Croatian public debt in GDP continues to go down.
Matej Hittner, President of the Centre for Public Policy and Economic Analysis (CEA)
The newly released report from the Croatian National Bank (HNB) states the total (public) debt at the end of March 2024 amounted to 63.3% of GDP, which is a decrease of 5.3 percentage points on an annual basis from 68.6% of GDP at the end of March 2023.
This trend is highly encouraging from a macroeconomic perspective, as lower public debt will reduce the proportion of interest payments within overall public spending. Politically, it positions Croatia closer to compliance with the Maastricht treaty, which stipulates that EU member states should aim for a debt-to-GDP ratio below 60%. Alas, lowering the debt-to-GDP ratio will contribute to helping Croatia improve its credit rating, as Croatia aims to enter the (lower) A category of credit rating for the first time in history.
Furthermore, the decrease in debt to GDP will also reflect positively on economic freedom scores, such as the Heritage Foundation’s Index of Economic Freedom which the Centre for Public Policy and Economic Analysis regularly monitors and analyzes. For example, Croatia entered the list of TOP 40 countries in terms of economic freedom.
Similarly, the methodology of economic freedom developed by the Fraser Institute measures public debt in terms of GDP. It also measures how public policies and institutions support economic activities and interactions within a country. One of the critical components of economic freedom is fiscal health, which includes factors like government spending, budget balance, and public debt levels. A lower debt-to-GDP ratio translates into a better score for fiscal health, reflecting the government’s ability to manage its finances responsibly. A lower debt-to-GDP ratio suggests a more sustainable fiscal position, which can attract foreign investment, boost economic confidence, and provide the government with more flexibility to respond to future economic challenges.
Maintaining and further improving this trend will be crucial for Croatia’s long-term economic stability and competitiveness. Policymakers should continue to focus on strategies that support debt reduction, such as:
Efficient Public Spending: Prioritizing expenditures that yield high economic returns and cutting down on non-essential spending.
Structural Reforms: Implementing institutional reforms that enhance productivity, competitiveness, and the overall business environment.
Croatia has in recent years made significant improvements in its tax policy, entered the high-income/developed country categories of the IMF and World Bank, became a member of the Eurozone and Schengen area, and is currently aiming for membership in the prestigious OECD, which could happen in 2026.
As Croatia moves forward, its continued commitment to reducing its debt burden will play a vital role in shaping its economic future. This progress not only strengthens the country’s fiscal health but also paves the way for improved economic freedom, ultimately contributing to a more resilient economy.