Press Release: IMF Approves Second STF Drawing for Croatia

IMF News, April 11, 1995

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The IMF approved a second drawing for Croatia equivalent to SDR 65.4 million (about $ 103 million) under the systemic transformation facility (STF).
The drawing is intended to support the Government's 1995 program of macroeconomic stabilization and structural reform.
The first disbursement under the STF, also SDR 65.4 million, was approved on October 14, 1994, together with a stand-by arrangement for an additional SDR 65.4 million.

Following a cumulative decline of more than 30 percent in Croatia's real GDP during 1991-93, and the risk of hyperinflation, the authorities' IMF-supported stabilization program achieved considerable success in 1994.
Economic activity began to recover in 1994, inflation was sharply reduced, and the emerging private sector grew significantly, although much of the economy remains dominated by large state-owned enterprises.
Both the overall budget and the external current account registered surpluses in 1994.
The situation remains fragile because of the slow implementation of planned structural reforms and uncertainties connected to the security situation in the region.

The program for 1995 is based on a pickup in real GDP growth and an annual inflation target of 2.6 percent.
The overall budget for 1995 is programmed to move to a deficit of 0.5 percent of GDP.
Expenditures for the year will increase compared to the 1994 outturn as a result of higher wage and salary payments, lending for reconstruction projects, military spending, and slightly higher provisions for expenditures related to the social safety net.
The increases in spending will be offset by higher revenues resulting from taxes on goods and services, and from asset sales.
A tight monetary policy will be followed, based on using the exchange rate as the main source of financial discipline, combined with a cautious expansion of domestic credit.

A crucial element of Croatia's program is the imposition of financial discipline on enterprises that are still state owned.
In January 1995, a Ministry of Privatization was established, which is expected to give a new impetus to restructuring these enterprises.
The authorities are also committed to a program of structural reform in the banking sector, where some progress has already been made.

Croatia succeeded on December 14, 1992 to the membership of the former Socialist Federal Republic of Yugoslavia.
Its quota1 is SDR 261.6 million (about $411 million), and its outstanding use of IMF credit currently totals SDR 85 million (about $133 million).

Real GDP growth (percent change): 1993: –3.2; 1994*: 1.8; 1995**: 4.5
Consumer prices (Dec./Dec. annual increase): 1993: 1,149.2; 1994*: –3.0; 1995**: 2.6
External current account (percent of GDP): 1993: 2.5; 1994*: 1.5; 1995**: 0.1
Central budget overall balance (percent of GDP): 1993: --; 1994*: 0.6; 1995**: –0.5
Sources: Croatian authorities; and IMF staff estimates.
Notes: *Estimated. **Program.

International Monetary Fund — Press Release No. 95/20, April 11, 1995.