ZAGREB, March 7, 2018 – Croatia has made limited progress in addressing last year’s recommendations from the European Commission, but structural reforms have not advanced, the Commission said on Wednesday in a report analysing the economic and social situation in the member states, including their progress on the implementation of recommendations and assessment of possible macroeconomic imbalances.
“Croatia has made limited progress in addressing the 2017 country-specific recommendations. Fiscal policy, supported by favourable macroeconomic conditions, has ensured a declining debt ratio, but structural measures have not advanced,” the Commission said.
In May 2017, the Commission made five recommendations to Croatia relating to public finance and taxation, pensions, the labour market and social protection, wage setting, public administration and state-owned companies, the services sector and the judicial system.
“Legislation needed to reinforce the fiscal framework has not been adopted, while the previously legislated recurrent property tax has been abandoned. Some steps are being taken to rationalise the healthcare system, in particular hospitals. However, payment arrears in healthcare continue to grow. Measures planned for the social benefits system have been narrowed in scope, while the package of pension system reforms has been further postponed. Active labour market policy measures for low-skilled and long-term unemployed remain largely underutilised, while the education reform is still pending, despite some encouraging steps. Major public administration reforms are largely at a standstill,” the report said.
“Measures to improve the business environment have advanced somewhat as regards to relieving the administrative burden and reducing parafiscal charges. Some progress has been made in the sale of minority shares in state-owned enterprises and activating state property, while backlogs in the judicial system have marginally reduced. Some measures to address the high level of non-performing loans were put in place,” it added.
The report also includes a review of macroeconomic imbalances. Last November, the Commission launched in-depth reviews for 12 member states to identify any macroeconomic imbalances and their scale.
Croatia, along with Cyprus and Italy, was identified as having excessive macroeconomic imbalances. Three of the 12 countries, namely Bulgaria, Portugal and Spain, were found not to be having excessive macroeconomic imbalances any more, but only macroeconomic imbalances, while Slovenia was found not to be having any macroeconomic imbalances.
Commission experts say that Croatia should look at what other countries have done to overcome their excessive economic imbalances. They are no better than Croatia, but they have carried out what they planned to do, while Croatia is weakest in delivering the measures it itself announced. Something is always delayed, such as the pension reform or property tax, although we understand that some of these reforms are not popular, they add.
Experts say that the Croatian economy is now growing above its potential, that growth has slowed down two quarters before the Commission expected and that the growth potential will not be able to increase unless structural reforms are carried out.
The European Commission has projected that the Croatian economy will grow at a rate of 2.8% this year, estimating the potential growth rate at 1.4%. Next year, the growth rate is forecast at 2.7% and the potential growth rate at 1.9%.
