FinMin announces redistribution of budget items to ensure funds for outlays

He said that during the government's meeting on Thursday, the cabinet would discuss how to redistribute the budget allocations in order to ensure funds for addressing the consequences of the coronavirus epidemic.

Maric recalled that some of the austerity measures had been already taken.

He added that for the monthly functioning of the expenditure side of the state budget, it was necessary to provide 13-15 billion kuna, including HRK 3.5 billion for pension allowances.

Asked how he intended to cover the budget gap and fund the government's rescue package for the economy in the corona crisis, Maric said that the budget must show its strength in responding to all challenges for the functioning of the state. "In these circumstances, nothing is easy, but mechanisms do exist," Maric said.

Considering the issue of borrowing, Maric said that currently the authorities would tap domestic markets. In parallel, steps are being taken on international markets, including contacts with partner financial institutions such as the European Investment Bank (EIB) and the World Bank.

According to some previous announcements, Croatia could count on tapping more than a billion euros from European Union funds to narrow the budget gap in the coming months.

Asked whether it would be inevitable to cut wages in the public sector, the minister said that it was necessary to pursue a dialogue with the social partners "There are several proposals in the pipeline," he added.

He said that the government was preparing a third package of measures designed to help sustain the economy during this crisis.

The minister underscored that the response of the government that has already prepared two sets of measures that are being implemented was adequate and timely when it came to the corona crisis.

The Fitch credit ratings agency, which on 1 April revised its outlook on Croatia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to stable from positive and affirmed the IDR at 'BBB-', envisaged that Croatia's economy would contract by 5.5% in 2020, from a growth of 2.9% in 2019, due to the impact of the COVID-19 pandemic and that economic activity was expected to rebound in 2021.

Better position to weather crisis than in 2008-09

Fitch believes the financial sector is in a better position to weather the crisis than in 2008-09, supported by a liquid, profitable and highly capitalised banking sector that is less reliant on cross-border lending. The capital adequacy ratio was 23.2% at end-2019 versus 15.1% at end-2008, while liquid assets to total assets were close to 35% at end-Q319.

The National Bank of Croatia (HNB) has taken a number of steps to support the currency regime, maintain liquidity in the financial system, and provide some relief to the corporate sector, says Fitch.

"The HNB has abundant foreign reserves (USD21 billion in January; 35% of 2019 GDP) and a long-track record of maintaining exchange-rate stability to help the economy withstand shocks. Moreover, inflation is low (1.5% in February) and will remain very low this and next year (averaging 0.7%)," it says among other things.

(€1 = HRK 7.6)