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Central bank deputy governor says reducing deficit only choice

ZAGREB, Feb 12 (Hina) - There is no other choice but to reduce the budgetary deficit, Croatian National Bank (HNB) Deputy Governor Relja Martic said in parliament on Tuesday, presenting a report on the financial situation, the stability of prices and the implementation of the monetary policy in the first six months of 2012.

Growth in Croatia has been limited for five consecutive years by unfavourable trends in the region and even more by the poor competitiveness of the national economy, a poor business environment and lack of investment, said Martic.

Growth is further slowed down by the reduction of the fiscal deficit, Croatia's public debt is nearing the limit of 60 per cent of GDP and paying interest is increasingly harder, notably after the latest credit rating downgrade.

"The terms and possibilities of financing the budgetary deficit are harder and questionable. There's no other choice but to reduce the budgetary deficit, not in revenues because they can hardly be increased," said Martic.

He said the only swifter way out of the crisis was in reforms and measures that would improve the business environment and eliminate obstacles as well as create conditions to attract private capital, primarily into export activities.

Martic said the monetary policy would continue to guarantee a relatively stable exchange rate and a relatively low inflation, with high liquidity and a structural liquidity surplus in order to step up credit and investment growth.

The deputy governor went on to say that the central bank had revoked many restrictive measures, reducing banks' regulatory costs.

He said the primary kuna liquidity was very high, that the structural liquidity surplus was around HRK 6 billion and that if necessary, the HNB would release additional liquid funds.

Martic said that after four years of crisis, banks had more and more trouble collecting their claims and that they were very cautious about new risks. Potential borrowers are also hesitant.

"An even bigger problem is that companies in Croatia are generally poorly capitalised and without their own funds to participate in such projects," he said.

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