Croatia Ponders Cutting Public Sector Salaries

Croatia's centre-left government is mulling tough new measures to deal with a high budget deficit of 5.8 per cent of GDP and a general government debt equivalent to 81.7 per cent of annual GDP.

If a package of reforms designed to cut the cost of government does not revive the economy by May 2015, Finance Minister Boris Lalovac has warned that public-sector salary cuts of 3 per cent are likely.

The cuts would apply from July 2015 to around 250,000 people, saving the government a total of some 85 million euro.

The government still hopes to avoid this by making savings in the public administration, encouraging early retirement and a running a restrictive employment policy. This means taking on only one new employee for every two who retire.

The government has already suspended all bonuses in the public sector, such as the Christmas bonus and gift for children.

Croatian governments have traditionally avoided cutting wages in the public sector as it employs around 22 per cent of all those in work.

It meanwhile predicts that the negative GDP trend will end next year with a 0.5 per cent GDP growth in 2015, rising to 1.5 per cent in 2017.

It also says the budget deficit will fall to 3.8 per cent of GDP in 2015 and will at 2.3 per cent by 2017. General government debt will be reduced to 81 per cent of GDP by 2017.