(Adds details, Finance Minister Suker, analyst quotes)
By Igor Ilic
ZAGREB, Dec 12 (Reuters) - The Croatian government slashed spending in a revised draft budget for 2009 on Friday, cutting the budget deficit to help find funds to refinance huge foreign debts maturing next year.
Analysts said it was a step in the right direction but may not be enough to keep trouble at bay in the European Union candidate country.
The amended 2009 budget now has a budget deficit 0.9 percent of gross domestic product, down from 1.6 percent proposed by the government last week. Local economists and media had criticised the higher figure at a time when Croatia has to refinance a huge amount of maturing foreign debt in an unfavourable credit environment at home and abroad.
The government will cut planned expenditure by 1.95 billion kuna ($360.2 million) from the previously planned 4.3 billion kuna, state news agency Hina said. It will also reduce spending for some agencies beyond the central government budget.
Finance Minister Ivan Suker told Hina most savings will be made through a reduction of the health sector expenditures by some 1.7 billion kuna. "Also, we will set aside less funds for road construction," Suker said.
Infrastructural investments have been one of the main growth drivers in recent years, together with consumer spending.
"This reduction will somewhat decrease tensions about finding capital for refinancing at home....But serious risks remain on the spending side, while growth rate and revenues are also uncertain," said Zdeslav Santic of Raffeisenbank.
GROWTH, REFINANCING RISKS REMAIN
The government had planned a zero deficit, but switched to a consolidated budget draft with a 1.6 percent gap after failing to agree a wage bill freeze with public sector trade unions. The gap also assumed a costly health sector reform.
Hrvoje Stojic, chief analyst of Hypo Group Alpe Adria, welcomed the reduction but said it would probably not be enough.
"If there is no economic growth at all, (a prospect) which we no longer can exclude, the deficit will be difficult to finance. And a lot depends on terms of financing abroad, which no one can predict at the moment," he said.
The European Union candidate country has to refinance more than 8 billion euros ($10.61 billion) of foreign debt next year. The state itself needs to refinance 10.3 billion kuna.
Parliament will vote on the budgetary proposal on Dec. 15.
The European Union candidate weathered the initial impact of the global financial crisis due to its ample liquidity reserves, but growth in 2009 is forecast to slow to two percent from this year's expected 3.5 percent.
Some analysts warned that even this projection might prove too optimistic and threaten planned budgetary revenues.
They also said that Croatia might have to turn to the International Monetary Fund for help if it faces problems with foreign currency liquidity.
The World Bank has also urged Croatia to cut the deficit as much as possible, citing the expected slowdown in growth and budget revenues.
Croatia runs severe external imbalances with foreign debt amounting to 90 percent of GDP, or some 36 billion euros and the current account gap at 10 percent of GDP. (Reporting by Igor Ilic; Editing by Zoran Radosavljevic and Tony Austin)