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Photograph: Photo by PredragKezic, used under CC0

The general government debt at the end of June 2016 was HRK 285.7 billion, 1.7 billion or 0.6% less than at the end of June 2015 and HRK 3.9 billion or 1.3% less than at the end of 2015, show the latest figures provided by the Croatian National Bank (HNB).

This is the first time since the end of 1999 (when such statistics were first compiled) that the public debt has dropped in the first half of a year, Croatian Chamber of Commerce (HGK) analysts said in a comment on the statistics.

"... these trends suggest that the public debt has stabilised and that its share in GDP in 2016 has decreased, which will have an impact on the cost of borrowing, among other things," Zvonimir Savic of the HGK said.

HGK analysts said that the more favourable trends regarding the public debt were owing to multiple factors, including faster economic growth, more favourable fiscal trends, a positive impact of the exchange rate on the debt, the fact that the state and the public sector borrowed less due to an interim budget in the first quarter of this year, and lower borrowing costs on the domestic and foreign markets.

HGK analysts stress that the borrowing policy was marked by a stronger orientation to domestic sources of financing, with borrowing on foreign markets having been reduced due to a temporary decision not to issue euro bonds due to unfavourable borrowing conditions and the country's unfavourable credit rating.

At the end of June, the debt of the central government, social security funds and local government totalled HRK 174.2 billion, 2.7 billion more than at the end of last year, while the foreign debt of the general government dropped by HRK 6.6 billion to HRK 111.5 billion.

All components of the general government contributed to the reduction of the public debt in the first half of this year, with the central government reducing its debt by HRK 3.4 billion, the local government by half a billion kuna, and social security funds by around half a million kuna.

Most of the public debt, or 98.4% of the total public debt, was the debt incurred by the central government, totalling HRK 281.1 billion.

"The fact that June was the fourth consecutive month to see an annual decline in the public debt indicates that the stabilisation of the public debt and a mild drop in its share in GDP is a realistic possibility at the end of this year. Along with fiscal consolidation, this will have a positive impact on future borrowing costs, which is very important due to the significant need for the refinancing of obligations in 2017," the HGK analysts said.

(EUR 1 = HRK 7.5)

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