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Boris Lalovac10th April,2015.
Boris Lalovac,Croatian Minister of Finance says part of public companies burden on budget, announces cuts.

ZAGREB: Finance Minister Boris Lalovac said on Wednesday that a part of public companies were a big burden on the budget and that significant cuts would be made to salaries, material costs and investments of public companies.

Instead of 12.8 billion kuna, last year's budget deficit could amount to 16-18 billion kuna, Lalovac said in an interview with Croatian Radio.

He said that the first calculation of the budget deficit according to Eurostat's new ESA2010 methodology would be obtained by the end of April and that it could show a deficit amounting to much more than the planned 12.8 billion kuna or 3.8% of GDP.

"... under the new methodology, the deficit also includes public companies' debts and even the government's guarantees for some companies, such as HZ Cargo. Also, it includes some segments of public-private partnerships. According to some projections, the deficit could include outlays on the Zagreb Airport project, which we did not take into account," Lalovac said, adding that the deficit would definitely exceed 5% of GDP.

The minister went on to say that last week the government sent to the European Commission the first set of measures from its reform plan, and that he and Deputy PM Branko Grcic would meet with European Commissioner for Economic and Financial Affairs Pierre Moscovici on Sunday and Monday.

"We will see at the meeting how satisfied they are with the first set of measures," Lalovac said, adding that an in-depth analysis of operations of public institutes and agencies had been agreed with the EC. Those 180 institutions will have to adjust to the state administration in the future, both in terms of salaries and in terms of material costs, he said, adding that any future government would have to deal seriously with the restructuring and management of public companies.

"We almost have a primary surplus in the central government budget because there is a deficit of 12.8 billion kuna, of which 10.5 billion is interest. A part of public companies have turned out to be a big burden on the budget. The EC wants their borrowing to be restricted, so there will be significant cuts in public companies in terms of their salaries, material costs as well as their investments."

Some of the measures that will soon apply to agencies and public companies is the inclusion of their salaries into the central payroll accounting system for public sector employees, the evening out of material costs for all agencies and public companies, stricter cost control and more frequent internal and state audits, he said.

Lalovac said that he and other ministers were still looking for a model to calculate salaries of extra-budgetary users and were studying models used by countries with similar problems, such as Greece, Spain, Portugal and Italy.

"The EC primarily wants to see that we have started thinking about that problem, the rest is a technical matter," Lalovac said.

He added that the EC also wanted Croatia to have municipal companies at lower levels of local self-government better controlled, namely, it wanted to see control mechanisms introduced to prevent those units from exceeding their budgets.

Asked about the merging of agencies that are extra-budgetary users because they are financed through para-fiscal taxes, Lalovac confirmed that para-fiscal levies would soon be reduced, adding: "A commission has suggested joining certain types of agencies, which does not mean that we will accept all suggestions on that matter or that all suggested mergers are possible. The EC wants about 10% of some 60 agencies to be merged," Lalovac said, confirming that the national broadcaster HRT and Hina would not be merged, nor would the Market Competition Agency (AZTN) and the Croatian Financial Services Supervisory Agency (HANFA).

He said that salaries of agencies' and public companies' directors would be slashed given that they were currently several times higher than ministerial salaries.

Asked about the rescheduling of debts, Lalovac said it would depend on the EC's opinion.

"If the Commission's position on our reforms is positive, it will be easier for us to exchange expensive loans for cheaper ones."

Commenting on the issue of holders of loans tied to the Swiss franc, Lalovac said the conversion of franc-indexed loans to euro-pegged loans was the solution that should be insisted on.

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