Croatia will hit its budget deficit target this year despite its economy being in recession for the past three years and aims to have a budget surplus in 2015, Finance Minister Slavko Linic told Reuters on Friday.
"We firmly stick to our budgetary plans as we have responsibly planned the revenues and we keep control over expenditures. In the coming years, we aim to cut spending by one percent of gross domestic product a year and reach a primary surplus in 2015," Linic told Reuters in an interview.
"Croatia's deficit target this year is 2.8 pct of gross domestic product - the primary surplus figure Linic was referring to did not include interest payments," Reuters reported. The news agency recalls that "the centre-left cabinet, that took office last December, is aiming to cut the deficit from 4.1 percent of GDP in 2011."
Due to join the European Union in July 2013, Croatia has been in recession for the last three years. Analysts, including the central bank and the International Monetary Fund (IMF), forecast that the economy will shrink by between one and two percent this year.
The government originally said it expected growth of 0.8 percent in 2012, but Linic said it would now be happy with zero growth.
"We're running late in kicking off an investment cycle. That's why we would be happy to be around zero this year and avoid contraction. In any case we see growth in the second half of the year," Linic told Reuters.
Linic said he hoped key rating agencies would give the government credit for its policies and not decide to downgrade Croatia which is held just a notch above a speculative status, with a negative outlook.
"It would be very important. I think we're on target with fiscal consolidation. As I said, the problem remains our growth, but I believe we'll see improvement also on that front in the second half of the year," Linic told Reuters.
Croatia would not need a deal with the IMF in order to help it pursue reforms and fiscal consolidation, he added.
However, if the country was downgraded he said such a deal could become a serious option.
"We can service our debt and cover budget deficits in the coming years only through new borrowings. There is huge turmoil on the European capital markets now and the IMF could be a good partner in talks about servicing our obligations if we faced a downgrade," Linic said.
