October 1, 2018 / 11:34 AM / 8 months ago

Croatia seen running budget surplus over next two years -major bank

ZAGREB, Oct 1 (Reuters) - Croatia is expected to run a general budget surplus over the next two years after achieving a similar result last year for the first time since it applied European Union methodology, a major local bank said on Monday.

“We expect the fiscal consolidation to surpass expectations this year again and we see a general budget surplus at 0.5 percent of gross domestic product. Next year we expect a surplus to rise to 1.0 percent of GDP,” Addiko bank’s chief economist Hrvoje Stojic said on Monday.

Last year Croatia ran a budget surplus of 0.8 percent of GDP. In the first half of this year a surplus amounted to 0.4 percent of GDP. The government officialy still targets a general budget gap for 2018 of 0.5 percent of GDP, but Finance Minister Zdravko Maric recently said a better outcome was possible.

Presenting Addiko bank’s traditional annual macroeconomic forecast, Stojic said that positive fiscal trends were likely to push Croatia’s public debt towards 70 percent of GDP at the end of 2019. At the end of last year Croatia had a public debt of 78 percent of GDP.

The Croatian government hopes to enter in 2020 the ERM-2, an exchange rate mechanism that serves as a preparation for the euro zone membership. A candidate country must remain in ERM-2 for at least two years during which time the exchange rate must fluctuate only within agreed limits.

The government wants Croatia to become a euro zone member in the next six to seven years.

Stojic said that Croatia’s public debt could fall towards 60 percent of GDP by 2022. That debt level is one of the major criterion for euro zone membership.

Reporting by Igor Ilic Editing by Richard Balmforth

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