Croatia and the International Monetary Fund agreed the former Yugoslav republic's budget deficit target in 2005 at 4.2 percent of gross domestic product, state television reported on Friday. According to Zagreb's IMF stand-by deal, the budget deficit target for this year was originally set at 3.7 percent of GDP but due to budgetary difficulties and delays in reforms it had to be revised.
"We had problems with revenue collection in the first months of the year, but it has improved recently. If the tourist season continues as it started, we will have no problems with revenues," Finance Minister Ivan Suker told reporters on the sidelines of an international financial conference in the Croatian summer resort of Dubrovnik.
The agreement with the IMF will keep on track the stand-by deal aimed at fiscal consolidation and stabilisation of high foreign debt.
The IMF board of directors is expected to approve by early September the first review of Croatia's 20-month $140 million stand-by arrangement, which runs until next April, and is aimed at reassuring foreign investors of the government's commitment to reforms.
The government this month will seek a parliamentary approval of a revised 2005 budget which should cut spending and subsidies by 1.0 billion kuna ($165.4 million) and reallocate part of those funds for pensions and other costs, so that the deficit at the end of the year meets the revised target.
Largely due to underperformance in collection of revenues, the government missed the last year's deficit target of 4.5 percent of GDP and ended up at 4.9 percent.
The IMF recommended Croatia, an EU candidate which hopes to start accession talks this year, to tackle four areas to improve fiscal consolidation - change the pension indexation formula, reform the ailing health sector, cut subsidies to loss-making companies and speed up privatisation.
The IMF recently said it was satisfied with the efforts Croatia was making to stabilise its foreign debt, which slightly surpassed 80 percent of its GDP and reached 23.3 billion euros ($28.16 billion) at the end of April.