By Igor Ilic
ZAGREB, May 14 – Croatia aims to launch its bid to join the euro zone within two months and will commit to further modernising its economy and cutting debt as part of the accession process, Finance Minister Zdravko Maric said on Tuesday.
That process is expected to take the youngest member of the European Union at least four years to complete. The first formal step will be to enter the bloc’s waiting room, the European Exchange Mechanism (ERM-2), for a minimum of two years during which Croatia’s kuna currency must prove its stability.
Croatia hopes to join the ERM-2 in 2020.
“In a formal letter of intent to our partners in the euro zone, which I expect to be sent within the next two months, there will be commitments we will deliver before entering the ERM-2,” Maric told Reuters in an interview.
“They will include preserving macroeconomic stability and structural reforms.” That could drive a cut in the country’s risk premium, he said.
Croatia’s state budget has been in surplus for the past two years and it expects a deficit of 0.3 percent of gross domestic product (GDP) this year.
Maric said the government’s projections were “always conservative” and “we will do everything possible to beat our target this year again.”
Projections also included further potential payments of state guarantees for troubled shipbuilding group Uljanik. “A 1.4 billion kuna ($210 million) payment is still possible. These figures are fully included in our plans,” Maric said.
Any fiscal surplus would be used to further cut the public debt, which stood at 74.6 percent of GDP at the end of 2018. He said Croatia had cut annual interest payments on debt from 3.5 percent of GDP in 2015 to 2.3 percent last year.
Croatia was eyeing an international bond issue “maybe even before the summer. A domestic bond will follow after that,” Maric said.
The government has forecast an economic expansion of 2.5 percent this year, but without stronger input from investments, officials and analysts see its longer-term growth potential at no more than 2 percent.
Investor complaints about excessive red tape and changing regulations have been a common theme, and Maric said the government would step up efforts to improve the business climate, making public administration and state-owned firms more efficient and user-friendly.
Maric also said that in coming months the government would consider options for tax cuts in 2020. In the last two years Croatia has cut corporate tax, income tax and value added tax on some products.
($1 = 0.8918 euros)
($1 = 6.6090 kuna) (Reporting by Igor Ilic; editing by John Stonestreet)