Croatia is in talks about possibly taking a loan from the United Arab Emirates, which local media said could be worth around $2 billion and enable the EU member to refinance debt.
Croatia, which joined the European Union in 2013, has been in recession since 2008. Successive governments since 2000 have shunned market reforms and increased spending and debt, leading analysts to predict that the country could need an IMF aid programme in the next few years.
A government source told Reuters that the government was tentatively considering a loan from the UAE, after the Jutarnji List daily said Finance Minister Boris Lalovac would visit Abu Dhabi in mid-March to arrange a loan worth around $2 billion at an interest rate of around 1.5 per cent.
“There have been some contacts, but we’re still way too far away from any final decision. There will certainly be more talks before any deal takes place and it can certainly not happen within the timeframe mentioned in media reports,” a government source, who asked not to be named, said.
The current government, which faces an election this year, has ruled out an IMF programme at the moment and says Croatia can manage on its own.
The country is under scrutiny from Brussels as its budget deficit exceeds official EU limits and its public debt is above 80 per cent of gross domestic product.
The yield on five-year Croatian government debt is 3.15 per cent so an interest rate of 1.5 per cent would enable the government to refinance debt more cheaply.
Croatia issued a 10-year Eurobond this week worth 1.5 billion euros with a three per cent coupon.
Zagreb has agreed with the European Commission to cut the budget gap to below three per cent of GDP, the EU’s official limit, by the end of 2016. Analysts, however, believe that is unlikely to be achieved and the target will have to be renegotiated.
The government targets a budget gap of 3.8 per cent of GDP from around five per cent in 2014.