Economic and fiscal policy guidelines for the 2011-13 period envisage for 2011 a 1.5 per cent real GDP growth as well as HRK 108 billion in budget revenues and HRK 122 billion in expenditures, the Croatian government said on Wednesday, adopting the draft guidelines.

The government also adopted a decision under which the state would borrow EUR 750 million from a domestic banking syndicate. The foreign exchange loan will be entirely used for servicing due credits.

"This is not a new borrowing. It doesn't increase the state's debt, as the entire loan will be used to repay loans from previous years," Finance Minister Ivan Suker reiterated a number of times.

The new loan comes with a variable interest rate, a six-month EURIBOR plus 4.15 per cent. The current interest is 5.25 per cent, Suker said, adding the loan would be due in two EUR 375 million instalments in late September 2013 and September 2014.

Presenting the economic and fiscal policy guidelines for the next three years, Suker said GDP was expected to drop 1.6 per cent this year, to grow by 1.5 per cent in 2011, by 2 per cent in 2012 and by 2.5 per cent in 2013.

Next year's growth can be higher, provided that the recently presented major investment project succeeds, said Prime Minister Jadranka Kosor, adding "we must all make an effort about that".

The policy based on investments from the state budget and public companies is an obsolete economic model, and one should make room for private capital, both domestic and foreign, and create conditions for absorbing European Union funds, said Suker.

Outlining fiscal projections in the medium term, Kosor recalled parliament's conclusion that budget expenses must not exceed in the next two years the amount in this year's revised budget.

Given the rescinding of the emergency tax on salaries and pensions and changes to income tax, budget revenues in 2011 are expected to dip 0.3 per cent and amount to HRK 108 billion, while expenses are projected at HRK 122 billion, about HRK 350 million less than this year, said Kosor.

She added that HRK 1 billion more than this year would have to be secured to pay off loans due in 2011, adding that pension expenses would have to grow HRK 384 million and HRK 125 million would be required for a population census.

The guidelines for 2012 envisage HRK 124 billion in budget expenses, including Croatia's obligations to the EU, where Croatia has to participate with one per cent of GDP, namely HRK 3.6 billion, said Kosor.

"We expect to wrap up the accession negotiations in 2011 and to become a member in 2012, which entails rights as well as obligations," she said.

Suker said that under the guidelines, the central government deficit would account for 4.1 per cent of GDP in 2011 (HRK 13.9 billion), 2.8 per cent in 2012 (HRK 10.1 billion), and 1.5 per cent in 2013 (HRK 5.6 billion).

Suker said HRK 1.1 billion more than this year would be required to pay interest due in 2011, adding that "budget expenses can't be reduced without structural reforms and reducing entitlements".

Kosor said the guidelines would provide the basis for the 2011 budget, alongside which the government would move a fiscal responsibility bill.