The goal of this paper is to know the cause-and-effect relationship of high indebtedness and economic growth on the example of the Republic of Croatia. In the theoretical part, the paper deals with processes that lead to the need for government borrowing, as well as instruments that allow lending in various forms. The definition of public debt and indebtedness indicators is given, and also the concepts that appear in the field of public finances, revenues and expenditures, state surpluses and deficits are explained. Indebtedness is a process that occurs in a number of countries and mostly it is normal for a developing country. However, in case of excessive borrowing that is not accompanied by the rapid growth of economic activity, the state becomes unable to meet their obligations arising from borrowing, and there the debt crisis appears. Foreign debt of countries is a possible threat if the international financial system, if it results from a long-term imbalance in the balance sheers of current transactions of the countries. When borrowing country must keep in mind the principle of rationality, which requires that the efficiency of investments must be equal to the average interest rate on the borrowed funds. The use of funds from borrowing must result in increased production so that debts can be repaid. To over-indebtedness is a result of the bad economic policies of the country in the past. The main questions are: How much is Croatia in debt? What are the causes of high indebtedness? What are the consequences of high indebtedness on the economy? What is necessary to reduce the high indebtedness of Croatia? Croatia's indebtedness has been analyzed through financial indicators used by international financial institutions and by comparing these indicators with comparable countries in the region.