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REFILE-UPDATE 1-Croatia cuts GDP growth forecast, budget spending
April 17, 2014 / 9:46 AM / 4 years ago

REFILE-UPDATE 1-Croatia cuts GDP growth forecast, budget spending

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* Croatia cuts subsidies, investments, seeks more revenue

* Cuts part of EU budget monitoring

* Government now sees 2014 as sixth year without growth

By Zoran Radosavljevic

ZAGREB, April 17 (Reuters) - Croatia will cut investments and subsidies and raise excise on petrol and telecom operators to reduce its budget deficit to meet European Commission requirements, it said on Thursday.

The new measures should reduce the shortfall by some 1.3 billion kuna ($235 million), but Finance Minister Slavko Linic acknowledged they would also stifle growth, which the ex-Yugoslav economy last achieved in 2008.

“The measures should not affect consumption by households and companies, but they will impact the economy and the GDP. We have therefore cut our forecast from 0.2 percent to zero, which means further stagnation,” Linic told a cabinet session.

Croatia, which joined the EU last July, must present to the Commision by the end of April measures to cut the gap in line with the bloc’s Excessive Deficit Procedure (EDP), a tool to impose fiscal discipline in budget offending member states.

Last month it revised the budget and cut the general budget gap to 4.5 percent of gross domestic product from an earlier 5.7 percent target, but said it might not be enough. Brussels wants Zagreb to bring the gap below three percent of GDP by the end of 2016.

The Social Democrat-led cabinet will now cut subsidies for farmers and shipyard restructuring, as well as planned funds for the state development bank, roadbuilding and business incentives, altogether saving some 650 million kuna.

It also plans to boost revenues by more than 650 million kuna through raising excise on petrol by about 0.2 kuna per litre, and higher radio frequency fees for telecom operators.

“With these measures we will be in line with the Commission’s recommendations,” said Prime Minister Zoran Milanovic.

“But in the longer run, the only solution is to cut expenditures because even the acceptable deficit of 3 percent is too high if you don’t have growth,” he said.

Croatia has suffered five recession years in a row, losing more than 12 percent of output since 2008, and is the only EU member unlikely to grow this year.

Analysts say Croatia’s economy is largely unreformed, with too much red tape, high tax bite, slow courts and an expensive and inefficient public administration, which makes the country an unattractive investment destination. ($1 = 5.5215 Croatian Kunas) (Editing by Ruth Pitchford)

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