IMF Staff Concludes Visit to Croatia
IMF News, May 2, 2019
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Bibliographic details
- Published: May 2, 2019
Mission details and context
- Press Release No. 19/135
- Date of statement: May 2, 2019
- IMF team visit: Zagreb from April 23-30, 2019
- Mission head: Mr. Srikant Seshadri
- Contact: PRESS OFFICER: Gediminas Vilkas; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
- Note: "End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion."
Macroeconomic assessment — findings
- "Macroeconomic conditions have remained positive."
- Growth is "gradually moderating from its recent highs."
- Inflation "remains subdued."
- International reserves "have increased."
- Public debt "has been declining."
- Fiscal performance "has been strong despite sizable recent shipyard guarantee payments."
- Private demand and tourism "continue supporting economic activity."
- Activity is also "underpinned by the CNB’s continued accommodative monetary policy."
- Banking sector assessment: "liquid, profitable, and well-capitalized."
- Risk noted: "a possible slowdown in main trading partners may affect these benign conditions." Specific policy advice if slowdown emanates from Europe: "the authorities are encouraged to let the social safety net work, before considering fiscal stimulus."
Fiscal outlook and public debt
- The "recently approved Convergence Program for 2019-22 projects further reduction of public debt."
- Achievement caveat: "Achievement of the underlying surpluses will require continued restraint with current expenditures."
- Recommendation: "EU funds need to be increasingly utilized to ramp up public investment."
Structural reform priorities — IMF staff emphasis
- Overarching message: "reducing macroeconomic vulnerabilities is only half the task... There is another equally important half on which significantly greater progress is called for—to raise living standards durably and make the economy more dynamic through structural reforms."
- Specific reform areas and recommendations:
- Streamline the State.
- "Merit-based civil servant compensation complemented by an appropriate reduction in total public employment expenditures could create room for higher public sector wages."
- "Reducing the fragmentation between different layers of government will ensure that public services are delivered most effectively."
- "Inefficient state-owned enterprises compromise the productivity of the economy. Decisive action is needed to divest non-essential state assets and strengthen the financial management of essential ones."
- Urgency: "Time is of the essence, as changes in these areas are highly sensitive to broader economic conditions, and are best carried out when times are good."
- Increase labor force participation.
- "Modernizing labor contracts would improve employment prospects for the young and reduce the incentive to emigrate."
- "Improved child care access would facilitate higher participation from women."
- "Reforms in education and training policies would alleviate skills’ mismatches, reduce labor shortages, and generate more jobs."
- Improve business conditions.
- Note positive steps: "recent initiatives to reduce parafiscal fees and simplify the process of starting a business."
- Remaining impediments: "uncertainties and back-logs associated with legal processes are impediments to enhancing the business climate."
- Preserve the sustainability of the pension system.
- Statement: "Longer life-spans come with inescapably higher pension costs."
- Assessment of recent action: "The recently passed pension reform was a vital step in acknowledging realities that cannot be put off any longer."
- Warning: "Without an increase in retirement age, the State would incur sizable debts, for which the youth of today will have to pay. Alternatively, the elderly would be consigned to living on lower pensions."
- Conclusion: "If the pension system is not aligned with today’s life expectancy, the range of the country’s choices will be limited between these two outcomes."
- Make the healthcare system financially self-sufficient.
- Observation: "Despite increasing healthcare contributions, the buildup of arrears continues."
- Recommendation: "Concerted actions to increase cost efficiency are compatible with maintaining the existing quality of the healthcare system and need to be pursued with urgency."
Engagement and next steps
- "The mission held fruitful discussions with the Minister of Finance Marić; Governor of the Croatian National Bank Vujčić, and other government officials, representatives from the private sector, and civil society organizations."
- Gratitude: "The mission thanks the authorities and all interlocutors for the constructive dialogue and kind hospitality."
- Outlook: "The IMF looks forward to the upcoming 2019 Article IV Consultations, scheduled for this autumn."
IMF Staff Concludes Visit to Croatia — Press Release No. 19/135 (May 2, 2019).