Croatia's public debt reached HRK 297.1 billion at the end of July 2019, up by HRK 11 billion or 3.8% from the end of 2018, and the increase was due to the issue of a €1.5 billion euro bond in June to secure funds for the repayment of a bond maturing in November, data from the Croatian National Bank shows.

In addition, the slight strengthening of the domestic currency, the kuna, against the euro affected the nominal expression of the debt in the kuna given that about 65% of general government obligations are in the euro or are tied to the euro, Raiffeisenbank Austria (RBA) said on Tuesday in a comment on the latest data from the Croatian central bank.

The level of public debt was also affected by a data review following the resectorisation of several statistical units into the general government sector.

General government internal debt was HRK 186.7 billion, an increase of 3.5% from the end of 2018, while external debt rose by 4.4% to HRK 110.4 billion.

RBA analysts recalled that $1.5 billion debt arising from a euro bond issued in 2009 would fall due in November and that it would be covered with funds from the euro bond issued this June. In addition, a €1 billion bond issued on the domestic market with a foreign currency clause also matures in November and the government is expected to issue another bond on the domestic market this month, which would conclude (re)financing for this year.

Considering the economic environment, solid fiscal improvements and the investment rating, a further slight narrowing of spread, especially at the longer end of the curve, is not ruled out.

For the government, borrowing under such terms means considerable savings on interest costs, which had been reduced in the last three years by nearly HRK 3 billion or 25% and reached 2.3% in 2018.

“Considering the fundamental indicators and the market environment, we believe that yields (and coupon interest rates) will reach new all-time lows,” RBA said.

As for refinancing needs, RBA analysts believe that 2020 will be somewhat less demanding and the needs easily met, estimating them at 14% of GDP or HRK 57.5 billion.

(€1 = HRK 7.45)