CNB Governor Boris Vujcic: Croatian GDP Dropping Three Percent Every Month

By 21 April 2020

As Poslovni Dnevnik writes on the 21st of April, 2020, Croatian National Bank Governor Boris Vujcic spoke on Dnevnik N1 about moves the Croatian National Bank (CNB/HNB) is making in connection with the ongoing coronavirus crisis. He said that Croatia is currently in an unusual situation, as is the case when part of the economy needs to be shut down.

"Estimates which are now being made roughly estimate that one month of shutting down the economy brings us a three-point drop in GDP. According to the IMF, the GDP drop 3 percent every month,'' Boris Vujcic said, adding that at the moment, the need to finance the budget is adding up to about ten billion kuna a month.

''We're doing a scenario model where we go with three scenarios - optimistic, pessimistic and basic. They're based on the assumptions of how long the economy can function in this restrictive model. The longer that time goes on, the longer Croatia's GDP falls. We don't know how long it will take, so we can't do a single projection. The depth of the recession this year will depend on whether it's six, nine or twelve weeks of the economy having to work in quarantine.

We expect strong economic recovery in 2021, but not one that would allow for the economy to reach the GDP level of 2019 by the time 2022 rolls around. In an optimistic scenario, we can expect to reach that level of GDP at the end of the projection horizon,'' Boris Vujcic said.

Finance Minister Zdravko Maric said Croatia needed between 60 and 75 billion kuna for three months' worth of assistance packages.

''The need for financing can be done partly on the domestic financial market, by banks and other financial participants, the other way of financing is funds and the third part can be done on the foreign market.

The CNB has done several things. At the beginning of the crisis, it ensured the stability of the exchange rate through foreign exchange interventions on the market. The second part of these actions was to provide additional liquidity on the market, and the third part was related to securities, with which we stabilised the Croatian state's bond market.

We're ready to defend that [same] course. The CNB kept the kuna exchange rate stable and will continue to do so until the introduction of the euro happens. Now is the opportunity to see how important it is to have large international reserves,'' the Governor explained.

If Croatia had introduced the euro today, we would have been in a more favourable position, Vujcic added.

"If we were in the Eurozone, we wouldn't have had an issue with maintaining the exchange rate stability, we'd have the monetary policy of the European Central Bank, which prints one of the two major world currencies. We'd have the resources of the European Stability Mechanism, in addition to that of the ECB, where each Eurozone country can obtain two percent of its GDP, which would have meant another billion euros in our case,'' Boris Vujcic said.

"The CNB has changed, adjusting its regulatory framework for banks for a year, which allows banks to be able to allow customers to defer their payments of liabilities for a period of three months to a year. Not every client has the same commitment and not everyone will be equally affected. If a law were written on this issue, it would be difficult to enact it by determining who has a right and who has no right. Some need that for a short period of time, some need it for a long period of time, some don't need any time at all.

At the end of last week, out of 30,000 business owners who had taken out a loan, 9,000 requested a deferral of their obligations. About 30,000 people have asked for a delay in servicing their obligations,'' Boris Vujcic said.

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