The situation this year is good for Croatia. The fiscal products are good, the foreign results are not as good as we expected, but they are not particularly problematic, Deppler told Hina at a conference of the IMF and the World Bank that was taking place in Washington.
Deppler discussed the macroeconomic situation in Croatia and the fiscal and monetary measures with Croatian Finance Minister Ivan Suker and Croatian National Bank Governor Zeljko Rohatinski on Friday.
The IMF is not worried about the present situation in Croatia. We're looking at structural reforms that need to be done in order to move forward. There are tough decisions to be made, but all those decisions will be made after elections in Croatia, scheduled for November.
This is a certain weakness in terms of what will happen after the elections, he added.
Asked to specify the "tough decisions" that would have to be made, Deppler said that there were a certain number of privatisation issues that the government would have to address, the type of fiscal policy that would be conducted, and the like.
In this context, Deppler said that the Croatian central bank, focused on keeping the stable exchange rate of the domestic currency the kuna, was faced with an inflow of capital and that more than just fiscal policy was needed to curb the risks of capital inflow in the private sector.
There is also the current problem of the spending structure, given the disproportionately large share of spending from money transfers, where a turn to investment-type spending is necessary, he said.
Asked about the problem of the large foreign debt share in the Gross Domestic Product, Deppler said that it was a part of the problem of the balance of payments deficit.
I think the public sector is quite responsible here, but like in all other countries there is a great increase in borrowing in the public sector. That's hard to control and that's why fiscal policy is so important, he said.
In the World Economic Outlook, published before the conference, the IMF projected that the Croatian economic growth rate in 2007 would be 4.7 per cent, while in 2008 it was expected to decline to 4.5 per cent. According to figures from the Croatian Central Bureau of Statistics, Croatia's GDP rose 4.8 per cent in 2006.
The inflation rate in 2007 was forecast at 2.7 per cent and in 2008 at 2.8 per cent. The balance of payments deficit was expected to reach 8.3 per cent in 2007, but should drop to 7.8 per cent in 2008.
In the region of Southern and Southeastern Europe, in which the IMF also included Bulgaria, Romania and Malta, the projected growth rate in 2007 was 6 per cent, 0.7 percentage points down from 2006, and 4.9 per cent in 2008.