ZAGREB, February 13, 2019 – The International Monetary Fund’s (IMF) executive directors have established that in 2018 Croatia continued its fourth year of positive economic growth as well as its fiscal consolidation albeit at a slower rate, and they also call for improving the business climate in Croatia and rationalisation of the public companies’ sectors as well as improvements in bankruptcy legislation.
“The economic expansion continues, driven primarily by private consumption and exports of goods and services,” the IMF says in a press release after the conclusion of 2018 Article IV Consultation, on 8 February.
The fund’s Executive Directors welcome “Croatia’s continued economic recovery, which has helped further reduce indebtedness and build external buffers,” according to the press release issued on the IMF website on Wednesday. “Directors commended the attainment of the first fiscal surplus in 2017 since independence.
“They encouraged the authorities to seize the opportunity presented by favourable macroeconomic conditions to advance the reform agenda by stimulating more inclusive growth, persevering with fiscal consolidation and debt reduction, and fully implementing structural reforms.”
The report reads that in Croatia “wages are growing, employment is rising, and inflation remains benign.”
“Over the next few years, growth is expected to moderate, as the economy moves closer to its potential. The current account is projected to decline but remain in surplus, while external indebtedness is expected to continue to decline.”
After the 2.7% growth in 2018, Croatia’s economy is likely to grow by 2.6% in 2019, according to the IMF estimates.
“Fiscal performance has been strong, but the materialization of contingent liabilities from government guarantees is likely to reduce the overall surplus. Low public and private investment, and continued emigration weigh on medium-term growth prospects. Downside risks in the near-term stem from possible changes in regional or global economic and financial conditions, and the further realization of contingent liabilities,” reads the press release.
Directors welcomed the Croatian authorities’ commitment to fiscal discipline, and “stressed the importance of pursuing growth-friendly fiscal consolidation, while improving the structure of revenues and the quality of expenditure.
“To this end, they encouraged the authorities to broaden the tax base and take measures to reduce the informal economy.”
Directors welcomed the passage of the Fiscal Responsibility Law, and encouraged the authorities to enact the Budget Act which would integrate the analysis of contingent liabilities as part of the budget process and facilitate medium-term planning.
The IMF highlights “the need to improve the business environment by further reducing administrative and tax burdens, and welcomed recent initiatives to reduce parafiscal fees.”
The IMF directors advise “rationalizing the state-owned enterprise sector, divesting under-utilized state assets, and improving the efficiency of legislative and judicial processes.”
According to the press release, “directors called for more ambitious restructuring of public administration including by reducing high public employment outlays and reducing the fragmentation in sub-national levels of government.”
While welcoming the passage of pension reform, as well as recent measures to improve the efficiency of the healthcare system, they underscored that the elimination of the healthcare system’s arrears as well as ensuring long-term sustainability of the pension system would require further reforms,” reads the assessment made by the IMF directors.
More news on Croatia’s economy can be found in the Business section.
