April 26, 2018 / 1:29 PM / a year ago

Croatia govt outlines plans to cut debt, improve investment environment

ZAGREB (Reuters) - Croatia aims to reduce its public debt to 66 percent of economic output by the end of 2021, from 78 percent now, by cutting taxes and business costs, digitalising public services and merging courts, the government said on Thursday.

FILE PHOTO: Croatia’s Prime Minister Andrej Plenkovic arrives at a European Union leaders summit in Brussels, Belgium, March 22, 2018. REUTERS/Francois Lenoir

The plans were outlined in an annual document on economic reforms that Croatia must submit to the European Commission by the end of April. They are partly aimed at making the country a more attractive place to invest.

“Strengthening the competitiveness of our economy, a better link between education and labour market needs and the sustainability of public finances are three pillars of our efforts,” Prime Minister Andrej Plenkovic told a cabinet session.

The debt-reduction plan is a key element in Croatia’s effort to prepare for adoption of the euro. Public debt has been falling for the last three years, from more than 85 percent of gross domestic product.

“Our goal is to reduce the public debt by three percentage points a year,” Finance Minister Zdravko Maric said.

Croatia has often been criticised by analysts and investors for the sluggishness of reforms to its investment environment, burdened by red tape, high taxes and a slow judiciary.

“We will finalise preparations for the next round of tax cuts by this summer to make them possible from the beginning of 2019,” Maric said without elaborating. A set of tax reductions in 2017 were largely focused on profit and income taxes.

“I’m afraid these are reforms of rather low intensity with pretty moderate ambitions, which is visible in projected growth rates,” said Damir Novotny, an economic analyst.

He called it a “politically motivated plan due to a rather thin parliamentary majority”. The ruling coalition of conservatives and liberals has the support of 77 deputies in the 151-seat parliament.

The government is forecasting economic growth of 2.8 percent this year, the same as last, and a general budget deficit of 0.5 percent of GDP.

The deficit is projected to come to 0.4 percent of GDP next year, be balanced in 2020 and climb to a surplus of 0.5 percent the year after that. Growth is seen at 2.7 percent in 2019 and 2.5 percent in 2020 and 2021.

“Our neighbours and other European Union members in central and southeastern Europe are eyeing higher growth rates than Croatia,” Novotny said.

Reporting by Igor Ilic; Editing by Andrew Roche

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