Croatia's gross external debt has continued to decline since 2015, reaching €40.9 billion at the end of 2019, or 75.7% of GDP, but analysts predict its growth this year as a result of the crisis caused by the coronavirus pandemic.

“This year, due to the new and unexpected situation relating to the coronavirus pandemic which has caused a standstill both at global level and in the national economy, we expect a deterioration in the indicators of Croatia’s external vulnerability. With the current account balance returning to negative territory for the first time since 2013, we also expect a rise in gross external debt in nominal and relative terms,” analysts at Raiffeisen Bank (RBA) said in their comment.

They believe that the recovery of economic activity and high demand for financing will lead to a rise in external debt in all key sectors. They also expect that the strong decline in economic activity will result in an increase in the gross external debt to GDP ratio, which could reach 90%.

“On the other hand, the continuation of expansionary monetary policies pursued by leading central banks through low interest rates will partly mitigate the rise in external borrowing costs and have a positive effect,” RBA said.

The largest contribution to the reduction of external debt last year came from the reduction of external public sector debt.

In December 2019, gross external general government debt reached €12.9 billion, falling by €1.1 billion or 7.6% from December 2018.

Last year’s continued favourable fiscal movements resulted in a decline in external general government debt and a greater government focus on financing on the domestic market.

December 2019 confirmed the cessation of deleveraging by other domestic sectors, whose gross external debt at the end of last year stood at 16.7% of the total debt, the same as at the end of 2018. The share of the gross external debt of other domestic sectors in the total gross external debt increased to 40.8% from 39% at the end of 2018.

The gross external debt of the financial sector reached €3.9 billion at the end of 2019, declining by 3.3% year on year, while the share of the gross external debt of the financial sector in the total gross external debt rose to 6.6% from 6.5% at the end of 2018.