Prime Minister Andrej Plenkovic said on Thursday the 2022 state budget was being revised, with revenues increasing by 6.6 billion kuna to 171 billion kuna, expenditures by 10.9 billion kuna to 184.7 billion kuna, and the deficit from 2.6% to 2.8%.

The draft budget revision takes into account the energy crisis, the agreement with the unions to raise the base pay as of 1 May, and health expenditures, he said at a cabinet session.

The government now forecasts that this year’s real GDP growth will be 3%, with key contributions expected from exports and gross investment in fixed capital, Plenkovic said.

The government expects inflation to accelerate to 7.8% this year due to the rise in the prices of food, oil and other inputs in farm production as well as food price trends on the global and EU markets, he added.

The revenues side is determined by economic activity growth, efforts to mitigate the inflationary pressure on households and enterprises, primarily by cutting VAT on certain products and temporarily cutting excises on certain fuels, and accelerated absorption of funds from the EU budget, the Next Generation EU instrument, and the Solidarity Fund, Plenkovic said.

The aim of the budget revision is primarily to pay hospital debts and pension indexation, he added.

Expenditures also refer to dealing with security in Europe following the aggression on Ukraine, providing for Ukrainian refugees, ensuring gas supplies, procuring buffer stocks, increasing by 4% the base pay in the public sector, and ensuring funds for mitigating energy price rises, including gas price subsidies and allowances for vulnerable buyers, Plenkovic said.

After the revision, this year’s budget deficit, according to the ESA 2010 methodology, will increase by 0.3 percentage points to 2.8% of GDP, he said, adding that this was still below the 3% required by the Maastricht criteria.

The public debt-to-GDP ratio will fall by 3.6 pp from 2021 to 76.2%.

(€1 = 7.5 kuna)