Page  1
The World Bank 
 
EU10  
Regular 
Economic 
Report 
 
Croatia 
Supplement
May 2009 
 
Key Messages 
·
The prospects for growth of the EU10 countries and Croatia 
as well as convergence with the EU15 are likely to be 
uncertain over the next few years. Yet, there are some initial 
signs in the US and EU markets that the recession may be 
bottoming out. The rate of contraction is expected to 
moderate from the second quarter onwards, and growth 
could move into positive territory in early 2010, as the 
slashing of inventory and the forceful macroeconomic policy 
response in the EU and other advanced economies lay the 
basis for a recovery.  
·
Countries that have weathered the initial crisis better due to 
sounder economic fundamentals may still be at risk from 
more protracted than anticipated recovery of external 
environment. Although international financial markets have 
stabilized and sovereign credit default swaps (CDS) spreads 
eased substantially since March, they are subject to high 
volatility mostly related to slow recovery of the real sector 
and its impact on financial sector stability.  
·
Investors are still risk-averse. A mitigating factor for the 
EU10 and Croatia is that a high proportion of their debt is 
owed to foreign parent banks and companies with strategic 
commitments to the region. This suggests high rollover rates 
rather than a sudden stop scenario. This was indeed the case 
so far for Croatia. 
·
Still, the unsustainably high current account deficits from the 
past are undergoing severe adjustments across the region and 
Croatia. With the reduced availability of capital inflows and 
rather slim expectations of export growth recovery, 
adjustment will have to happen at the expense of contraction 
of domestic demand and overall output. The Croatian GDP 
may well contract by 3-4 percent, depending on the knock-
on effect of the global crisis on the tourism season.  
·
Public consumption as well as wage restraint policies remain 
key instruments for mitigating CAD rebalancing risk in 
largely euroized economies like Croatia. Flexibility in input 
markets will also help to recover faster, which implies the 
need to accelerate structural reforms during the challenging 
crisis period, while ensuring effective functioning of social 
safety net to absorb recession impact on the labor market. 
49469 v3 
Page  2
2
External Environment 
Economic stability in the region, as well as in the rest of the world, depends foremost on 
restoring financial confidence. Greater international cooperation is essential for keeping 
capital linkages open between the EU10 region and Croatia, and EU15 countries. 
The prospects for growth and convergence of the region are likely to be uncertain over 
the next few years.
 Rebuilding confidence in financial markets will take time, as well as the 
need to bring down financial leverage which could curtail credit growth for businesses and 
households and restrict external financing to the region. The vicious circle between 
deteriorating real economies and worsening financial markets could result in a longer and 
more severe recession. Yet, there are some initial signs that the recession may be bottoming 
out. The rate of contraction is expected to moderate from the second quarter onwards, and 
growth could move into positive territory in early 2010, as the slashing of inventory and the 
forceful macroeconomic policy response in the EU and other advanced economies lay the 
basis for a recovery.  
The recovery from the global economic crisis depends foremost on restoring market 
confidence with the help of a forceful and coordinated policy response.
 This includes 
providing financial institutions with access to liquidity, dealing with toxic assets, and 
recapitalizing viable but weak institutions. EU member states have provided about EUR270 
billion for recapitalization of banks and EUR3,200 billion for enhancing bank access to 
funding. All EU10 countries and Croatia have established or expanded deposit insurance, and 
strengthened liquidity, mainly through expanding repo operations (most countries), 
decreasing minimum required reserves (Bulgaria, Croatia, Romania), increasing guaranteed 
amount of deposits with banks and providing foreign exchange liquidity through swap 
arrangements or EU transfers (Hungary, Poland, Croatia). A number of countries, including 
Hungary, Latvia, Poland, Romania and the Slovak Republic, have also established 
recapitalization plans. 
Figure [1]. Geographic Breakdown of Foreign Claims in the Banking Sector 
 
EU7 and Croatia
24.2%
8.9%
9.6%
14.0%
19.1%
4.8%
0.4%
18.9%
Austria
Belgium
France
Germany
Italy
Netherlands
Sweden
Other
 
Baltics
66.5%
24.4%
1.9%
7.2%
 
Note: 
EU7 refers to EU10 without the Baltic countries. 
Sources: 
BIS, World Bank Staff calculations. 
 
As financial markets calmed down, sovereign credit default swaps (CDS) spreads in 
EU10 countries have tightened substantially since early-March, even though they still 
remain far above pre-crisis levels.
 Some countries in the region experienced a sharp 
widening in CDS spreads by March on account of the well-publicized vulnerabilities in the 
Page  3
3
banking sector or corrections in sovereign ratings, like Latvia, Lithuania, Romania, and 
Hungary. 
Output Developments 
The economic outlook for the region and Croatia remains uncertain. Some countries may 
experience a stabilization process that is more protracted than anticipated. Other countries 
that have weathered the crisis better due to sound economic fundamentals may still be at risk 
from a worsening external environment. 
Economic activity in Croatia slowed 
sharply in Q4 last year, but a large decline 
in imports enabled year-on-year GDP 
growth to remain positive.
 This resulted in 
annual GDP growth slowing to 2.4 percent in 
2008. The main factor behind the slowdown 
was weak personal consumption, growing 0.8 
percent in 2008 after growth of 6.2 percent in 
2007. Whilst personal consumption was 
falling at the end of 2008, government 
consumption recorded growth of 2.7 percent 
in the last quarter of last year. Investment 
activity recorded an 8.2-percent increase 
despite the significant slowdown respective 
to previous quarters. Contrary from investments in fixed capital, adjustment in the level of 
inventories was quite rapid. The net foreign demand contribution remained negative in 2008 
–- although in Q4, a large drop in imports far outstripped the deterioration in exports (3.6 
percent vs. 1.7 percent) thus contributing positively to the growth.  
Figure [3]. Croatia : Industrial Production, (Index 
2005 = 100, SA, 3MA) 
Figure [4]. Croatia: Retail Sales (Index 2005 = 100, SA, 
3MA) and VAT collection (HRK million, 3MA) 
90
100
110
120
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Manufacturing
Latest observation: Mar-09
Total
 
90
95
100
105
110
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
2.0
2.5
3.0
3.5
4.0
4.5
Retail sales (left axis)
Latest: Mar-09
VAT collection (right axis)
Latest: Dec-08
Source: CBS 
Industrial production and retail trade volume have continued their steep downward 
trends. 
Following a contraction of industrial production by 1.2 percent in the fourth quarter 
of 2008, industrial activity declined by additional 10.9 percent in the first three months of 
this year. Although production was affected by a disruption in gas supply and seasonal 
effects, the magnitude of the fall and the fact that March was the fifth consecutive month 
Figure [2]. Croatia: GDP growth rates (in %) and 
relative contribution of domestic and foreign 
demand, in percentage points 
-6
-3
0
3
6
9
12
355.9 447.8  5.4   4.3   0 : 4
355.9 452.0  5.4   3.1   0 : fi
355.9 454.9  5.4   1.6   0 : \12
355.9 456.5  5.4   3.1   0 : fl
n
371.1 447.8  5.4   4.3   0 : 4
371.1 452.0  5.4   3.1   0 : ffl
371.1 454.9  5.4   1.6   0 : \12
371.1 456.5  5.4   3.1   0 : fl
n
386.5 447.8  5.4   4.3   0 : 4
386.5 452.0  5.4   3.1   0 : ffi
386.5 454.9  5.4   1.6   0 : \12
386.5 456.5  5.4   3.1   0 : fl
n
401.7 447.8  5.4   4.3   0 : 4
401.7 452.0  5.4   3.1   0 : ff
401.7 454.9  5.4   1.6   0 : \12
401.7 456.5  5.4   3.1   0 : fl
n
417.1 447.8  5.4   4.3   0 : 4
417.1 452.0  5.4   3.1   0 : fi
417.1 454.9  5.4   1.6   0 : \12
417.1 456.5  5.4   3.1   0 : fl
417.1 459.5  5.4   3.1   0 : \1a
432.3 447.8  5.4   4.3   0 : 4
432.3 452.0  5.4   3.1   0 : ffl
432.3 454.9  5.4   1.6   0 : \12
432.3 456.5  5.4   3.1   0 : fl
432.3 459.5  5.4   3.1   0 : \1a
447.8 447.8  5.4   4.3   0 : 4
447.8 452.0  5.4   3.1   0 : ffi
447.8 454.9  5.4   1.6   0 : \12
447.8 456.5  5.4   3.1   0 : fl
447.8 459.5  5.4   3.1   0 : \1a
463.1 447.8  5.4   4.3   0 : 4
463.1 452.0  5.4   3.1   0 : ff
463.1 454.9  5.4   1.6   0 : \12
463.1 456.5  5.4   3.1   0 : fl
463.1 459.5  5.4   3.1   0 : \1a
478.4 447.8  5.4   4.3   0 : 4
478.4 452.0  5.4   3.1   0 : fi
478.4 454.9  5.4   1.6   0 : \12
478.4 456.5  5.4   3.1   0 : fl
ccent
493.7 447.8  5.4   4.3   0 : 4
493.7 452.0  5.4   3.1   0 : ffl
493.7 454.9  5.4   1.6   0 : \12
493.7 456.5  5.4   3.1   0 : fl
ccent
508.9 447.8  5.4   4.3   0 : 4
508.9 452.0  5.4   3.1   0 : ffi
508.9 454.9  5.4   1.6   0 : \12
508.9 456.5  5.4   3.1   0 : fl
ccent
524.3 447.8  5.4   4.3   0 : 4
524.3 452.0  5.4   3.1   0 : ff
524.3 454.9  5.4   1.6   0 : \12
524.3 456.5  5.4   3.1   0 : fl
ccent
%
Net foreign demand
Domestic demand
GDP
 
Source: CBS 
Page  4
 
4
when the industrial production index recorded a year on year fall, indicates more severe 
problems. At the same time, labor productivity in industry in Q1 2009 was down 3.4 percent 
y/y mainly due to a drop in processing industry of 6.2 percent. Retail trade volume started to 
exhibit a decline since mid-2008, with a sharp contraction of 16.9 percent observable in Q1 
of 2009. The outlook for 2009 is subject to high uncertainty, due to the importance of tourism 
in the economy and difficulty to gauge the likely decline in tourism revenues. After the 
expected 5.8 percent y/y decline in Q1, in the optimistic scenario, Croatia
’s growth outlook is 
projected at -2.7 percent for 2009 with a slightly positive growth in 2010. Given the 
uncertainties of tourism sector outcome, these projections are subject to downside risk 
towards 3.5 percent decline in 2009. 
Labor market and wage developments 
A slowdown of the real sector has worsened labor market conditions. While firms were 
reluctant to lay-off workers initially, the downward revision in the economic outlook is 
expected to reduce employment significantly in 2009 and 2010 and increase unemployment 
beyond the current adjustments on the flexible part (fixed-term contracts) of the market. 
The slowdown of economic activity 
affected labor market developments in 
the last quarter of 2008 and early 2009. 
The number of unemployed increased 
coupled with employment reduction. The 
latest available data on newly registered 
unemployment showed a sharp increase by 
35.2 percent y/y in April 2009 thus 
contributing to the overall number of 
unemployed which increased by a 
significant 7.6 percent y/y –- the biggest 
increase since 2001 –- to pre-2007 level. 
Although there was a slight nominal 
monthly decline in unemployment due to 
seasonal impact of April (Easter) on the 
back of the service sector, the manufacturing industry saw employment decline of 4 percent. 
The economic decline will likely lead to a shift of formal to informal employment, thus 
negatively impacting tax collection. 
 
Wage adjustments in the private sector have, to a larger extent, followed the pace of 
overall economic contraction, which delayed stronger downside pressure on 
employment.
 The average net wage growth in 2008 was 0.9 percent in real terms. Further 
signs of deceleration in business sector wage growth were present at the end-2008 and 
beginning of 2009, particularly looking at disaggregated data. Public sector wages increased 
in 2007 and 2008 due to a rise in the base salary agreed between the Government and the 
trade unions of civil and public service employees for the 2007-2009 period. In April 2009, 
the Government renegotiated the agreement with the trade unions rolling back the earlier 
given 6-percent salary increase. 
Inflation and monetary policy  
Figure [5]. Croatia: Labor market developments, trend 
values
 
50,000 
55,000 
60,000 
65,000 
70,000 
75,000 
80,000 
200,000
220,000
240,000
260,000
280,000
300,000
320,000
340,000
J
a
n
-
0
4
J
u
l
-
0
4
J
a
n
-
0
5
J
u
l
-
0
5
J
a
n
-
0
6
J
u
l
-
0
6
J
a
n
-
0
7
J
u
l
-
0
7
J
a
n
-
0
8
J
u
l
-
0
8
J
a
n
-
0
9
UNEMPLOYED (left 
axis)
RECIPIENTS OF 
UNEMPLOYMENT 
BENEFIT (right axis)
 
Source: CEB 
Page  5
 
5
The slowdown in economic activity and subsequent decrease in the output gap have 
dampened wage increases and reduced profit margins, which in turn have subdued inflation 
pressures. The decline in inflation is set to continue during 2009, with the largest reduction 
expected in Bulgaria and the Baltic countries. This trend is likely to bring down divergences 
in inflation rates across the region.
 
A
fter years of high profitability, the soundness of the 
financial sector is being challenged by the 
economic recession.  
Despite the increasingly likely deflation in 
the euro area, Croatia will not experience 
these trends. 
Namely, at the beginning of 
the year, prices were up due to the increase 
in administratively regulated prices of 
public health services and natural gas. The 
annual inflation rate in the first four months 
stood at 3.9 percent, which is significantly 
lower than in the same period last year. 
Beside seasonal increase in prices of 
vegetables and fruits, the negative impact on 
price stability came from the depreciation 
pressures which boosted prices of imported goods.
 
The industrial PPI inflation recorded a 0.8 
percent of increase in the January-April period of 2009, which is likely to impact stability of 
CPI in the rest of the year in case no further global commodity price shocks occur. The 
inflation projection for 2009 remains at 3.5 percent. 
Monetary developments in Q1 of 2009 were characterized by strong spillover effects of 
the global financial crisis on domestic economy.
 The monetary policy framework has 
proven to be robust enough to ensure financial system stability, thus justifying higher 
regulatory costs and providing a significant buffer. Following the contraction of the reserve 
money in 2008, mostly due to changes in the monetary policy framework, it rebounded 
strongly in early 2009. On the other hand, M4 growth rate slowed to 3.3 percent y/y in 
March, mainly as a result of declining credit activity and general weakening of economic 
activity. The more uncertain environment, limited domestic and international financing 
sources will play an important role on the supply side. 
Figure [6]. Croatia: Quarterly CPI growth rate, y/y 
1.0
2.0
3
.0
4.0
5.0
6.0
7.0
8.0
Q
1
 
2
0
0
2
Q
3
 
2
0
0
2
Q
1
 
2
0
0
3
Q
3
 
2
0
0
3
Q
1
 
2
0
0
4
Q
3
 
2
0
0
4
Q
1
 
2
0
0
5
Q
3
 
2
0
0
5
Q
1
 
2
0
0
6
Q
3
 
2
0
0
6
Q
1
 
2
0
0
7
Q
3
 
2
0
0
7
Q
1
 
2
0
0
8
Q
3
 
2
0
0
8
Q
1
 
2
0
0
8
 
Sources: CNB, CROSTAT 
Page  6
 
6
As a consequence of lower demand for loans as well as banks becoming more risk 
averse, private sector credit grew by 9.3 percent by March 2009. 
Corrected for exchange 
rate depreciation, of some 5 percent compared to end-2008, this suggests strong adjustments. 
Demand for loans declined due to more stringent financing terms, while supply remained 
oriented towards more secure financing of government borrowing requirements. The annual 
growth rate of placements to enterprises began to decelerate as of end-2008 and stood at 11.9 
percent in March. The slowdown in bank lending was particularly evident in household 
loans. Their annual growth rate went down from 12.1 percent in 2008 to 8.3 percent at end-
March 2009. 
On the other hand, banks’ placement to the central government grew by HRK 
8.9bn in Q1 thus reaching HRK 30bn, which is almost double compared to the same month 
last year. 
Official FX reserves are still at adequate levels, although declining. 
The foreign reserves 
of the central bank declined by 9.9 percent y/y to EUR 8.9bn at end-March, following an 
11.6 percent y/y decline a month ago. As for commercial banks, their foreign reserves were 
down by 23 percent y/y to EUR 3bn, mainly due to the changes in monetary framework. 
Deposits denominated in foreign currency account for 63.7 percent of total deposits, almost 
equal to the ratio of foreign currency and foreign currency denominated loans to overall loans 
(68.3 percent). Over the last few months the ratios are increasing with some of local banks 
completely abolishing loans denominated in local currency. This is most noticeable in the 
loans granted to enterprises. 
With significant private sector balance sheet vulnerabilities, exchange rate stability is 
important for 
households but also unhedged corporates, and indirectly also for the quality of 
the portfolio of financial institutions. With gross reserves covering around 63 percent of 
strongly increasing short-term debt, Croatia will be well advised to build flexibility 
elsewhere through, in particular, swift progress with structural reforms, adequate external 
financing, and appropriate fiscal response. 
Public finance 
The EU10 countries and Croatia face the difficult task of reconciling short-term fiscal needs 
with ensuring longer-term fiscal sustainability. For the recovery, it is important to protect 
Figure [7]. Croatia: Exchange rate pressures
 
Figure [8]. Croatia: International Reserves and Banks' 
foreign exchange reserves, billion EUR 
80
85
90
95
100
105
110
1
/
0
3
5
/
0
3
9
/
0
3
1
/
0
4
5
/
0
4
9
/
0
4
1
/
0
5
5
/
0
5
9
/
0
5
1
/
0
6
5
/
0
6
9
/
0
6
1
/
0
7
5
/
0
7
9
/
0
7
1
/
0
8
5
/
0
8
9
/
0
8
1
/
0
9
7.10
7.20
7.30
7.40
7.50
7.60
7.70
7.80
IREER (CPI) - left 
HRK/EUR - right
 
0
2
4
6
8
1
0
12
1
4
1
6
I
 
2
0
0
3
I
V
V
I
I
X
I
 
2
0
0
4
I
V
V
I
I
X
I
 
2
0
0
5
I
V
V
I
I
X
I
 
2
0
0
6
I
V
V
I
I
X
I
 
2
0
0
7
I
V
V
I
I
X
I
 
2
0
0
8
I
V
V
I
I
X
I
 
2
0
0
9
billion EUR
Bank's FX reserves
CNB's international reserves
 
Source: CNB 
Page  7
 
7
priority programs to enhance growth prospects while safeguarding medium-term fiscal 
consolidation by reducing fiscal deficits and bringing public debt to a sustainable trajectory.  
The 2008 outturn was marked by strong revenue growth, which allowed for additional 
spending as well as marginal reduction of fiscal deficit including off-budget and quasi-
fiscal activities.
 The latest MoF data show that the consolidated general government (CGG) 
revenues rose by 6.4 percent y/y in 2008. This rise resulted primarily from the strong growth 
of VAT revenues (which grew by 9.4 percent y/y), followed by revenues from social 
contributions and corporate income tax revenues. Total CGG expenditures (GFS 1986) went 
up by 5.4 percent, mostly due to wage growth and social benefits. Below the line, the deficit 
was financed mostly by domestic borrowing and privatization receipts which amounted to 4 
percent of GDP.
 
Public debt, including state guarantees and the debt of HBOR, increased by 
2.2 percentage points of GDP in 
2008, to 42.3 percent of GDP. 
The 2009 budget revision reduced 
expenditures by 1.6 percentage 
points of GDP. 
However, due to 
lower than planned revenues (of 
some 2.3 percent of GDP) the CGG 
deficit increased to 1.6 percent of 
GDP (from 0.8 percent according to 
the ESA95 methodology) or to 2.7 
percent of GDP (GFS 1986 
methodology). Over one quarter of 
the expenditure adjustment will 
come from the reduction of salaries 
of civil and public servants, 
followed by subsidies’ and 
investments’ reduction. 
Further budget cuts might 
become necessary depending on 
the size of tourism revenues and 
the availability of external financing
. Government is currently preparing a euro-
denominated bond offering (EUR 750mn), a first since 2004, which should help refinance 
large amounts of maturities coming due in the near future. However, regardless of its 
outcome, further expenditure adjustments may be advisable to mitigate the impact of the 
automatic stabilizers, activated during late 2008 and early 2009 with the recessionary 
economic trends, potential further revenue shortfall as employment and wages further 
decline, and uncertainties regarding shipyards’ debt service due to delayed restructuring and 
privatization. 
External vulnerability 
 
Croatia's external deficit in 2008 amounted to EUR 4.45bn, rising 37.6 percent y/y. 
The 
rise in the deficit is ascribed to the deteriorating foreign trade in goods, and moderate 
outcome in the exchange of services. The trade deficit exceeded EUR10.8 billion, an increase 
of 15.2 percent y/y. On the other hand, the services account surplus amounted to EUR 7bn, 
Table [1]. Croatia: Public Finance (GFS 1986)  
2008
2009
 in % of GDP 
 in % of GDP 
 1. General Government Balance
-2.6
-2.7
S
tate Budget
-1.1
-
1.7
Extrabudgetary funds
-0.3
-0.2
H
AC
-0.9
-0.5
Local Government
-0.3
-0.3
 2. General Government Balance Financing (3+4)
2.6
2.7
 3. Central Government Balance Financing
2.3
2.4
    3.1. Capital revenues and privatization
0.4
0.3
    3.2. Foreign borrowing
0.1
0.5
       Drawings
1.2
3.0
       Repayments
1.1
2.5
 
   3.3. Domestic borrowing
2.4
1.9
       Drawings
3.6
2.8
       Repayments
1.2
0.9
    3.4. Deposit change
0.6
0.3
- State Budget
0.5
0.1
- Extrabudgetary funds
0.2
0.3
- HAC
-0.1
-
 4. Local Government Financing
0.3
0.3
 Memo:
Pensioners' Debt repayment
-0.3
-0.2
HBOR
-0.7
-0.6
Shipyard Guarantee call
-
-0.4
#DIV/0!
BROADER MEASURE OF FISCAL BALANCE
-3.6
-3.8
 
Sources: MoF, IMF, staff calculation and estimate
 
Page  8
 
8
up 11.1 percent y/y. On the financing account, net FDI inflows recorded a decline of 19.3 
percent, despite a 
robust inflow related to MOL’s acquisition of an additional stake in INA. 
Thus, FDI C/A deficit coverage declined from 107.6 percent in 2007 to 63.1 percent in 2008. 
Portfolio investments were negative, mainly as a result of asset purchases, while other 
investments were more than doubled, showing the expected pressures on debt-creating 
financing.  
External adjustments are underway with foreign goods trade on downward trajectory.
 
March goods trade gap fell by 20 percent y/y to EUR 0.8bn largely thanks to a 15-percent y/y 
slump in imports (mostly capital and intermediate imports). The Q1 deficit thus fell to EUR 
1.8bn (-32 percent y/y) and yielded an export to import cover of 51 percent. Within 
processing industry the highest contribution to the negative exports growth had manufacture 
of wood and wood products except furniture; and coke and refined petroleum products. 
Imports were mainly driven by capital goods and oil, which registered a drop of 24.6 percent 
y/y. With services income subject to high uncertainty, CAD could be in the range of 6.5 to 
7.0 percent of GDP in 2009. 
Figure [9]. Croatia: External imbalance worsened in 
2008
 
Figure [10]. Croatia: FDI structure, 2008 
 
-3.2
-7.5
-6.3
-4.4
-5.5
-6.9
-7.6
-9.4
6.4
-0.6
7.0
2.0
-0.1
4.4
5.7
3.2
-12
-10
-8
-6
-4
-2
0
2
4
6
8
2001
2002
2003
2004
2005
2006
2007
2008
%
CAB
Non-debt creating inflows
 
37.8%
28.5%
6.7%
4.4%
4.5%
4.2%
13.9%
Financial intermediation, except insurance and pension funds
Manufacture of coke, refined petroleum products
Real estate activities
Extraction of crude petroleum and natural gas
Retail trade, except of motor vehicles 
Hotels and restaurants
Other
 
Sources: CNB, CROSTAT 
Croatia’s gross external debt went up by EUR 6.4bn (19.3 percent) in 2008, reaching a 
total of EUR 39.3bn (83 percent of GDP) at end-2008. 
The growth was mostly the 
consequence of strong corporate foreign borrowing. The latter, however, slowed down 
noticeably towards the end of the year. In contrast to this, after decreasing their debt in the 
first nine months of 2008, the government sector and banks increased their foreign liabilities 
in Q4 of 2008 relative to the end of the previous year. The gross foreign debt of the country 
increased further to EUR 39.9bn at end-January by 1.6 percent m/m on the back of stronger 
banking sector borrowing which rose by 3.7 percent m/m to EUR 10.4bn at end-January.  
The average maturity of that debt is also shortening: in 2009 alone, projected debt 
service amounts to 30 percent of GDP, a steep rise from single a digit requirement in 
2008
. As noted above
, 
strong efforts have begun to mobilize the necessary funding, in the 
face of the tight financial conditions, a scarcity and cost of external financing.