Prime Minister Tihomir Oreskovic said on Thursday that the budget guidelines, adopted at a Cabinet meeting earlier in the day, were a realistic plan.

"Economic growth of 2% is a realistic plan. Tomorrow we are having a meeting with European Commission Vice-President Valdis Dombrovskis and it is very important to us that we, as a new government, present a realistic plan," Oreskovic told a press conference after the Cabinet meeting.

The European Commission has forecast Croatia's 2016 budget deficit at 3.9% of GDP, which would make it the highest deficit in the European Union, Oreskovic said, adding that the 3% deficit projected in the guidelines was "a very ambitious, yet realistic plan".

"We are growing. We have reduced the deficit and will focus on debt," Oreskovic said. He said that the guidelines absorbed about 2.5 billion of expenditure and added that the planned reforms would be outlined before the presentation of the budget on March 10.

Finance Minister Zdravko Maric said that budget cuts did not affect pensions and salaries and that the pension budget was even increased because the guidelines provided for a 0.5% increase on years of service. He said that savings were made on material expenses, a portion of subsidies and other expenses.

Responding to questions from the press, Maric said that the basic structure of this year's budget would not be the same as before, adding that this budget had to account for HRK 2.5 billion higher expenditure. Citing an expected contribution from EU funds, he said that this year various projects were expected to be co-financed with between HRK 900 and HRK 1 billion of EU money.

Asked what would happen with a possible HRK 1.8 billion increase in expenditure on public-sector salaries due to a 6% pay rise on account of 2% GDP growth for two consecutive quarters, Maric said that dialogue had been launched on this issue at meetings with union leaders on Wednesday, when the government's view on the reform of the public sector and pay policy were presented. He said he was certain that the unions would back the government during the dialogue over the coming weeks.

Maric said that employment expenditure would not be reduced, but would even be increased, adding that a substantial EU component of that item was a novelty.

Commenting on the statement by IMF Mission chief Khaled Sakr at the end of his visit to Zagreb on Wednesday, Maric said that his statement was encouraging and very realistic, adding that the mission's response to the presented budget framework was very positive.

"The improvements in macroeconomic indicators starting in late-2014 and the broad-ranged policy agenda of the new cabinet are encouraging. Speedy implementation of structural reforms will be essential to sustain durable growth and employment, as well as to reduce vulnerabilities and safeguard against downside risks," Sakr said.


(EUR 1 = HRK 7.624)

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