Within the broader project covering sixteen countries, supported by the Local Government Initiative, Budapest, the Institute of Public Finance investigated the impact of the recent economic crisis on local governments in Croatia.
It was concluded that the impact of the economic downturn on local budgets is not yet clearly visible. Some early signs of economic downturn appeared in autumn 2008. Local government budgets for 2009 were planned in the summer of 2008, so those plans did not take into account that the crisis would hit the economy so hard. Intense capital investments caused total local budget deficit to increase (almost doubling). Although this seems to be caused by a global economic downturn, it has to be noted that the above-mentioned deficit does not emerge from a fall in revenues, but rather from an increase in total expenditure.
Croatia is a centralized state with LGUs’ revenues and expenditures (unconsolidated) representing around 9% of GDP. Total LGU budget would decrease to 6% of GDP if central government transfers were eliminated. Because of a centralized funding system, the influence on local government finance is not as visible as the influence on central government budget. Since 2001, local government units have been increasing their deposits. Having that in mind, it is obvious that some local government units have money they can use to cover minuses and financial needs before revising local budgets and cutting expenditures.
Results of the project covering a group of countries including Croatia are available at the webpage.