IMF Expects Croatian Fiscal Tightening to Continue, Wiegand Says

Croatia took a “significant step” toward fiscal consolidation and further efforts should spur confidence and maximize gains from European Union membership, an International Monetary Fund official said.

“The Excessive Deficit Procedure for Croatia is moving forward, the EU accepted the revised 2014 budget, and I believe fiscal consolidation will continue in 2015 and 2016,” Johannes Wiegand, the IMF head of mission for Croatia, said in an interview in Dubrovnik, Croatia.

The European Commission said on June 2 Croatia has taken “effective action” in reducing the budget deficit for this year in line with the bloc’s recommendations. Prime Minister Zoran Milanovic’s government, whose debt load is lower than for the euro area, has vowed to cut the deficit to below the EU limit of 3 percent of GDP in 2016 from 4.4 percent this year.

The other “key component” in consolidation is structural policies, Wiegand said.

It “would be good if overall government measures would include reform of local government, as it is tied to health reform, investment issues, as well as the system of subsidies and social transfers,” Wiegand said.

He also reiterated Croatia’s funding structure is stable as the Croatian government covers about 80 percent of its needs from domestic sources.

“It’s hard for me to see circumstances in which Croatia would be cut off from funding in general,” he said.

The government expects the economy to stagnate this year, while the EU predicted a 0.6 percent contraction, the sixth annual drop in a row. The IMF said in May that the economy will contract “almost 1 percent” this year due to low exports and subdued domestic demand.

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