Finance Minister Marko Primorac on Monday presented the 2023 draft budget which envisages revenues of €24.9 billion, up 9% from this year, expenditures of €26.7 billion, €2.1 billion more than this year, and a general government deficit of €1.6 billion, or 2.3% of GDP.

After a 5.7% GDP growth projected for this year, in drafting next year’s state budget the government projected a growth of 0.7% in 2023, 2.7% in 2024 and 2.6% in 2025.

Inflation is expected to slow down from the 10.4% projected for this year to 5.7% in 2023 thanks to the disappearance of supply chain disruptions, a lower imported inflation and this year’s high base, Primorac said at a cabinet session. Inflation is expected to slow down to 2.5% in 2024 and to 2.3% in 2025.

Pronounced negative trends on the labout market are not expected in 2023, partly due to the chronic labour shortage, so the number of those employed will mildly increase and the jobless rate stay at this year’s level, the minister said.

The 2024 budget revenues are projected at €24.8 billion and at €25.8 billion in 2025.

Next year’s tax revenues are projected at €13.3 billion, up 4.8% from this year, at €14 billion in 2024 and at €14.7 billion in 2025.

Next year, pension insurance contributions are projected at €4 billion (+8.2%) and EU assistance at €5 billion (+32.8%).

The 2024 budget expenditures are projected at €25.6 billion and at €25.9 billion in 2025.

The €2.1 billion higher expenditures projected in 2023 are the result of better welfare and support for those most at risk, pension system viability, the continuation of population measures and post-earthquake reconstruction, the green and energy transition, stronger defence capabilities and security, and solidarity with citizens and businesses in the energy crisis, Primorac said.

The budgetary deficit is projected at €896 million or 1.2% of GDP in 2024 and at €229 million or 0.3% of GDP in 2025. This year’s deficit is projected at 1.4% of GDP.

The continuation of stronger fiscal consolidation is expected in 2024 and 2025, resulting in a general government deficit of 1.7% of GDP in 2023 and 1.2% in 2025, said Primorac.

The public-debt-to-GDP ratio is projected at 70.2% this year, 67.9% in 2023, 65.5% in 2024 and 63.5% in 2025.

Primorac said the 2023 state budget was the first one denominated in euros. “The introduction of the euro will boost our economy, it will be an anchor of stability, it will make us more resilient and more protected from outside shocks and crises, but it will also improve the investment climate.”

He said that after several years of growth and fiscal consolidation, Croatia was affected by two devastating earthquakes in 2020 and the consequences of the pandemic.

In the past two years, he added, “we managed to stabilise the economy and achieved significant growth rates. However, the outlook for next year is much more unfavourable and uncertain. The consequences of the Russian aggression on Ukraine have destabilised the world economy, and in Croatia, too, we feel and will feel the consequences of inflationary pressures and the slowing down of economic activity.”

The 2023 budget must be directed at maintaining growth and employment but must not be inflationary, and it must contain a strong anti-crisis element, the minister said, adding that care has been taken to protect those most at risk, with aid totaling €643.2 million.

Primorac said that due to the foreign policy and geo-economic context, the government would continue to invest in energy supply chain diversification and security, including a €75 million investment in building the Zlobin-Bosiljevo gas pipeline and expanding the LNG terminal’s capacity.

In order to boost resilience, €324.4 million will be invested in defence next year.

The 2023 budget execution bill envisages borrowing €5.5 billion, with payments for the debt principal amounting to 3.7 billion, the minister said.

The borrowing of extra-budgetary beneficiaries is projected at almost €400 million and the payment for their debt principal amounts to €431.2 million.

New financial guarantees for 2023 amount to €1.2 billion, including €882.8 million for extra-budgetary beneficiaries.