Croatia will not be able to meet a budget deficit target agreed with the European Commission for this year because of high public spending, Prime Minister Zoran Milanovic said on Friday (1 August).
Croatia, in its sixth year of recession, agreed with the European Union’s executive to reduce its deficit to 4.5% of national output this year, down from around 5% last year.
“We will do our best to keep things under control, but the budget gap will be somewhat higher than planned and agreed with the European Commission,” Milanovic said in an interview for a local news provider Media Servis posted on its website and to be broadcast later on Friday.
“There are simply too many expenditures and I think no one can say we are squandering money. Many people were made to believe the state can look after everything … We are not poor but our spending is simply structured in the wrong way.”
The EU, which Croatia joined last year, initiated in January an excessive deficit procedure (EDP) against Croatia in a push to ensure the former Yugoslav republic brings its budget deficit and public debt back into line with EU requirements.
Brussels wants Zagreb to reduce the gap to below 3% of national output by the end of 2016.
However, most economists are sceptical that it can reach this goal due to the slow pace of structural reforms aimed at making the public administration cheaper and more efficient and at turning the private sector into the main engine of growth.
Croatian Finance Minister Boris Lalovac said this week he planned to revise this year’s budget in the autumn to reflect lower than expected tourism revenues and a decline in general economic activity.
Croatia has lost about 13% of its overall output since 2008.
Under the “two-pack”, adopted in 2012, EU member states must submit their draft budgets to the European Commission, which subsequently considers the proposals and makes necessary recommendations.