Croatia's public debt at the end of May 2016 amounted to HRK 285 billion, down 84.1 million on the month and 4.8 billion on the year, the Croatian Chamber of Commerce (HGK) said on Friday, adding that the public debt decreased for the fourth straight month monthly and for the third straight month annually, and that the gross foreign debt also continued to fall.
An improved economic situation, coupled with GDP growth and rising budgetary revenues, has improved the budget situation, notably so as the temporary financing regime and the activity of the caretaker government have restricted budgetary spending, the HGK said.
The budget gap in the first five months of 2016 was HRK 3.6 billion lower than at the same time in 2015 and the lower financing needs had positively impacted the public debt.
Public debt over five months in 2016 was cut by HRK 4.6 billion. The internal debt went up HRK 2.7 billion, while the foreign debt fell HRK 7.3 billion.
A greater reliance on domestic financing is due in part to the decision not to issue a foreign bond because of the high interest rate demanded and the assessment that the country could borrow at better conditions in the period ahead, the HGK said.
All components of the foreign debt decreased in relation to the end of 2015. The bond debt was cut by HRK 4.6 billion, the borrowing debt by HRK 2.7 billion and the short term debt by HRK 40.5 million.
On the domestic market, the bond debt increased HRK 5.8 billion, the borrowing debt decreased HRK 3 billion, and the short term debt based on treasury notes decreased HRK 210.4 million.
At the end of May 2016, the internal debt made up 61.1% and the foreign debt 38.9% of the general government debt. The HGK said this was the lowest foreign debt to public debt ratio since 1999. It added that borrowing on the domestic market reduced some risks but that the government's borrowing might push out the private sector although, thanks to a very liquid banking sector, that was currently not a real danger.
Over the past three months, the public debt has been decreasing year on year at a rate of 1.7% which, alongside a faster economic growth than planned, better budgetary trends and the continuation of fiscal consolidation, could stabilise the public debt to GDP ratio at the end of 2016 close to the level at the end of 2015, the HGK said, adding that this would be a good foundation for reducing the ratio to 60% in the years ahead, in line with Maastricht criteria.
At the end of May 2016, gross foreign debt totalled EUR 44 billion, down 341 million on the month and 5.1 billion on the year. Gross foreign debt has been falling since November 2015, with the exception of 2016, when it went up EUR 76 million.
Over five months in 2016, gross foreign debt was cut by EUR 1.5 billion. The general government debt was cut by EUR 900.2 million, other domestic sectors' debt by EUR 400.3 million and other monetary financial institutions' debt by EUR 396.1 million. The foreign debt based on direct investments went up EUR 148.3 million and the central bank's debt by EUR 52 million.
The HGK expects the gross foreign debt to GDP ratio to fall below 100%, but said that Croatia would remain a highly indebted country with high risks and a high burden of servicing debts. It added, however, that the positive public and gross foreign debt trends could create a more favourable environment resulting in a credit rating upgrade and lower borrowing costs.
(EUR 1 = HRK 7.47)