Debt Sustainability and Growth in Croatia
Croatia's external debt has been growing steadily since the exchange rate stabilization in 1994. It reached almost 85% of GDP at the end of 2003. The level and the trend raise questions of sustainability and thus of an appropriate policy response. The current trend of debt accumulation is not sustainable. In the past five years, the debt to GDP and to exports of goods and services ratios have been growing by 8 percentage points on average. The horizon of sustainability, however, is not easy to determine. If high growth rates could be sustained and there are no adverse external shocks, stability could be extended over the medium term but probably not longer. The main policy challenge stems from the nature of the external debt problem that Croatia faces. It is more supply- than demand-driven low exports and high imports point to an exchange rate misalignment. If that is the case, then monetary and fiscal policies that restrict demand tend to trade growth for debt in the short run, i.e., slower growth of debt is achieved with lower growth rates. The supply side problem, however, needs to be addressed through measures that increase competitiveness. In the absence of exchange rate flexibility, incomes policy is the alternative. Its feasibility and effects should be studied carefully.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Length:||31 pages including 1 Table and 34 Figures|
|Date of creation:||May 2004|
|Date of revision:|
|Publication status:||Published as wiiw Research Report|
|Contact details of provider:|| Postal: |
Phone: (+43-1) 533 66 10
Fax: (+43-1) 533 66 10-50
Web page: http://www.wiiw.ac.at
More information through EDIRC
|Order Information:||Web: http://wiiw.ac.at|
When requesting a correction, please mention this item's handle: RePEc:wii:rpaper:rr:306. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Customer service)
If references are entirely missing, you can add them using this form.