Croatia expects this year's budget gap to be 3.5-3.6 percent of gross domestic product, slightly below the original target, Deputy Prime Minister Branko Grcic said on Tuesday. He said Croatia would go on a European road-show next month seeking potential buyers for around 1 billion euros ($1.2 billion) of debt. Croatia has to refinance a maturing bond worth 750 million euros.
"I believe we can collect the targeted funds and service all our financial obligations," he told Reuters. "For 2015 we plan to continue with the process of fiscal consolidation ... finally we expect the deficit will be about 3.5-3.6 percent of GDP," he said on the sidelines of an economic conference in Vienna. The government's original plan was 3.8 percent of gross domestic product.
Last year's budget gap was originally seen close to five percent of GDP but Grcic said it could come in lower. "The general deficit in 2014 could be very close to the Croatian government projection and some targets which we define together with the European Commission. It is about 4.5-4.6 percent of GDP for 2014. It is a good starting point for 2015," he said.
Croatia, the newest European Union member, is under monitoring from Brussels for its excessive deficit. The EU wants the gap reduced to below three percent of GDP by the end of 2016, a goal most analysts believe is beyond reach. In the last six years, Croatia has lost some 13 percent of economic output. Grcic said this remains a major risk for budget revenues. "I hope that we can in 2015 achieve a positive growth rate of 0.5 percent, after the six years of crisis," he said. He also feared a possible second deflation year in a row. "We have a problem with the domestic demand and that's one of the limiting factors for growth. We will try to compensate for this by stronger exports and tourism receipts," Grcic said.