Sunday, 19 May 2019

Croatia Edges Closer to Eurozone, Official Request Coming Soon?

Just how ready is Croatia to join the Eurozone? The topic is one that has many sides to it and a lot of opposition from both the public and from certain politicians and political parties, yet it seems the Croatian Government is steaming ahead with their plans for the country to enter into the Eurozone and abandon the kuna.

As Poslovni Dnevnik/Jadranka Dozan writes on the 19th of May, 2019, the Croatian Government has proposed urgent amendments to the ZOKI, which creates a normative framework for the accession process to the banking union, a step that implies officially applying for the country's entry into the ERM II Exchange Rate Mechanism.

However, the Republic of Croatia has not yet submitted the aforementioned type of official request for entry into the ERM II Exchange Rate Mechanism, which is considered to be one of the first steps towards official entry into the controversial Eurozone.

This news could see more steps actively taken to enter into the banking union and establish "close co-operation with the European Central Bank (ECB)", which is usually part and parcel of a request to enter the ERM II.

In addition to the fact that the process of close co-operation with the ECB was the subject of a panel discussion on the first day of the Croatian Money Market conference in Opatija in Kvarner, the Croatian Government issued a proposal for a supplement to the Credit Institutions Act on Wednesday for public consultation, which refers precisely to the creation of a normative framework for the assignment of certain tasks to the European Central Bank.

In practice, this means, in the first instance, Croatia's inclusion in a Single Supervisory Mechanism (SSM), and that means that in the furure, the ECB will be able to carry out comprehensive assessments of such credit institutions, while for example, Asset Quality Review has so far covered euro-denominated countries.

At the aforementioned Opatija conference, the introductory speech on the path to Croatia's entrance into the Eurozone was given by an envoy to the President of the Republic of Croatia, with the Croatian Minister of State Property, Goran Marić, also having a part to play. It was stated that the single currency is one of the important aspects of unification, ie, in Croatia's accession to the European Union, and that Croatia has an obligation to respond readily and properly to this process.

That means, as was stated, the need to carry out all of the necessary preparations - monetary, political and others, including those aimed at the wider public, with a view to understanding the changes and eliminating fear, propaganda and potential insecurity. The main focus of the presentation of the Governor of the Croatian National Bank (HNB/CNB) Boris Vujčić was the macroeconomic prospects and challenges, and this is usually a reference to structural reforms without which Croatia will lag behind in reaching the level of development of much older EU member states, especially in terms of Croatia's development in comparison to other, older member states of the Union.

Croatia's business climate in us is still not good enough, remotely. To improve the country's overall business environment, the governor emphasised that what is particularly important is the raising of the quality of Croatia's institutions which greatly affects the general level of investment into the country, and that this is a key to faster productivity growth.

Therefore, in the first quarter of 2019, the indicators are solid: strong growth in industrial production, personal consumption and construction, the continued growth of exports (as well as imports) and favourable labour market trends (but with the increasing and very concerning problem of a lacking labour force owing to Croatia's demographic crisis).

In the case of economic slowdown today, however, there is a significant fiscal space that, at least according to Boris Vujčić, should be used in the case of a recession occurring. Otherwise, the Croatian National Bank expects to further reduce surplus on current and capital account balances this year, as well as significant appreciation pressures on the Croatian kuna.

Make sure to follow our dedicated lifestyle and politics pages for much more.


Click here for the original article by Jadranka Dozan for Poslovni Dnevnik

Wednesday, 8 May 2019

Croatian National Bank to Provide Assistance to Western Balkans Central Banks

ZAGREB, May 8, 2019 - Croatian National Bank (HNB) governor Boris Vujčić said on Wednesday the HNB would continue to provide expert assistance and technical support to central banks in the Western Balkans so as to help them adjust to standards on which the European Union insists.

Vujčić is part of Croatia's delegation attending the annual assembly of the European Bank for Reconstruction and Development (EBRD) held in Sarajevo. The meeting is focused on the situation in the Western Balkans, namely its political and economic prospects.

Commenting on the event, Vujčić told Hina that from the point of view of Croatia's interest it was good that the EBRD concentrated on the Western Balkans, as this region was Croatia's immediate neighbourhood.

"Croatia is today and will be in the future one of the man links between the European Union and the Western Balkans," Vujčić said.

He added that Croatia was prepared to share its experience from absorbing money from EBRD funds with its neighbours. The HNB, within the frameworks of EU assistance programmes, is supporting the central banks of Montenegro, Bosnia and Herzegovina, Serbia and soon, probably, North Macedonia.

"Our involvement in the region in that regard is very, very great," Vujčić said.

According to him, the participants in the EBRD annual assembly will also discuss a strategy of the EBRD's future activities. One of the important tasks of the EBRD is to finance infrastructure projects and thus create prerequisites for economic development. This was the case in Croatia as well.

Owing to the level of its development, Croatia is no longer in the focus of the EBRD, which over the past years spread its operations to Mongolia and Africa.

More news about the Croatian National Bank can be found in the Business section.

Tuesday, 30 April 2019

Croatian National Bank Promotes Adoption of Euro

ZAGREB, April 30, 2019 - Fifty-two percent of Croatian citizens support adoption of the euro, 40 percent are against and eight percent are undecided, Croatian National Bank (HNB) governor Boris Vujčić said in Zagreb on Tuesday, citing the results of the latest survey conducted by the central bank every six months.

Vujčić was speaking at a panel entitled "When will Croatia adopt the euro?" Citing the advantages of a switch from the national currency the kuna to the European Union's single currency, he said: "The adoption of the euro would reduce investment insecurity, higher interest rates and high costs."

Vujčić also noted that most Croatian citizens hold their savings denominated in euros, and since most of the loans are also tied to the single currency, its adoption by Croatia would reduce the exchange rate risk.

Those opposed to adopting the euro cited a fear of sharp price increases as their main concern, which Vujčić described as unfounded. "That's a myth and it did not happen in any of the countries that have adopted the euro," he said, adding that there would always be inflation but that it should not be blamed on the adoption of the new currency.

Energy and Environment Minister Tomislav Ćorić said that Croatian citizens and businesses were "still not knowledgeable enough about the effects of euro adoption, both positive and negative ones."

Vujčić would not say when Croatia could be expected to be admitted to the Exchange Rate Mechanism (ERM II), as a step preceding accession to the euro area. He, however, said that talks were under way with the European Commission and the European Central Bank about the content of a letter which he and Finance Minister Zdravko Marić would have to send in when applying for ERM II membership.

After joining ERM II, Croatia will have two years to meet the euro area membership criteria and then wait for a positive response from the European Commission. "Even if all that goes smoothly, it won't happen before 2023," Vujčić said.

More news about potential introduction of the euro can be found in the Business section.

Tuesday, 16 April 2019

Croatia Still in Crisis, Says Ex-Croatian National Bank Governor

ZAGREB, April 16, 2019 - Former Croatian National Bank Governor Željko Rohatinski says in his book "Crisis in Croatia" that the country is still in a crisis and that cooperation between companies, banks and the state as well as greater engagement on the state's part are necessary to overcome it.

"In the book I analyse the development of the economic situation in Croatia from 2008 to 2018. There are indicators according to which we are coming out of the crisis. However, the accumulated problems are still of such intensity that we are actually still in crisis. Also, options are being considered as to what and who should be more active for the solution to be better and quicker. In my opinion, it's necessary to establish synergy between three important subjects: companies, banks and the state. This can't be unorganised and the state has a big role in it all," Rohatinski said at the book's launch on Tuesday.

In 2018, Croatia returned to the economic level of 2008, which was neither quick nor cheap, he said, estimating that 26 billion euro was lost in GDP in the said period as well as 180,000 jobs. The predicted GDP growth of 2.5 or 3% is not enough as it will keep Croatia at the bottom of the EU for a long time, he added.

Zagreb Faculty of Economics professor Marijana Ivanov, one of the book's consulting editors, said one of its messages was that Croatia must be the one governing change. It transpires from the book that, although we have officially come out of the crisis, we are still standing still, she added.

Drago Jakovčević, another Zagreb Faculty of Economics professor, said Rohatinski analysed the crisis also through the people most affected by it, first and foremost those who lost their jobs.

More news about the Croatian National Bank can be found in the Business section.

Wednesday, 20 March 2019

Croatia's Paradox: Work But No Workers, Workers But No Work

The Republic of Croatia is in a group of four European Union member states with a lower uncovered demand for workers when compared to one year earlier. The Croatian paradox of staff fighting over workers who either don't exist or don't want to work, while would-be staff complain about there being no jobs continues.

As Ana Blaskovic/Poslovni Dnevnik writes on the 19th of March, 2019, the workforce problem is rapidly becoming one of the most burning issues not only here in Croatia but across the European Union. In the last quarter of last year, Croatia ranked among the four EU member states with a lower uncovered demand for workers than was recorded during the same period last year, Eurostat figures show.

At the Union level, as well as at its very core in which the euro currency wains, the rate of vacancies grew to 2.3 percent during the fourth quarter of 2018. Just for comparison, this rate, which shows uncovered demand for labour, was 2.1 percent in the previous quarter, and 2.2 percent in the Eurozone.

The availability of labour in the last year has become the top theme for domestic employers. While a few years ago this issue was only mentioned from time to time, in the last surveys answered by business owners, it emerged at the very top of the list. In Poslovni Dnevnik's recent interview with AmCham, Andrea Doko Jelušić pointed out that when the last survey was taken, their members underlined this topic as the main constraining factor in 2018, while back in 2017, it was placed on the list for the first time ever.

Reflecting on the workforce as an inevitable issue of the competitiveness of the domestic economy, CNB/HNB Governor Boris Vujčić said on Monday that Croatia is specific in the EU because as many as 40 percent of working-age citizens don't work. "When looking at the employment rate, Croatia is the second worst in the European Union after Greece, which means that everyone else has to work harder to maintain the same level of living standards," said the governor.

The key to the mobilisation of this population, Vujčić believes, is to evaluate the positive changes in pension regulations which extend the working life. The EU and the Eurozone are currently experiencing the most problems with finding workers in the service sector, with the job vacancy rate standing at 2.6 percent. Industry and construction account for 2.1 percent in the EU, and 2 percent in the Eurozone. In Croatia, the vacancy rate in the fourth quarter fell to 1.4 percent, which was the lowest level in just over a year. The highest jump in labour demand for the same period last year was in the fourth quarter in the Czech Republic, Austria, Malta, and Germany.

Make sure to follow our dedicated business and politics pages for much more.


Click here for the original article by Ana Blaskovic for Poslovni Dnevnik

Tuesday, 26 February 2019

Move towards ERM Membership Likely in Second Quarter

ZAGREB, February 26, 2019 - Croatian National Bank (HNB) Governor Boris Vujčić announced on Monday that a letter of intent for ERM membership (European Exchange Rate Mechanism II) was expected to be sent "some time in the second quarter of this year."

Responding to questions to the press after delivering a lecture on Croatia's prospects of entering the euro area at the Croatian Academy of Sciences and Arts (HAZU), Vujčić said that the letter would certainly not be sent by the end of this month and would most likely be sent "some time in the second quarter".

"In any case, first there will be a report from the European Commission, then we will continue consultations with our partners - the European Central Bank, the Commission and the Eurogroup, and after that we will decide on an exact date," Vujčić said, adding that he hoped Croatia would soon get out of the excessive imbalance procedure, on which the Commission is soon to release a report.

Asked if Croatia could be expected to join the exchange rate mechanism in 2020, the governor said this was a tentative time frame, but he would not speculate about an exact date.

Vujčić said that Croatia "de facto" meets all five nominal convergence criteria, while "de iure" it does not meet one relating to exchange rate stability. He said that the exchange rate stability requirement can be met only within the exchange rate mechanism, and that this is the first key step for entering the mechanism.

On the other hand, there is a range of indicators relating to excessive macroeconomic imbalances, such as public debt, external debt, unemployment rates and labour market participation. "Here we stand much better than we did five years ago because external imbalances have been reduced as a result of the decline in public debt, which right now is three times faster than that required by the EU procedures."

More news on the introduction of euro in Croatia can be found in the Business section.

Saturday, 16 February 2019

Croatian National Bank to Curb All-Purpose Loans

ZAGREB, February 16, 2019 - The Croatian National Bank (HNB) has been warning since late 2018 about a strong increase in all-purpose personal loans, and in an interview with the Novi List daily of Saturday, Governor Boris Vujčić said the central bank would introduce measures to curb their excessive growth.

HNB statistics show that total household lending in late 2018 was 124.4 billion kuna, 5.5 billion kuna or 4.6% more than at the end of 2017.

With a 38.3% share in total household loans, all-purpose personal loans were 11% up in December 2018 to 47.7 billion kuna. December 2018 was the seventh consecutive month to see a two-digit increase in all-purpose loans.

The HNB said in late 2018 that the high growth of unsecured cash loans with relatively long repayment periods was worrying and that it would have to analyse the situation to see if it required action on its part.

The central bank also warned that all-purpose loans could be obtained very quickly and that clients should therefore be careful not to take loans on impulse.

In the interview with Novi List, Governor Vujčić said that all-purpose personal loans were mostly granted in the national currency kuna, with fixed interest rates, and that therefore risks were much smaller than had been the case with loans pegged to the Swiss franc.

Nonetheless, some parallels can be drawn, he said. "For example, due to the less strict criteria for the assessment of creditworthiness, in some cases banks approve a more expensive all-purpose loan that is less favourable for the client even if they estimate that the client's creditworthiness for a housing loan of the same value and with the same repayment period is poor," said the governor.

He said that this called for harmonising criteria for the assessment of creditworthiness for different types of loans.

"Also, we want banks to include potential losses related to this type of loans in their internal estimates of capital requirements as well as secure clear mechanisms for the return of a part of banker bonuses in case of excessive losses related to all-purpose loans," said Vujčić.

More news on the Croatian National Bank can be found in the Business section.

Tuesday, 5 February 2019

Croatia's Foreign Debt is Lowest in Last Eleven Years

The trend of the Republic of Croatia's foreign debt falling on an annual basis has been going on since the end of 2015, according to RBA analysts in light of their review of the recently published data of the Croatian National Bank (CNB/HNB).

As Poslovni Dnevnik writes on the 5th of February, 2019, at the end of October last year, Croatia's gross foreign debt amounted to 38.4 billion euro, which is less by as much as 4.1 percent when compared to one year before, meaning that the country's foreign debt fell to its lowest level since back in September 2008, according to a new analysis carried out by Raiffeisenbank Austria (RBA).

RBA pointed out, in addition to the fact that the falling of Croatia's foreign debt has been a trend since 2015, that the fall of this debt in October in particular is the result of a decline in the debt(s) of other financial institutions, which fell by 13.1 percent, as it also did in other similar sectors.

Thus, the gross foreign debt of other Croatian (domestic) sectors dropped to 13.5 billion euro at the end of October, or by 5.3 percent year-on-year, continuing the trend of depreciation dating from January 2016, as was stated on Tuesday.

The gross foreign debt of the state amounted to 13.7 billion euro at the end of October, which was 0.4 percent less than it was one year earlier. The growth of Croatia's gross foreign debt at an annual level was recorded only in direct investments, by 4.4 percent, to 6.3 billion euro.

"We expect the data for the last two months of 2018 to point to the continuation of similar developments, and at the end of 2018, the relative indicator of external borrowing should be below 75 percent of GDP," RBA analysts point out.

They expect that this year's debt to gross domestic product (GDP) will decline, thanks to the growth of the domestic economy and further diversification of all of Croatia's key sectors. "Further reductions in debt in the corporate sector are expected as a result of the discrepancies in the cost of financing on domestic and foreign financial markets," analysts from RBA have stated.

However, a tightening monetary policy and worsening funding conditions in regional and global financial markets could warn of a potentially negative impact.

"[This is particularly concerning] in the case of Croatia's modest progress in the implementation of structural reforms, which leads to an increase in risk perception and, consequently, the risk premium of the country itself," concluded RBA's financial analysts.

Make sure to follow our dedicated business and politics pages for more infromation on Croatia's financial situation, doing business in Croatia, and the overall business and investment climate.

Monday, 4 February 2019

Croatia's Public Debt Decreased by 1.1% in October 2018

ZAGREB, February 4, 2019 - Croatia's public debt at the end of October 2018 was 280.3 billion kuna, which is 3.1 billion or 1.1 percent less than at the same time in the previous year, and could stay below 75 percent at the end of 2018, Raiffeisenbank Austria (RBA) said in an analysis of central bank data on Monday.

Compared with September 2018, public debt shrank by 1.5 billion kuna or 0.5 percent, figures from the Croatian National Bank (HNB) showed.

The annual decrease was due to a fall in both the external and the internal component of public debt. At the end of October 2018, compared with October 2017, the external component declined by 1.9 billion kuna or 1.8 percent to 103.2 billion kuna, while the internal component dropped by 1.1 billion kuna or 0.6 percent to 177.1 billion kuna.

General government guarantees issued on the domestic market reached 6.4 million kuna, of which 2 billion kuna accounted for guarantees for loans issued by the Croatian Bank for Reconstruction and Development (HBOR), while general government guarantees issued on foreign markets stood at 5.3 billion kuna.

On the last day of 2018, enforced state guarantees in the amount of 2.5 billion kuna were paid for Uljanik, which will result in the deterioration of the general government budget balance and affect public debt dynamics, RBA analysts said.

Ultimately, the amount of guarantees settled will be higher given that only a portion of the principal has been paid so far, while interest is yet to be paid. However, trends in fiscal statistics will remain relatively favourable, RBA said.

RBA predicts the public debt to GDP ratio will stay below 75 percent at the end of 2018, down about nine percentage points from its highest level recorded at the end of 2013.

At the end of September 2018, Croatia's public debt amounted to 281.8 billion kuna or 74.5 percent of GDP.

More news on the Croatian economy can be found in the Business section.

Monday, 4 February 2019

More Kuna and Euro Counterfeits Detected in Croatia in 2018

ZAGREB, Feb 4 (Hina) - A total of 499 counterfeit kuna banknotes were detected in Croatia in 2018, which was 97.2% or 246 banknotes more than in 2017, while the number of euro counterfeits increased by 89.5% to 1,488, the Croatian National Bank (HNB) stated on Monday.

A total of 236 counterfeit kuna banknotes were withdrawn from circulation from July to December 2018, and given the average of 258 million kuna banknotes in circulation in the second half of 2018, 0.91 counterfeit kuna banknotes were detected per one million genuine banknotes in circulation in the said period.

In the second half of 2018, most frequently counterfeited domestic currency denomination was a 200-kuna banknote, with 124 counterfeits or 52.5%, and 50- and 500-kuna banknotes, which together accounted for 36.4% of total registered kuna banknote counterfeits, the bank reports.

In the second half of 2018, a total of 285 counterfeit euro banknotes were withdrawn from circulation.

In that period "the largest number of withdrawn counterfeits were 50-euro banknotes (157 banknotes), accounting for 55.1% of the total number of registered counterfeit euro banknotes."

"As regards their number and quality of production, counterfeit banknotes registered in 2018 did not cause any disturbances in the cash operations of specialised institutions and the public or large-scale financial damage," the central bank said.

More news on the Croatian National Bank can be found in the Business section.

Page 9 of 15