ZAGREB, Sept 17 (Hina) - The Croatian government and the mission of the International Monetary Fund (IMF) drafted a new letter of intent after the second round of review of the implementation of a stand-by arrangement, the head of the
IMF mission to Croatia, Hans Flieckenschild, said on Wednesday.
ZAGREB, Sept 17 (Hina) - The Croatian government and the mission of
the International Monetary Fund (IMF) drafted a new letter of
intent after the second round of review of the implementation of a
stand-by arrangement, the head of the IMF mission to Croatia, Hans
Flieckenschild, said on Wednesday. #L#
Members of the IMF mission, who have paid a two-week visit to
Croatia, are preparing a report on their visit, while the Board of
the IMF Executive Directors is to consider both documents, namely
the draft letter of intent and the report, in late October, if it
receives all data on the situation in the country's current
account, Flieckenschild said at a news conference in Zagreb.
The second review could be closed by 12 November and after that the
third and final review would ensue in compliance with the existing
stand-by deal between Croatia and the Fund. This step is likely to
be taken in late November after parliamentary elections in
Croatia.
Flieckenschild said the letter of intent would include updated
economic information and indicators, with major changes concerning
the data on a deficit in the current account.
Being aware that the projected deficit of 3.6 percent of the Gross
Domestic Product would not be achieved in this year, we modified the
percentage to 5.5 percent during our first review in May this year.
Now it is further modified to six percent of GDP, the mission's head
explained.
He added that the country's external debt, which currently
accounted for slightly over 70 percent of GDP, would reach 68
percent by the end of the year, which was the same level as in 2002.
This change could be expected thanks to favourable economic trends
and the fact that there was no need for incurring any new large debts
abroad.
According to the latest estimate, the annual rise in GDP for this
year will be 4.7 percent instead of the previously projected 4.2.
Speaking about the external debt, which could reach 21 billion
dollars by the end of this year, Flieckenschild said that in 2002 it
rose from 58 to 68 percent of GDP, with a half of this increase being
ascribed to differences in foreign exchange rates and the
depreciation of the dollar.
The debt has also risen because of the financing of a deficit in the
current account, in which the situation worsened due to some other
occurrences which did not happen in past years.
The IMF official said the third quarter had always shown a positive
balance in the current account, and it was likely that a surplus
would be again in the current account after the successful tourist
season. Furthermore, it is important that both executive and
monetary authorities are aware of the problem, and that the
Croatian National Bank applied measures at the start of this year
and this September, too, he added.
He went to say that Croatia needed structural reforms so as to
encourage export.
Flieckenschild said Croatia's macroeconomic indicators were
favourable, with a rise in the economic growth higher than
expected. Thus, the IMF would correct its projection of the annual
4.2 percent rise to 4.7 percent rise in Croatia's GDP.
An inflation rate is still low with the two-percent annual rate, the
exchange rate of the kuna stable an the fiscal situation improving.
The state revenues and spending are as expected, and a deficit in
the budget is likely to be 4.6 percent of GDP as planned,
Flieckenschild said.
Asked about the IMF's suggestion to Croatian monetary authorities
to loosen a little more the exchange rate of the kuna, he answered
that the IMF executive directors supported that idea and suggested
to the Croatian central bank to allow greater fluctuation of the
national currency, but the HNB maintained that the current
fluctuation was sufficient.
During the past two weeks the IMF delegation reviewed the
implementation of the stand-by agreement, which Zagreb and the IMF
concluded in February this year, and talked with its interlocutors,
i.e. officials of the HNB, government ministers, trade union
leaders and representatives of some other institutions, on further
expectations in the application of the arrangement.
(hina) ms