Croatia: Government approves 750 mln eur syndicated loan - GDP to grow 1.5 pct in 2011, 2 pct in 2012

Croatia will return to mild growth from 2011 after two years of economic decline, offical documents showed on Wednesday as the government approved a new loan to finance growing budgetary obligations. The documents containing fiscal projections were prepared for a cabinet session on Wednesday. They forecast gross domestic product to rise 1.5 percent next year, 2 percent in 2012 and 2.5 percent in 2013, by which time Croatia hopes to join the European Union.

Its economy, based in the past decade on state investments, credit growth, private consumption and tourism, contracted 5.8 percent in 2009 and is expected to decline another 1.5 percent this year. Finance Minister Ivan Suker told the cabinet the budget deficit would remain at around 4.1 percent of gross domestic product in 2011 -- an election year when major spending cuts are unlikely -- but was expected to fall to 2.8 percent in 2012 and just 1.5 percent of GDP the following year.

Reluctant to enforce tough austerity measures, Prime Minister Jadranka Kosor's government in August widened its 2010 budget deficit target to 4.2 percent, from the originally planned 2.5 percent. Faced with underperforming revenues and an economy still in recession, the government on Wednesday approved a syndicated loan of 750 million euros ($1.04 billion) from eight local banks to help refinance the maturing budgetary obligations.

"These funds will be used to refinance the outstanding obligations from previous years," Suker told a cabinet meeting. The loan would carry an interest rate of 4.15 percent over six-month Euribor. The first half of the loan would mature in September 2013 and the second in 2014. A government source told Reuters last week that Croatia would seek to borrow both at home and abroad in the next two months to cover this year's budget gap. To cover the projected budget gap in the next three years the government will altogether seek some 30 billion kuna ($5.69 billion). It is still unclear if the funds will be borrowed or a part of it will be secured from planned privatisation receipts. 

News source: Balkans.com link: article