Croatia aims to keep fiscal discipline after 2017 surplus

ZAGREB (Reuters) - Croatia will follow a budget surplus in 2017 with structural reforms and fiscal discipline to boost its growth rate, credit rating and prospects for joining the euro zone, Finance Minister Zdravko Maric said on Wednesday.

“Fiscal data for 2017 will be released on Friday and we can expect a general budget surplus for the first time since we applied EU methodology. It is a result of our efforts to keep a lid on expenditure and use stronger revenues to cut public debt and tax burden,” Maric told Reuters in an interview.

Croatia’s public debt at the end of 2017 is seen at 78 percent of gross domestic product. In the last two years it has been reduced by 5.8 percentage points. The general budget gap in 2016 was at a record-low of 0.9 percent of GDP.

“Our goal is to push the public debt down further by 2.5-3.0 percentage points this year and keep that effort on track in the coming years,” Maric said.

He said the budgetary performance in the first quarter of 2018 is in line with plans. Croatia targets a general budget gap of 0.5 percent of GDP for this year on economic growth of around 3.0 percent.

“For the moment we’re sticking to the plans. However, we’ve had better fiscal performance than expected in 2016 and 2017, so we’ll carry on working in that direction,” Maric said.

Analysts and the European Commission have warned that structural reforms have been slow despite being crucial for boosting growth and credit rating which is now a notch below investment level by two out of three main rating agencies.

They most notably point at problems like a subdued investment climate, inefficient and costly public administration, slow-moving judiciary or loss-making health and pension sectors.

“There is no doubt we must tackle structural problems like we recently did with the road sector. Next week the government will adopt a detailed annual plan of reforms and the focus will initially be on improving investment climate and efficiency of the health sector and public administration,” Maric said.

Last month Croatia restructured high debt in the road management sector at more favourable terms.

He said there was also space for further reduction of the tax burden from 2019 following changes that took effect last year when focus was on income and profit taxes.

“This year we’re making a thorough analysis of the options and I can say that the cuts may now also include value-added tax,” Maric said.

This year the government has to refinance one domestic bond worth 6 billion kuna ($1 billion) and one foreign bond worth 750 million euros ($927 million), both maturing in July.

“We’ll aim to refinance the maturing Eurobond abroad and fulfill the rest of the funding requirement domestically. It’s probable that we will first go for an international issue by the end of the second quarter,” Maric said.

He said that structural reforms should help shield Croatia from any rise in interest rates that might happen on the international markets.

“I believe that if we display determination in further implementation of reforms and preserve fiscal discipline, which I’m confident will happen, we could achieve an investment grade sooner than anticipated,” Maric said.

“All this also fits into our ambition to prepare the economy for taking on the euro currency,” he also said.

($1 = 5.9966 kuna)

($1 = 0.8089 euros)

Reporting by Igor Ilic; Editing by Toby Chopra