The public debt dropped on the year but went up on the month, by HRK 3.2 billion, HGK analysts said in a comment on figures recently published by the central bank.
The July increase in public debt was almost entirely due to an increase in the general government's domestic debt of HRK 3.1 billion.
The foreign debt rose by HRK 132.6 million, with the bond debt going down by 1.3 billion kuna. At the same time, the loan debt rose HRK 1.5 billion.
"Despite the monthly increase in public debt, it continued declining on the annual level, now already for the fourth month in a row," the analysts said.
The analysts said that the continuation of positive trends was primarily owing to more favourable budget deficit trends, with the central government budget deficit in the first seven months decreasing by HRK 3.5 billion since the same period of 2015, as well as owing to a positive impact of exchange rate changes and the financing of a part of the debt with state deposits at the HNB, deposited in previous periods.
The analysts also noted that "economic growth and increased budget revenues, along with the control of budget spending, are helping reduce the budget deficit and the need to borrow, which, along with a lower cost of borrowing... has been positively affecting the public debt dynamic and its share in GDP."
In the first six months of this year the debt-to-GDP ratio was 84.5%, 2.1 percentage points less than at the end of 2015.
In the first seven months of this year public debt was reduced by HRK 711.8 million, with the domestic debt going up HRK 5.8 billion and the foreign debt going down by HRK 6.5 billion.
All components of general government (central government, social security funds and local government) reduced their share in public debt, with central government debt continuing to account for 98.4% of the general government debt.
Stronger orientation of the state to domestic financing has to do with a temporary decision not to issue government bonds on foreign markets due to the country's low credit rating and unfavourable financing costs, the HGK anaylsts said.
They noted that figures on the budget and public debt for this year, along with the government's commitment to carry out fiscal consolidation and exit the Excessive Deficit Procedure as well as stabilise and reduce the share of public debt in GDP, offered encouraging signals regarding the continuation of the progress made.
The Finance Ministry forecast that public debt would account for 85.9% of GDP at the end of this year, which would be 0.7 percentage points less than at the end of last year.
The HGK analysts say that this will help stabilise public debt and launch the process of reducing its share in GDP towards the 60% as envisaged by the Maastricht criteria.
"The positive trend of declining public debt amidst a mild economic recovery has contributed to the debt to GDP ratio falling below 86%. However, this is still the highest percentage when compared to countries similar to us," said Zvonimir Savic of the HGK.
Gross foreign debt in late July totalled EUR 44.1 billion, an increase of EUR 699.5 million compared to the month before and a drop of EUR 5.1 billion or 10.4% compared to July 2015.
"The foreign debt, which has been going down since December 2015, continued going down on the year, and in the last four months it has been declining at two-digit rates," the analysts said.
In the first seven months of this year, gross foreign debt dropped by EUR 1.4 billion, with the debt of other monetary institutions going down the most (EUR 1 billion), followed by the general government debt (down EUR 766.5 million) and other domestic sectors (down EUR 624.4 million).
"The gross foreign debt movements this year confirm the estimate that the share of gross foreign debt in GDP should go down to below 100% by the end of this year," the analysts said.