According to Eurostat and Croatian Bureau of Statistics figures, the consolidated general government deficit in 2012 was HRK 16.35 billion, or five per cent of gross domestic product, while the consolidated general government debt was HRK 183.27 billion, or 55.5% of GDP.
The figures show that Croatia will soon enter the Excessive Deficit Procedure, a European Union mechanism designed to return member countries' budget deficits below three per cent and their public debts below 60% of GDP, as stipulated by the Maastricht criteria.
It is not surprising that the budget deficits in the preceding years are higher according to the European System of Accounts (ESA95) because they include liabilities that were not included previously, such as the cost of bailing out the shipyards, said Zdeslav Santic, chief economist at Splitska Banka.
Until now, Croatia kept state finance statistics according to the International Monetary Fund's Government Finance Statistics system, which is different from ESA95. According to the latter, the budget deficit and the public debt are higher because of a more comprehensive coverage of general government sectors and financial instruments.
Santic said the ESA95 system was comparable on the EU level and the most relevant one for financial markets and investors.
Although Croatia' public debt is below the limit of 60 per cent, in comparison to the countries in the region to which it is most similar in terms of risk premium, such as Romania and Bulgaria, Croatia's public debt is markedly higher than theirs but also markedly lower than the EU average, said Santic.
The average public debt in EU28 was 85.1% of GDP in 2012, while the average budget deficit was 3.9%.
Santic said Croatia's budget deficit for 2013 would be higher than last year because of the cost of bailing out the health sector, adding that room must be found to slash expenditures.
He said there had been no turnaround in fiscal policy since 2008 and that the question was whether Croatia had time to carry out reforms. He did not exclude the possibility of pay cuts in the public sector next year.
Hypo Alpe Adria Bank analyst Hrvoje Stojic said fiscal consolidation in 2012 "was very thin" and mainly carried out on the revenue side of the budget.
Erste Bank macroeconomist Alen Kovac said a consolidation of public finance was imperative, otherwise Croatia would soon be in the Excessive Deficit Procedure also in terms of the public debt.
He expected growing pressure from the European Commission to carry out the consolidation, saying this was an opportunity to carry out "some reforms."
Speaking of room to slash expenditures, Kovac said they were defined, including the cost of servicing the public debt and the cost of EU membership. He said, however, that a "manoeuvre" was necessary to prevent a marked slashing of budget beneficiaries' material rights.
In terms of revenues, he mentioned a VAT rate increase to 13 per cent on some goods and services, a better tax discipline, and visible efforts to carry out part of the consolidation through an additional tax burden.