September 22, 2023 – For further acceleration of convergence and growth of the standard of living, it is necessary to increase the productivity of the Croatian economy. This was one of the main points of the first Economic Review of the OECD for the Republic of Croatia. There was also a warning of weak control of corruption in Croatia.
The presentation was held at the National and University Library (NSK) after Prime Minister Andrej Plenković met with the Secretary General of the Organization for Economic Cooperation and Development (OECD) Mathias Cormann, writes Index.
“It is necessary to direct capital to more productive companies and industries.”
The review contains several recommendations in different areas, and, as Cormann pointed out, further acceleration of the convergence of the Croatian economy with that of the EU, increasing wages, and raising the standard of living of citizens are possible by increasing the productivity of the economy, as well as by increasing investments.
He highlighted the strong startup scene but also some less productive companies that are still operating, which maintains the gap in productivity between the Croatian economy and OECD members.
It is therefore necessary to direct capital to more productive companies and industries, said Cormann, emphasizing the need to improve the regulatory framework, which, among other things, includes better communication between the economy and the public sector. Among other things, the OECD emphasized the need for better management of state-owned companies, suggesting the need for greater independence of supervisory boards and the need for state-owned companies to be listed on the stock exchange.
Weak control of corruption in Croatia, lack of workforce
He also warned about the weak control of corruption in Croatia in the public sector compared to other EU members. The lack of a workforce is becoming an increasing obstacle to economic growth. As the second key priority in its review, the OECD indicated the need to improve skills and quality, especially in the segment of skilled labor. This can be achieved through flexible and accessible education programs that meet the needs of the labor market.
It is also advised to increase the level of employment among young people, as well as senior citizens, while the pension reform should encourage people to retire later.
A longer working life will reduce the poverty rate in the elderly population, the OECD stated. In the context of demographics and the state of the labor market, they believe it is necessary to attract labor force from other countries in a targeted manner, to retain existing talents, and to encourage the return of those who left Croatia to work abroad.
They also emphasized the need for a higher supply of accessible, quality, and affordable housing, mentioning in this context the possibility of property tax reform.
The OECD forecasts 3% growth of the Croatian economy in 2023
Cormann highlighted Croatia’s progress in the process of joining the OECD, as well as its energy, enthusiasm, and determination to achieve this goal. He also emphasized the commitment to reforms focused on strong and sustainable growth and development and improving citizens’ living standards.
He praised the performance of the Croatian economy, including the rapid reduction of the gap between Croatia’s GDP per inhabitant and the EU average, the resilience and quick recovery that the economy has shown in the context of the coronavirus pandemic, the growth of employment and the drop in unemployment. He also spoke positively of the Croatian membership in the Eurozone and Schengen.
The OECD recently updated the projections of macroeconomic indicators for the world’s economies, including Croatia, which is forecast to grow by three percent this year and 2.4 percent next year. He also predicts that after 8.5 percent this year, inflation will slow down to 4.3 percent next year.
Prime Minister: The review will help speed up further reforms
After the meeting, PM Plenković pointed out that the OECD is the only major international organization that Croatia still needs to join and assessed that the day of the reviews was indeed a reference day.
He emphasized the effort that in two years, when a new OECD review is presented, Croatia will come into a situation where its membership is practically at the final stage. He assessed the review as important, objective, impartial, and realistic, noting that it will help Croatia accelerate further reforms and adopt the standards recommended by the OECD to its members.
He reminded that Croatia became a member of Schengen and the Eurozone at the beginning of the year, and these “huge steps forward” qualify it to speed up the accession process to the OECD, pointing out that this organization brings together 38 of the most developed and well-organized countries in the world.
“We want OECD membership to enable us to make the Croatian economy even more competitive, both on the European continent and globally, and to adopt the best standards of management and implementation of public policies,” said the prime minister.
He also referred to the fact that the OECD forecasts the growth of the Croatian economy this year at three percent, while the government’s current forecast is 2.2 percent. “This means they also see the good and positive results,” said Plenković.
Finance Minister: We are ready to start working on the implementation right away
Along with several ministers, the Minister of Finance, Marko Primorac, attended the review presentation, asserting that it confirms that Croatia has the strength, resilience, and skills to deal with major global crises. It also confirms Croatia’s strides in recovery, as well as the long-term resilience of the Croatian economy, whereby the government’s efforts and successes in implementing the National Recovery and Resilience Plan (NPOO) are recognized.
On the other hand, said Primorac, the OECD warns of the risks and challenges that Croatia faces in public administration, justice, education, corporate management of fully or partially state-owned companies, and challenges related to the labor market.
Primorac agreed with the need to strengthen the productivity of the Croatian economy, as well as the need to accelerate the green and digital transition.
In conclusion, Primorac said that the government attaches great importance to the OECD review and that it is ready to immediately start working on the implementation of the recommendations, which will result in “long-term transformative effects for our state, economy, and society as a whole.”
