Contributing to it was the debt of the public sector, covering the general government, the central bank, public financial institutions and public non-financial institutions, which increased by 1.5 billion euros and the debt of the private sector for which guarantees are provided by the public sector, which increased 11.1 million euros, while the private, non-guaranteed debt dropped by 309.4 million euros, the HGK said.

"Due to a high gross foreign debt and its likely continued growth, Croatia remains highly vulnerable to changes on global financial markets, notably exchange risks. Further developments regarding the gross foreign debt will depend on the growth rate of the general government debt, which should slow down if fiscal consolidation is stepped up as a result of the procedure for the removal of the excessive budget deficit, and on bank deleveraging, which will slow down if sustainable economic growth is established," the HGK said.

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