Sustainability of Croatia's Public and External Debt

This paper analyses sustainability of Croatia's public and external debt with the help of standard indicators used by international financial institutions, investment banks and rating agencies. It is shown that a thorough sustainability analysis requires the use of a whole range of indicators. By contrast, only few summary measures - such as gross public and external debt and their shares in GDP - are currently usually used in discussions of debt issues in Croatia. Against this background, the paper derives other standard indicators of debt sustainability, such as debt stabilising primary and overall deficits of general government. It is further argued that threshold at which debt sustainability becomes a problem differs across periods and countries, and depends on the perceptions and expectations of financial market participants. Debt sustainability indicators for Croatia are compared with those for EU candidates from Central and Eastern Europe.