## IMF Staff Concludes Virtual Visit to Croatia _IMF News, November 30, 2020_ ## Source details **Canonical URL:** [IMF Staff Concludes Virtual Visit to Croatia](https://www.imf.org/en/news/articles/2020/11/30/pr20360-croatia-imf-staff-concludes-virtual-visit) ## Other formats - [Markdown version](/en/news/articles/2020/11/30/pr20360-croatia-imf-staff-concludes-virtual-visit/index.md) - [Structured JSON version](/en/news/articles/2020/11/30/pr20360-croatia-imf-staff-concludes-virtual-visit/index.json) - [Bundle manifest](/en/news/articles/2020/11/30/pr20360-croatia-imf-staff-concludes-virtual-visit/bundle-manifest.json) ## Bibliographic details - Published: November 30, 2020 --- ### Mission summary - Virtual discussions held during November 16-25, 2020 between an IMF team led by Mr. Srikant Seshadri and Croatian authorities. - Mission type: virtual visit; this mission will not result in a Board discussion. - Statement reflects views of IMF staff and does not necessarily represent views of the IMF’s Executive Board. ### Economic outlook and shock impact - 2020 contraction: expected between 8-10 percent, reflecting lower domestic and external demand and a 50 percent decline in tourism volumes (year-on-year). - Public debt: expected to rise back up to 88 percent of GDP in 2020. - General government deficit: forecast of 8 percent of GDP in 2020 due to lower tax revenues and fiscal support measures. - Private sector credit: growth has held its ground, partly supported by a temporary debt service moratorium. - 2021 outlook: economic growth is expected to rebound to about 6 percent in 2021, driven by higher public investment and a partial recovery in tourism; forecast is subject to significant pandemic-related uncertainty. ### Short-term priorities during the pandemic - Keep economic support in place until the recovery is well entrenched. - Ensure measures remain effectively targeted to reach viable sectors and minimize scarring. - Ensure resources for potentially higher healthcare expenses, particularly if the epidemiological situation worsens. - Design Covid-19-related support measures to remain in place as long as the pandemic has not abated to remove uncertainty about their duration. - Monitor measures constantly to ensure support is targeted to viable firms. ### Medium-term priorities and reforms - Restore fiscal space ahead of euro adoption and guide budgets back towards balance. - Enact structural reforms to address healthcare and pensions. - Streamline the role of the state, prominently through improved SOE governance. - Enhance the business climate to raise productivity and convergence with EU living standards. - Invest in technological and human capital; recommendations align with the 2019 Article IV consultations. - Once recovery is entrenched, steer the fiscal framework closer to objectives of lowering debt and balancing the budget. - Communicate a medium-term fiscal strategy that covers medium-term financing needs and includes an assessment of fiscal risks. - Fiscal stimulus aimed at raising growth would be more effective delivered as spending increases than further tax cuts; at this stage further reductions in VAT are not advisable without adequate offsets that guard against permanent revenue losses. ### Policy recommendations for labor markets and skills - Active training and reskilling should take place in areas with excess capacity such as tourism and hospitality and into areas like greening the economy and construction. ### Next Generation EU funds (Next Gen EU) - Next Gen EU allocation: averaging 5 percent of GDP over the next several years starting in 2021. - These funds can be utilized to raise public investment in physical, digital, green, and soft infrastructure. - If properly absorbed and utilized, these funds could meaningfully raise productivity and growth while shielding the ability to meet current expenditure needs such as healthcare. - The Croatia 2030 National Development Strategy is encouraging; crucial to develop a concrete investment plan and follow through with strong implementation. ### Financial sector and Croatian National Bank (CNB) actions - CNB actions at outset of the pandemic: aided the currency, provided additional liquidity, supported the government securities market, and temporarily eased the regulatory burden on banks. - ECB and CNB agreed on a €2 billion swap line on April 15. - CNB conducted five purchases of government securities, for about 5.5 percent of GDP by end-June. - Domestic financial markets quickly stabilized. - Croatia joined ERM II and established close cooperation with the ECB on banking supervision; joined the Single Resolution Mechanism on July 10. ### Engagements and closing - Mission held discussions with Deputy Prime Minister and Minister of Finance Marić; Governor of the Croatian National Bank Vujčić; other government officials; and representatives from the private sector. - IMF looks forward to the upcoming 2021 Article IV Consultations, scheduled for next Spring. *IMF Press Release No. 20/360, November 30, 2020.* --- ## Content in this bundle - **Press Release-English** - [Press Release-English (Markdown version)](/-/media/files/news/press-release/2020/pr20360-cro-croatia.pdf.md){rel="alternate" type="text/markdown"} - [Press Release-English (PDF)](/-/media/files/news/press-release/2020/pr20360-cro-croatia.pdf){rel="external" type="application/pdf"} --- ## References - [Republic of Croatia and the IMF](http://www.imf.org/external/country/HRV/index.htm) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2020/11/30/pr20360-croatia-imf-staff-concludes-virtual-visit_