Brussels warns Croatia as net expenditure set to exceed EU limits

Zagreb

BRUSSELS, 26 November 2025 (Hina) – The European Commission has urged Croatia to take corrective steps in its national budget process to ensure fiscal policy remains aligned with EU recommendations next year.

In its latest assessments published under the European Semester, the Commission reviewed draft budgetary plans from eurozone members, including Croatia.

Under the revised EU economic governance framework, member states must submit medium-term fiscal-structural plans each autumn alongside draft budgets for the following year.

These plans are assessed to ensure consistency with the Stability and Growth Pact and broader fiscal guidance.

According to the Commission, Croatia’s planned net expenditure for 2026 is set to exceed the maximum growth rate endorsed by the Council in January.

Those recommendations set annual limits on the growth of net expenditure: 6.4% in 2025, 4.9% in 2026, 4.1% in both 2027 and 2028. Cumulatively, compared with 2023, net expenditure should not rise above 26.2% in 2025, 32.3% in 2026, 37.8% in 2027 and 42.9% in 2028.

However, the Commission’s autumn forecast expects Croatia’s net expenditure to increase by 9.6% in 2025, significantly above the 6.4% threshold, and by 5.6% in 2026, again exceeding the recommended 4.9% limit.

By 2026, this would amount to a cumulative rise of 35.7% compared with 2023, surpassing the permitted cumulative ceiling by 3.4 percentage points. In fiscal terms, this represents a deviation of around 1.1% of GDP.

Once flexibility linked to national defence spending exemptions is taken into account, the projected deviation falls to 0.5% of GDP, within the 0.6% allowed under EU rules.

The EU has granted temporary leeway for higher defence spending between 2025 and 2028, allowing annual increases of up to 1.5% that are not counted towards deficit calculations.

Despite this, the Commission emphasises that Croatia is operating close to its maximum permitted expenditure path and should proceed with caution.

“Overall, the Commission considers that Croatia’s draft budgetary plan is at risk of non-compliance with the recommended maximum growth of net expenditure. Therefore, the Commission calls on Croatia to take the necessary steps within the national budgetary process to ensure fiscal policy in 2026 is in line with the Council Recommendation,” the assessment states.

Under the EU’s modernised fiscal rules, the net expenditure trajectory, based on debt sustainability, now serves as the key indicator of compliance. Net expenditure excludes interest payments, discretionary revenue measures, EU-funded programmes (including co-financing) and cyclical changes in unemployment benefits.