POSSIBILITY EVALUATION OF FISCAL DEFICIT FINANCING IN THE REPUBLIC OF CROATIA

The paper explains analytical frame for possibilities evaluation of fiscal deficit financing under condition not to imperil main macroeconomic goals, that is moderate economic growth and stable price level. This frame permits evaluating separately and cumulatively the possibilities of fiscal deficit financing in three basic ways: money issue, borrowing in a country and abroad, taking into consideration these factors which in each of these methods determine the top level of financing. Thus the possibility of deficit financing by money issue is determined by acceptable inflation rate, financing by borrowing in a country by growth rate of domestic economy and the level of interest rates on public debt instruments, and financing by borrowing abroad by growth rate of domestic economy and foreign demand for domestic exports. Fiscal deficit over the limits determined by these factors can cause decrease of domestic and foreign credibility of state, and thus impossibility of deficit financing, as well as disturbance of price stability and deviation from the course of desirable economic growth. The exposed analytical frame was used for empirical possibility evaluation of fiscal deficit financing in the Republic of Croatia in actual moment, and evaluation has shovvn that these possibilities are rather meagre. Thus it imposes conclusion that a state in such conditions should try to maintain its consumption within realized revenues, because any other fiscal policy could cause serious problems in fiscal deficit financing and difficulties in debt repayment, what would finally imperil realization of economic stability and growth.