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[PREZENTACIJA] Procedura prekomjernog proračunskog deficita i Procedura makroekonomskih neravnoteža

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Servaas Deroose,zamjenik glavnog direktora Opće uprave za ekonomske i financijske poslove Europske komisije

Text of [PREZENTACIJA] Procedura prekomjernog proračunskog deficita i Procedura makroekonomskih...

  • Excessive Deficit Procedure and Macroeconomic Imbalances Procedure

    Requirements for Croatia and current state of play

    Servaas DEROOSE

    Deputy Director-General

    European Commission, DG Economic and Financial Affairs

    Challenges of budget management in Croatia Zagreb, 11 December 2014

  • EU accession did not act as a growth trigger and medium-term growth prospects remain bleak

    2

    95

    100

    105

    110

    115

    120

    2013 2014 2015 2016 2017 2018 2019

    2013=

    100

    Potential output

    2004 accession 2007 accession SI HR

    Source: European Commission estimates (2014 Autumn Forecast)

  • Protracted recession has contributed to further deterioration of Croatia's public finances

    3

    6

    7

    8

    9

    10

    11

    2005

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    HR

    K b

    n,

    ave

    rage f

    or

    the p

    ast 12M

    Consolidated central government revenue and expenditure, Croatia

    Revenue Expenditure

    Source: Ministry of Finance of Croatia. Commission services calculations.

    -6

    -5

    -4

    -3

    -2

    -1

    0

    BG CZ EE LV LT HU PL RO SI SK HR

    % G

    DP

    General government structural balance

    2010-14 2015-16

    2010-14 CEE10 2015-16 CEE10

    Source: European Commission 2014 Autumn Forecast; AMECO.

  • Treaty-based limits (in % of GDP)

    General government budget deficit

    Gross government debt, or diminishing by at least 1/20 p.a.

    How the Stability and Growth Pact works

    4

    Preventive arm

    Corrective arm: Excessive Deficit Procedure (EDP)

    3%

    60%

    Flexibility Negative

    growth Major

    structural reforms

    Balanced-budget rule Structural

    deficit

  • What have been the main milestones for Croatia under the EDP so far?

    21 Jan Launch of the procedure

    Correction by 2016

    Effective action by 30 Apr 2014

    2 Jun Assessment of effective action

    2014 delivered

    2015 not ensured

    31 Oct Reporting on progress made Every six months

    5

  • What is expected of Croatia?

    -5,2%

    -4,6%

    -3,5%

    -2,7%

    -6%

    -5%

    -4%

    -3%

    -2%

    -1%

    0%

    2012 2013 2014 2015 2016

    Headline deficit (% GDP) EDP & EC 2014 Autumn Forecast

    Forecast -3,6%

    -3,1%

    -2,2%

    -1,5%

    -5%

    -4%

    -3%

    -2%

    -1%

    0%

    2012 2013 2014 2015 2016

    Structural balance (% GDP) EDP & EC 2014 Autumn Forecast

    Forecast

    Consolidation measures of 2.3% of GDP in 2014, 1 % of GDP in 2015 and 2016

    6

    Source: European Commission

  • Where does Croatia stand in 2014 and 2015? EDP Recommendation and Commission 2014 Autumn Forecast (% GDP)

    2014 2015

    EDP Forecast EDP Forecast

    Headline budget deficit

    4.6% 5.6% 3.5% 5.5%

    Corrected change in structural balance

    0.5% 0.0% 0.9% 0.3 %

    Bottom-up assessment

    2.3% 2.4% 1.0% 0.7%

    Need to complement the 2015 budget with a detailed specification of concrete measures underpinning the fiscal targets

    7

    Source: European Commission

  • Main discretionary measures underpinning the Commission assessment

    Increase in health contributions Increase in the lower VAT rate Increase in fuel taxes Increase in pension contributions

    Drop in investment Savings in intermediate

    consumption Reduction in subsidies Decrease in the wage bill Savings in health care

    2014 2015

    Most of the 2014 measures impact fiscal effort in 2015 positively (adopted in the middle of the year)

    No further measures were known

    at the cut-off date of the forecast

    Deficit-increasing PIT reform New deposit interest tax Broadening of the lottery tax Qualitative expenditure cuts

    2015 Budget

    8

  • Alert Mechanism Report (AMR)

    (Scoreboard and thresholds)

    November 2014

    Programme countries their own enhanced

    surveillance

    No problem Procedure stops

    In-Depth Reviews (IDRs)

    Commission prepares in-depth country reviews,

    using a wide set of indicators and analytical tools

    March 2015

    No problem Procedure stops

    Imbalances Recommendations integrated

    under European Semester May 2015

    Excessive imbalances Recommendations and Specific Monitoring or Corrective Action Plan

    May 2015 and continuous monitoring

    9

    Macroeconomic Imbalances Procedure

  • The scope of the AMR's scoreboard

    + auxiliary indicators and auxiliary social indicators (no thresholds)

    10

    External positions: current accounts, net international investment positions

    Competitiveness developments : real effective exchange rates, unit labour costs

    Export performance: export market shares

    Private sector indebtedness: credit, debt

    Public sector indebtedness

    Assets markets: housing

    Financial sector developments: financial sector liabilities

    Unemployment

    EXTERNAL IMBALANCES

    INTERNAL IMBALANCES

  • Croatia's performance in 2015 AMR's scoreboard

    11

    Indicator Threshold 2012 2013

    Exte

    rnal

    Current Account Balance (% GDP) 3Y average -4%/6% -0.8 -0.1

    Net Internat. Investment Position (% GDP) -35% -89.9 -88.7

    Change in Real Effective Exchange Rate (%) 3 years 5% & 11% -8.3 -4

    Change in Export Market shares (%) 5 years -6% -22.8 -20.9

    Change in Nominal ULC (%) 3 years 9% & 12% -1.6 0.9

    Inte

    rnal

    Change in Deflated House Prices (%) y-o-y 6% -2.2 -18.1

    Private Sector Credit Flow (% GDP) consolid. 14% -3.3 -0.2

    Private Sector Debt (% GDP) consolid. 133% 123.4 121.4

    General Government Sector Debt (% GDP) 60% 64.4 75.7

    Unemployment Rate (%) 3Y average 10% 14.1 15.8

    Change in Total Financial Sector Liab. (%) % y-o-y 16.5% 0.8 3.4

    Source: European Commission

  • 12

    16 Member States will be analysed in-depth

  • Reflected in eroding export market shares Competitiveness 1

    Adjustment capacity

    2

    De-leveraging

    3

    Financial stability

    4

    Public finances

    5

    The 2014 In-Depth Review highlighted five major risks and imbalances for Croatia

    Weaknesses in the labour market and the business environment have amplified the impact of the crisis

    Private sector entered the crisis highly indebted External financing risks

    Banking system has shown resilience Still, non-performing loans very high

    Pro-cyclical fiscal policies have fuelled deficit and debt

    13

  • 14

    2014 country-specific recommendations for Croatia

    Addressing fiscal imbalances

    Sound public

    finances

    Sustainable pensions

    and healthcare

    Unlocking the employment

    potential

    High employ-

    ment

    Effective social

    protection

    Bank asset

    quality

    Safeguarding financial stability

    Reviving business and investment

    Efficient insolvency

    & de-leveraging

    Business-friendly environ-

    ment

    Smarter state

    involve-ment

    1 2 3 4

    5 6

    7

    8

  • Specific MIP monitoring in Croatia reveals highly uneven progress since June

    Progress on fiscal structural reforms piecemeal, facing implementation risks

    Only limited steps to align budgetary projections to ESA standards

    Expenditure review preparation in motion but no implementation timeframe

    Recurrent property tax being prepared but timing unclear

    Measures to improve pension sustainability yet to be outlined

    Limited ambition of measures to improve cost-effectiveness of health care

    Progress in improving the functioning of labour markets, labour law reform

    Further measures to tackle obstacles to job creation still to be defined

    Plan for social benefit consolidation needs full political endorsement

    Business climate likely to benefit from planned enhancements of early rescue framework and reform of regional state administration

    Progress on removing para-fiscal levies slower than expected

    SOE governance improvements limited, restructuring behind plans

    Public admininstration and anti-corruption reforms risk being delayed

    QUALITY AND SUSTAINABILITY OF PUBLIC FINANCES

    LABOUR MARKET & EFFECTIVENESS OF SOCIAL PROTECTION

    PROMOTING GROWTH & COMPETITIVE-NESS

    15

  • Government deficit is projected to remain high and government debt has risen quickly

    -6%

    -5%

    -4%

    -3%

    -2%

    -1%

    0%EE LV LT CZ RO HU SK PL BG SI HR

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    EE BG RO LV LT CZ PL SK HU HR SI

    16

    Source: European Commission

    General government balance, 2014 (% GDP) General government debt, 2014 (% GDP)

    Source: European Commission

  • What main measures should be taken to address fiscal imbalances?

    Get quality of fiscal projections up to EU standards

    Reinforce expenditure control

    Review expenditure

    Strengthen budgetary planning & fiscal rules

    Optimise revenue & tax administration

    Reform recurrent property taxation

    Address weaknesses in pensions & healthcare 17

  • 18

    Diverging labour market trends but major opportunities to mobilise employment exist

    50

    55

    60

    65

    70

    75

    80

    2004 2007 2010 2013*

    Employment rate 20-64 (%)

    EU2020 target

    EU28

    Croatia

    * 2013 Croatia: break in the series

    18 Source: European Commission Source: European Commission

  • Review wage setting framework

    Strengthen active labour market policies

    Address undeclared work

    Review tax/benefit system to make work pay

    What main measures should be taken to unlock employment potential?

    19

  • Productivity growth was low before the crisis and is not picking up strongly despite large job losses

    Growth accounting, 2002-2008 (%) GDP growth decomposition, 2008-13 (%)

    20

    0 1 2 3 4 5 6

    GDP

    Labour market

    Demography

    Productivity

    GDP

    Labour market

    Demography

    Productivity

    HR

    CEE10

    1.8

    0.0

    2.4

    4.2

    4.4

    -0.3

    1.5

    5.7

    90

    100

    110

    120

    80 90 100

    Gro

    ss v

    alu

    e a

    dded p

    er

    em

    plo

    yee (

    2008=

    100)

    Employment (2008 = 100)

    HR

    PL

    SK

    BG LV

    LT

    SI

    Source: European Commission Source: European Commission

  • Lower administrative burdens

    Make the best use of EU funds

    Improve governance of state-owned enterprises

    Zero in on corruption and public procurement

    Get pre-insolvency & insolvency procedures right

    Strengthen efficiency of courts

    What main measures should be taken to revive business activity and investment?

    21

  • 05

    10

    15

    20

    BG SI RO HU HR LT PL LV SK EE

    Non-performing loans (% total) June 2014

    While the banking sector remains well capitalised the long recession justifies supervisory vigilance

    The central bank is now

    undertaking a tailor-made

    portfolio screening exercise

    Focus is on important

    portfolios not covered by

    the ECB and on mid-size

    and smaller banks

    22 Source: ECB

  • 23

    November 2014

    European Semester resumed with the AGS

    The AMR identified countries for in-depth review

    EDP implementation was assessed, following the Autumn Forecast

    Spring 2015

    2nd Monitoring Report reviews progress of reforms in Croatia

    Commission publishes In-Depth Reviews

    Member States present their National Reform Programmes and Stability/Convergence Programmes

    Commission proposes Country-Specific Recommendations

    Recent and next steps for the EU and Croatia