Experts: No Reforms Visible in the 2016 Budget

By 10 March 2016

Economic analysts are not too impressed with the proposed budget

Analysts say that the 2016 budget is not a reform budget, so they expect real reforms to be presented in the government's economic program, which the European Commission will evaluate in May, and in the next budget for 2017, reports Novi List on March 10, 2016.

The government expects GDP to grow by around two percent this year, but analysts are more cautious. "The growth of the economy could eventually be less than two percent since there are many risks. I think that this assessment is very optimistic because it is based on a forecast of an increase in both domestic and foreign demand. However, an increase in domestic demand usually means higher imports as well, so net foreign demand this year cannot significantly contribute to economic growth", said Hrvoje Stojić, director of the economic research department of Hypo Alpe Adria Bank. He added that the government hoped that much of the fiscal consolidation would be achieved by GDP growth.

Stojić said that the government should have demonstrated more courage, political willingness and execute some cuts on the expenditure side because there is room. "But, if the 'price' for freezing the wage bill and social transfers is to avoid the risk of an increase in public sector wages by six percent, then we can say that the expenditure side of the budget, given the short deadline, has been set prudently", said Stojić.

As for the revenue side, Stojić believes that therein lie the greatest risks, if the growth of the economy falls short. "It is understandable that there was no time for more ambitious reform measures. This budget is not a test of the fiscal credibility of this government. Its credibility will be demonstrated in the following months when it will adopt the economic program, which the European Commission will evaluate in May, as well as in the budget for 2017", said Stojić.

Economic analyst Damir Novotny is not satisfied with the 2016 budget because he believes that this is just a continuation of the bad practices from the previous 15 years. He said that the budget should have incorporated some of the recommendations of the European Commission. "I do not see any big changes. There are mild savings visible, but there is no real shift in the approach to the budget. The budget is actually based on the idea that ministries and other budgetary users create their own budgetary policies", said Novotny.

"This is what the government thinks can be enough for the European Commission, but I am convinced that the Commission will ask for structural interventions in budgetary expenditures. I definitely expected some changes. We have completely clear and detailed recommendations of the Commission which should have been followed, but this budget does not show it", said Novotny.