General government debt, which includes the debt of central government, social security funds and local government, decreased by HRK 1.8 billion or 0.6 per cent from July, but compared with August 2014 it went up by as much as HRK 16.3 billion or 6 per cent, analysts at Raiffeisenbank Austria (RBA) said in their comment on the HNB report.
The greatest contribution to the monthly decrease came from the foreign component of central government debt, which fell by HRK 2.3 billion, or 1.9 per cent, from July to HRK 115.7 billion. Central government debt reached HRK 282.3 billion in August, accounting for 98 per cent of the total public debt, the RBA analysts noted.
Owing to the decrease of the foreign component, public debt at the central government level recorded a monthly decline of 0.7 per cent or 1.9 billion, but compared with August 2014 it increased by a considerable HRK 16.6 billion or 6.3 per cent.
"Apart from the low growth rates, weak fiscal consolidation and comparatively high public debt servicing costs have remained downside risks to the level of public debt. Specifically, the latest Finance Ministry figures show that in the first nine months of this year total consolidated central government expenditure on interest payments exceeded HRK 9 billion, which is nearly 8 per cent more than at the same time last year. We, therefore, expect that public debt might reach nearly 90 per cent of the estimated GDP by the end of this year," the RBA analysts concluded.
The Croatian Chamber of Commerce (HGK) said that in the first eight months of this year public debt had increased by HRK 7.7 billion, noting that general government borrowed more on the domestic than on the foreign market. As a result, the domestic component of public debt increased by HRK 5.4 billion and the foreign component by HRK 2.3 billion.
"The gravity of the situation with public debt was confirmed by the European Commission's Autumn Economic Forecast showing that the increase in the general government debt to GDP ratio is not expected to be stopped by 2017. According to those projections, the public debt to GDP ratio in Croatia would reach 89.2 per cent this year and would rise to 91.7 per cent in 2016 and 92.9 per cent in 2017," HGK analysts said.
They said that the public debt to GDP ratio in Croatia would increase by as many as 4.1 percentage points this year, adding that such a trend would put the country at a risk of a further downgrade of its already low credit rating, while debt servicing costs would hamper possibilities of speedier growth.
(EUR 1 = HRK 7.62)