Croatia's public debt in May 2018 totalled 278.9 billion kuna (€37.6 billion), almost unchanged from the month before, but inching down by 1.5 percent or 4.2 billion kuna (€566 million).

“The year-on-year decrease of the overall public debt came as a result of deleveraging the domestic debt component, whereas foreign debt increased slightly,” Raiffeisenbank Austria (RBA) analysts said on Wednesday in their comment on the latest figures released by the central bank.

General government’s domestic debt in May 2018 was 172.1 billion kuna (€23.2 billion), or 3.2 percent down year-on-year. On the other hand, its foreign debt reached 106.8 billion kuna (€14.4 billion), or 1.4 percent up from the same month last year.

“The decrease in overall internal debt came as a consequence of the government’s debt reduction in terms of short-term debt securities and loans. On the other hand, the increase in foreign debt was caused by long-term securities,” RBA analysts said.

They added that the current fiscal policies are expected to continue, including a more modest increase in expenditures, stronger budget revenues, and a significant primary surplus. These all should cause the public debt to continue falling.

“The return of inflation, and the local currency kuna gaining ground against the euro are additional factors which should contribute to the reduction of public debt-to-GDP ratio,” they said.

Another positive factor is the successful summer 2018 tourist season, expected to bring in substantial income to the state budget, which, coupled with limiting growth of expenditures below GDP growth, should help further reduce public debt, RBA analysts said.

According to most recent Eurostat data released in July, in Q1 2018 Croatia’s public debt-to-GDP ratio was 76.2 percent, or 6.4 percentage points down from Q1 2017, which was the third largest year-on-year drop in the European Union.

Croatia’s government had recently adopted its 2019-21 economic and fiscal policy guidelines, which plan the public debt-to-GDP ratio to drop from the projected 74.5 percent in 2018 to 71.5 percent in 2019. It is projected to drop further to 68.5 percent in 2020, and again to 65.4 percent in 2021.

(€1 = 7.42 kuna)

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