By Igor Ilic
ZAGREB, Dec 12 (Reuters) - The Croatian government amended its 2009 budget draft on Friday to cut the gap to 0.9 percent of gross domestic product from the previously proposed 1.6 percent, state radio reported after a cabinet session.
The government will cut planned expenditures by some 2 billion kuna ($369.5 million) from the previously planned 4.3 billion, the radio said. It gave no details about where the cuts were made.
The government had planned a zero deficit, but switched to a consolidated budget draft envisaging 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.
The government has also announced a cut in infrastructural investments -- one of the main growth drivers in recent years, together with consumer spending.
The revision came after criticism from local economists and media that the planned gap was too high in a year when Croatia has to refinance a huge amount of maturing foreign debt in an unfavourable credit environment at home and abroad.
Hrvoje Stojic, chief analyst of Hypo Group Alpe Adria, said this was a step in the right direction, but probably not enough.
"Risks still remain. If there is no economic growth at all, 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 down 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 Ron Askew)