Figures provided by the Croatian National Bank (HNB) show that the country's public debt at the end of September 2020 totalled HRK 325.2 billion, 11.2% more than at the end of 2019.

The increase is mainly due to an increase in public expenditure caused by the fight against the coronavirus pandemic, and analysts of Raiffeisenbank (RBA) Croatia note that the share of public debt in GDP was 86.4%.

Compared to the end of 2019, public debt increased by HRK 32.8 billion or 11.2% and compared to August 2020 it went up HRK 462.8 million or 0.1%.

The increase in public debt in the first nine months of last year was due to expenses incurred in efforts to alleviate the crisis caused by the coronavirus pandemic which increased state needs for financing due to a strong drop in budget revenue, caused by unfavourable economic trends and the financing of job-retention measures, the RBA analysts say in a comment on the HNB figures.

They note that the increase in public debt at the end of September compared to the end of 2019 is due to an increase in both internal and external debt.

The general government debt at the end of September amounted to HRK 219.3 billion, an increase of 22.1 billion or 11.2% from the end of 2019. The increase was mostly due to an increase in the central government debt (of HRK 21.7 billion or 11.4%), which accounts for 97.1% of the total internal debt.

The external debt component at the end of September totalled HRK 105.9 billion, 10.7 billion or 11.2% more than at the end of 2019. The increase was mostly due to an increase in the central government foreign debt of HRK 10.7 billion or 11.3% compared to the end of 2019.

The analysts estimate that the needs for financing the budget deficit and financial liabilities that fall due this year will amount to around 17% of GDP.

With an anticipated budget deficit of 3% of GDP, a euro-denominated bond in the amount of 15 billion will fall due in the first quarter, after which a domestic bond in the amount of six billion kuna will mature in July.

Aside from obligations arising from domestic and foreign borrowing in the amount of some HRK 11 billion, also falling due this year are close to HRK 23 billion worth of treasury bills, including a €1 billion treasury bill maturing in May, the analysts recall.

Due liabilities arising from treasury bills will probably be met, as before, with a new issue while in the first quarter, with the euro bond falling due, the state will probably issue a bond on the international financial market, the analysts say.

Considering that interest rates are low, it is not ruled out that the state could issue a bond of a higher value than the one to fall due, the analysts say.

Share of public debt in GDP expected to fall 

The analysts expect that along with a narrowing of the budget deficit, the share of the general government debt in GDP could also start to fall this year and they also expect a high level of fiscal responsibility in the context of plans for the adoption of the euro.

(€1 = HRK 7.56)