Croatia's public debt, measured according to the ESA 2010 methodology, totalled a record HRK 329.6 billion at the end of June this year, 32.4 billion more than at the end of June 2019, while its share in GDP has grown to 85.3%.

The incease in public debt is due to the government’s response to the crisis caused by the coronavirus pandemic, which, due to a strong drop in the budget revenue caused by unfavourable economic trends and the financing of job-keeping measures, inceased the state’s need for financing, analysts at Raiffeisenbank Austria (RBA) said in a comment on the data recently published by the Croatian National Bank.

The analysts note that the drop in the budget revenue was mostly due to a write-off of income taxes, social contributions and profit tax.

The general government debt has increased by HRK 36.7 billion from the end of 2019.

At the end of June this year, the public debt to GDP ratio was 85.3%, which is 12.1 percentage points more than at the end of 2019. Compared to June 2019, the share of public debt in GDP was up by around 9 pp.

The structure of public debt at the end of the first half of this year shows that the general government’s internal debt was HRK 215.8 billion or 9.5% more than at the end of 2019. Short and long-term bonds grew as did the central government’s domestic loans, which increased by HRK 6.3 billion or 16.5%.

The external debt component reached HRK 113.8 billion, an increase of 18.9% from the end of 2019 which was mostly due to an increase in the central government’s foreign borrowing in the form of long-term bonds and loans.

RBA recalled that the government had issued HRK 15 billion worth of bonds in the first quarter of this year, which was followed by a €1.45 billion bond issue on the domestic market in early May and a €2 billion eurobond issue on the foreign market in June. Early in July, the government borrowed an additional HRK 5 billion.

This year the government has issued €4.1 billion worth of bonds on the domestic market and €2 billion worth of eurobonds in June.

The government has so far disbursed HRK 6.3 billion to help businesses keep jobs and maintain cash flow and to prevent a considerable increase in unemployment. About HRK 800 million will need to be set aside in the budget to continue these measures until the end of the year.

RBA said it was encouraging that a portion of these funds would be compensated for from EU funds, but noted that this year’s fiscal picture would be significantly marred by public debt growth and the return of the fiscal balance to negative territory.

The public debt to GDP ratio is expected to return to levels of above 85% this year, last recorded in 2016, which would end the ratio’s downward movement that has been going on without a break since 2014. RBA expects the ratio to fall again next year with the projected economic recovery and lower needs for financing.

(€1 = HRK 7.56)