The EU's Economic and Financial Affairs Council (ECOFIN) closed excessive deficit procedures (EDP) for Croatia and Portugal at a meeting in Luxembourg on June 16, the ECOFIN said in a press release.

Croatia has been subject to an excessive deficit procedure since January 2014, when it was found to be in breach of both deficit and debt criteria. The European Commission (EC) recommended that the European Council remove Croatia from the EDP in its European Semester Spring Package published on May 22, thanks to the improvements in the Adriatic country’s budget metrics.

“Croatia will continue reducing its public debt by implementing a set of measures,” Finance Minister Zdravko Maric said on June 16, commenting on the ECOFIN decision, according to Hina.

Zagreb is targeting a general government deficit of 1.6% of GDP in 2017, according to the 2017 budget. Croatia’s consolidated general government deficit fell to HRK2.78bn or 0.8% of GDP in 2016 from HRK11.4bn or 3.4% of GDP in 2015.

The EC forecasts deficit to rise to 1.1% of GDP in 2017, and to fall back to 0.9% of GDP in 2018.

The Croatian government aims to reduce public debt to 81.5% of GDP in 2017. Public debt is targeted to further decline to 78.6% of GDP in 2018 and 75.3% in 2019. 

Croatia's gross government debt to GDP ratio peaked at 86.7% in 2015 and fell to 84.2% in 2016. Croatia's public debt fell by 0.9% m/m and 1.6% y/y to HRK286.3bn (€73.4bn) in January.

The EC projects government debt to decline further to 79.4% of GDP in 2018, backed by strong nominal GDP growth.

In its country-specific recommendations, the EC advised on May 22 that Croatia pursue its fiscal policy in line with the requirements of the preventive arm of the Stability and Growth Pact, which implies keeping to its medium-term budgetary objective in 2018. Croatia should reinforce budgetary planning and the multiannual budgetary framework, including by strengthening the independence and mandate of the Fiscal Policy Commission by September 2017, according to the Commission.