The Croatian Bureau of Statistics issues the general government deficit and debt data based on the figures reported in the Excessive Deficit Procedure Report (the October Notification) for the period from 2017 to 2020 according to the European System of National and Regional Accounts (ESA 2010) methodology and the Manual on Government Deficit and Debt.
The fiscal surveillance of the European Union over the Member States is based on the Excessive Deficit Procedure Report. The Maastricht Treaty defines two main criteria of the fiscal surveillance: a deficit-to-GDP ratio and a debt-to-GDP ratio must not exceed the reference values of 3% and 60%, respectively.
This EDP Report is submitted to the European Commission (Eurostat) twice a year – at the end of March (called the April Notification) and the end of September (the October Notification). The EDP Report refers to the last four-year period and for the current year in which current-year data are based on the Ministry of Finance forecast. National statistical offices are obliged to publish the EDP Report on their web sites.
In 2020, the consolidated general government deficit amounted to -27 851 million kuna, or 7.4% of GDP, while in 2019, the surplus amounted to 1 202 million kuna, or 0.3% of GDP. In 2018, the surplus amounted to 864 million kuna, or 0.2% of GDP, while in 2017, the surplus was equal to 2 804 million kuna, or 0.8% of GDP.
The consolidated debt at the end of 2020 amounted to 330 229 million kuna, or 87.3% of GDP, while in 2019, it amounted to 293 210 million kuna, or 71.1% of GDP. In 2018, the debt amounted to 286 584 million kuna, or 73.3% of GDP, while in 2017, it was 285 425 million kuna, or 76.7% of GDP.
The deficit of -21 982 million kuna, or 5.8% of GDP, in the achieved working balance of the State Budget had a big impact on the deficit amount in 2020, which is a deterioration of 22 032 million kuna compared to the previous year. The reason for such a high deficit of the working balance of the State Budget is the decline in overall economic activity due to the COVID-19 pandemic, which primarily had a significant impact on the decrease in tax revenues and social contributions. On the other hand, the Government of the Republic of Croatia has taken significant measures on the expenditure side of the State Budget in order to preserve jobs at employers’ whose economic activity has been disrupted by special circumstances, as well as in order to finance costs to preserve the health of citizens.
In 2020, taxes on production and import were collected in the amount of 70 704 million kuna, which was a decrease of 13.0% compared to 2019, while the current taxes on income and wealth were collected in the amount of 24 719 million kuna, which was 7.4% lower than in the previous year. Furthermore, net social contribution revenues amounted to 45 069 million kuna, which was 4.8% less than in 2019.
National accounts data on taxes and social contributions are data on government cash receipts adjusted to the concepts of ESA in a way that time-adjusted cash (TAC) method is implemented.
The biggest impact on generating deficit in 2020 compared to previous years, in addition to the State Budget working balance, was caused by the significantly worsened financial result of extrabudgetary users and public corporations compared to 2019.The impact on generating deficit was also caused by an increase in other expenditure categories, which also include subsidies payable, social benefits other than social transfers in kind and compensation of employees.
Furthermore, an increase in investments was recorded, which amounted to 21 301 million kuna in 2020, which was 19.3% higher than in 2019. Payments for guarantees called, debt assumptions and capital injections in 2020 were recorded in the amount of 942 million kuna, which influenced an increase in deficit as well as inclusion of stimulating housing expenditures.
In 2020, paid interests amounted to 7 404 million kuna, which was a decrease of 17.5% compared to 2019, when they amounted to 8 972 million kuna.
Compared to the April Notification, the government deficit/surplus for the period from 2017 to 2020 has been revised and the surplus was 8 million kuna higher in 2017, while in 2018, the surplus was 2 million kuna higher, in 2019, it was 3 million kuna higher and in 2020 the deficit was 352 million kuna higher or 0.1% of GDP. The aforementioned revisions resulted mainly from updating of data sources, updating of the sector classification and other minor methodological changes.
Additionally, in accordance with the Manual on Government Deficit and Debt, the general government coverage after the April Notification included certain public units that provide ancillary government services.
In 2020, the primary deficit of the general government amounted to -20 447 million kuna, or 5.4% of GDP, which was 30 621 million kuna lower than in 2019.
The general government debt increased in the whole series, compared to the data published in the last EDP Report from April 2021, due to the inclusion of the cash and deposits instrument in the government debt, which includes unallocated contributions from second pension pillar held in a temporary state budget account. Furthermore, the debt was revised in 2020 due to further alignment of the debt coverage with the ESA 2010 debt assumption criteria. Thus, the consolidated general government debt (the so-called Maastricht debt) at the end of 2020 amounted to 330.2 billion kuna, which was 37 billion kuna, or 12.6% higher compared to the debt level at the end of 2019. Of that amount, 33 billion kuna was accounted for by net borrowing, while the rest was accounted for by the depreciation of the kuna against the euro.
Compared to the April 2021 Notification, the recently revised series of annual GDP recorded a slightly higher growth than the revised series of the general government debt, which led to a decline in the share of Maastricht debt in GDP in the whole series, compared to the data from the April notification. However, there was no change in the trend. Therefore, a decrease in the share of Maastricht debt in GDP was still visible after 2013, and in 2020, this share increased due to the crisis caused by the COVID-19 pandemic. Thus, the share of the general government debt in GDP increased by 16.2 percentage points in 2020 compared to 2019, amounting to 87.3%. On the one hand, it was caused by a greater need for government borrowing, and on the other, by a decline in GDP due to reduced economic activity.
1 REPORTING OF EXCESSIVE GOVERNMENT DEFICIT/SURPLUS AND DEBT LEVELS AND PROVISION OF ASSOCIATED DATA
2 COMPARISON OF OCTOBER 2021 NOTIFICATION WITH APRIL 2021 NOTIFICATION OF GOVERNMENT DEFICIT AND DEBT LEVELS
The general government sector (S.13) includes all institutional units that are other non-market producers, whose output is intended for individual and collective consumption and mainly financed by compulsory payments made by units belonging to other sectors and/or all institutional units principally engaged in the redistribution of national income and wealth.
The general government consists of three sub-sectors: the central government (S.1311), the local government (S.1313) and the social security funds sub-sector (S.1314). The central government comprises departments of government administration and other central government agencies, authorities and institutions whose jurisdiction covers the entire economic territory, apart from the administration of the social security funds sub-sector. It also includes non-profit institutions that are controlled and chiefly financed by the central government. The central government in this EDP Report includes central government budgetary users, extra-budgetary users (the Croatian Waters, the Fund for Environmental Protection and Energy Efficiency, the Croatian Roads, the Croatian Privatization Fund until 31 March 2011, the Agency for Management of the Public Property until 30 September 2013, that is, the Restructuring and Sale Center and the State Property Management Administration as its legal successors), the Croatian Railways Infrastructure, the Croatian Radio and Television, Hrvatske Autoceste d. o. o., the Rijeka-Zagreb Motorway together with the Croatian Bank for Reconstruction and Development, the State Agency for Deposit Insurance and Bank Resolution, the Croatian Energy Market Operator and Croatian Regulatory Authority for Network Industries, which have been reclassified into the government sector (the central government).
The local government sector comprises local and regional self-government units as well as all local budget users. Included in the local government sector are also non-profit institutions controlled and chiefly financed by local authorities. The social security funds sub-sector includes all public sector institutional units whose main activity consists in administrating funded social insurance systems. Therefore, it consists of the Croatian Health Insurance Fund, the Croatian Institute for Pension Insurance and the Croatian Employment Institute.
The government deficit (surplus) means the net borrowing/net lending (EDP B.9) of the general government sector (S.13) defined as a difference between a total revenue and a total expenditure.
According to the new ESA 2010 methodology, no further adjustments are made in the treatment of the interest calculation of flows relating to swaps and forward rate agreements, which means that EDP B.9 is now aligned with B.9 according to the ESA 2010.
The general government debt is defined as gross debt nominal value at the year end. The debt refers to the units classified in the general government sector (S.13) according to the sector classification and consists of the following financial instruments: currency and deposits (AF.2), debt securities (AF.3) and loans (AF.4), as defined in the ESA 2010.
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