The Croatian Chamber of Commerce (HGK) said on Thursday that the government's guidelines for drawing up the 2016 budget were just the first step which should be followed by structural reforms, and that the projected GDP growth of two percent was feasible, albeit relatively optimistic.
The revenues of the 2016 budget are planned at HRK 113 billion and expenditures at HRK 120.4 billion, with the deficit amounting to about HRK 7.5 billion, or 2.2 percent of GDP, according to the guidelines which the government adopted today. When extrabudgetary funds and the consolidated budget of local government units are added to that, this year's deficit should amount to HRK 9.2 billion or 2.7% of the projected GDP. Even according to Eurostat's ESA 2010 methodology, it would not exceed 3% of GDP. The guidelines are based on economic growth projections of 2%.
The guidelines are based on growth projections which are within the European Commission's forecast, said Zvonimir Savic of the HGK. "In our assessment, a 2% growth of economic activity is feasible but nonetheless relatively optimistic given certain internal and external risks."
He said the guidelines brought a realistic framework for reducing the budget gap in such a way that fiscal consolidation did not threaten the fragile economic recovery. He said the projected reduction of the budget deficit and public debt developments represented a clear message to the public and investors about an efficient implementation of fiscal consolidation, which could have a positive impact on Croatia's perception and credit rating.
"The proposed guidelines are just the first step, which should be followed by structural reforms as only they can ensure a long term sustainability of public finance and return the country to the level of investment rating in the short term," Savic said.
He said the planned cuts were visible in the guidelines but that "concrete structural reforms are expected which would clearly and convincingly indicate the direction and pace of the reform policy." He said the guidelines would raise the optimism needed for economic growth but that this optimism "can be maintained only with an effective implementation of reforms."