The Croatian government on Wednesday endorsed a draft budgetary plan for 2023, drawn up for the first time ahead of the changeover to the euro on 1 January 2023.

Each year, the EU countries that share the euro as their currency submit draft budgetary plans to the European Commission.

The Commission assess the plans to ensure that economic policy among the countries sharing the euro is coordinated and that they all respect the EU’s economic governance rules. The draft budgetary plans are assessed as either compliant, broadly compliant, or at risk of non-compliance.

“We are adopting this document for the first time. We are already behaving like a member of the euro area and are entering the euro area because of the decisions of our government and the policy of deeper integration in the European Union,” Prime Minister Andrej Plenkovic told his cabinet.

Finance Minister Marko Primorac said that 2023 would be the first year of Croatia’s membership of the euro area.

“This is the first time for us to draw up this document. It gives an overview and projections of key macroeconomic and fiscal indicators for Croatia in 2023, and serves as a basis for the elaboration of Croatia’s 2023 budget,” said Primorac.

“In the coming weeks the European Commission will assess our draft budgetary plan as well as draft budgetary plans of other euro area member states. We will take into consideration the Commission’s assessment in the further elaboration of the budget for 2023,” he explained.

As for macroeconomic trends, Croatia is set to record growth of 5.7% in 2022, which is 2.7 percentage points higher than the initial projections made in April.

In 2023, the growth is expected to decelerate to +0.7% mainly on the back of domestic demand.

The projected growth for 2023 is 3.7 percentage points lower than the projections made in April.

The biggest generators of the growth in 2023 will be government spending and investment, according to the document.

The inflation rate in 2022 is set at 10.4%, or 2.6 percentage points more than forecast in April.

In 2023, Croatia is likely to experience an inflation rate of 5.7%.

The labour market does not expect negative movements, partly due to the shortage of workers. The employment rate is likely to rise slightly, while the unemployment rate is expected to remain the same as in  2022.

The strong growth of gross salaries, registered in 2022,  is expected to slow down. A pronounced deceleration of the rise in wages paid in the private sector is projected, while wages in the public sector are likely to rise at a faster rate.

The inflation rate is likely to offset the growth of disposable household income, reads the document.

Fiscal indicators

The general government deficit is projected to fall from 2.6% of GDP in 2021 to 1.5% of GDP in 2022 before rising to 2.3% of GDP in 2023. This meets the relevant requirement for the budget deficit in compliance with the provisions of the Stability and Growth Pact, Primorac said.

The public debt to GDP ratio stood at 79.8% in 2021 and is projected to fall to 71.3% in 2022 and further to 69% in 2023.