"The growth projection for 2016 is about 1%, and all GDP components, with the exception of government spending, will grow. Unemployment is also projected to decrease. Government budget revenues are expected to increase by about 1%, in accordance with economic growth, and fiscal consolidation will continue, especially on the expenditure side of the budget," Finance Minister Boris Lalovac said.
He added that the budget deficit, based on the ESA 2010 methodology, would be 3.9% of GDP in 2016 and 2.7% in 2017. "The adoption of these guidelines defines a positive framework for the preparation of a budget and a new economic policy for the next period," Lalovac concluded.
In the document itself, the government notes that "in the context of forthcoming parliamentary elections" the role of the guidelines is "primarily to define the direction and goals of economic policy, with emphasis on further implementation of fiscal consolidation that will not undermine the foundations of economic recovery."
The six-year trend of the real GDP decline is expected to be halted this year. Economic activity should experience a modest growth of 0.4% in 2015 and of 1% in 2016, before picking up to 1.2% in 2017 and 1.5% in 2018. The government thus slightly revised down its earlier projections, when it had forecast GDP growth of 0.5% in 2015, 1.3% in 2016 and 1.7% in 2017.
"A comparison of macroeconomic projections on the basis of which the 2015 budget was designed with those given herein indicates a slightly unfavourable trend of economic activity in all the years observed in relation to previous expectations. The biggest difference is in the projection of gross fixed capital investments, which were earlier expected to show a modest growth in 2015 and a strong growth in 2016, while now they are expected to fall in 2015 and grow moderately in 2016. In addition, compared with previous expectations, expectations for household consumption are optimistic for 2015 but pessimistic for the years to follow. Also, the pace of goods and services exports has picked up," the guidelines say.
The government says that due to accumulated fiscal imbalances and macroeconomic trends, the process of fiscal consolidation will be prolonged, and the recommendations of the Council of the EU are expected to be fulfilled a year later than envisaged, by the end of 2017.
The general government budget deficit is projected at 3.9% of GDP in 2016, 2.7% in 2017 and 2.4% in 2018.
The government stressed its determination to implement reform activities, saying that in the next medium term it would undertake structural fiscal consolidation efforts that would go beyond those defined by the Council of the EU.
Compared with the 2015 budget, budget revenues are expected to remain at roughly the same level of HRK 106.4 billion.
Budget revenues for 2016 are projected at HRK 107.4 billion, up 0.9% over 2015, while expenditures are forecast at HRK 117.9 billion, or 0.5% less than in the 2015 budget. Considering the planned budget deficit and financing needs for 2015, general government debt is expected to reach HRK 296.9 billion or 89.8% of GDP.
As a result of the further implementation of fiscal consolidation measures as part of the Excessive Deficit Procedure, general government debt should stabilise at 92.5% of GDP in 2017 and decrease to 92.4% in 2018, according to the guidelines.