18th Position Paper of the Fiscal Policy Commission on the Draft Annual Report on the Execution of the State Budget of the Republic of Croatia for the First Semester of 2022
At its 13th session held on 5 October 2022, the Fiscal Policy Commission (hereinafter: the Commission) discussed the Draft Semi-Annual Report on the Execution of the State Budget of the Republic of Croatia for the First Semester of 2022 adopted by the Government of the Republic of Croatia on 29 September 2022.
In 2021, the Croatian economy saw unexpected growth which continued throughout the first half of 2022 despite intense global shocks and pressures in terms of global disruptions and blockages in the supply chains, increasing energy prices and very high and growing inflation. Strong (real and nominal) economic growth had a favourable effect on Croatian public finances through the growth of income and decrease of the public debt burden (share in GDP). The Co
mmission warns that in the upcoming period when the risk of deceleration of economic activity and of a recession will rise abruptly, the Croatian economy might be faced with numerous limitations such as a low potential growth level, pronounced price pressures on the economy and on the citizens’ standard of living as well as monetary policy tightening. Faced with these challenges, fiscal policy should be as targeted and as selective as possible so as to prevent additionally increasing mid-term inflationary pressures, bearing in mind at the same time the sustainability of public debt because, in a situation of a contractionary monetary policy, loans taken on by the general government might become much more expensive and thus become a serious problem. The Commission emphasizes the need to continuously monitor Croatia’s fiscal position so as to allow fiscal policy to adjust in uncertain and changed circumstances and ensure the continuity of a responsible fiscal policy for the purpose of long-term sustainability of Croatian public finances.