{ "title": "Croatia: Staff Concluding Statement of the 2021 Article IV Mission", "publication": "IMF News, June 23, 2021", "sourceUrl": "https://www.imf.org/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission", "overlayPath": "/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "summary": "Between the pandemic and two large earthquakes, Croatia was severely tested; resilience has come through.", "publishDate": "2021-06-23", "sections": [ { "heading": "Summary", "content": "- Between the pandemic and two large earthquakes, Croatia was severely tested; resilience has come through.\n- Economic contraction in 2020: 8 percent.\n- Recovery outlook 2021: growth between 5 and 6 percent, driven by rebound in services and investment, conditional on pandemic developments.\n- Recovery caveats: tourism and directly related sectors not fully recovered; full recovery likely to take another year or two.\n- Best-case 2021 scenario: with successful vaccination drive and favorable tourism outcomes, growth could exceed 6 percent." }, { "heading": "Near-term economic developments and labor market", "content": "- Q1 2021: recovery picked up noticeably; construction and manufacturing activity already above 2019 levels.\n- Registered unemployed persons: fallen by nearly 13 percent since a year ago.\n- Tourism-related recovery: likely to take another year or two.\n- If the pandemic fades by end of this year, growth could remain high over the next few years, provided timely and full use of forthcoming EU funds." }, { "heading": "Fiscal priorities in 2021", "content": "- Support measures enacted in 2020 included subsidy and job retention schemes, tax relief and deferrals, opt-in limited time debt service moratorium, guarantees and grants to businesses.\n- IMF staff view: most important fiscal goal in 2021 is to focus on spending available resources wisely to restore the economy to health.\n- Support measures should:\n - Remain in place until health of population and economy fully restored.\n - Be better targeted to lagging sectors as conditions improve.\n - Rotate toward preparing the workforce for the post-pandemic world and facilitating balance sheet repair of viable businesses.\n- Healthcare priorities:\n - Vaccination drive must be as successful and widespread as possible.\n - Extra healthcare costs should be fully met and arrears in the healthcare system reduced to the maximum possible extent.\n- Revenue stance:\n - Authorities need to conserve all available resources to meet unexpected expenditures into 2022 and beyond.\n - IMF staff: not the right time for further tax cuts or weakening of the tax base; frequent tax changes create uncertainty." }, { "heading": "Public investment and EU funds (opportunity and absorption)", "content": "- Recovery and Resilience Fund (RRF) grants: amount to 10.6 percent of GDP to be utilized by 2026.\n- Taken together with regular structural EU funds: total inflows could be 35.7 percent of GDP over the next six years.\n- IMF staff assessment: RRF funds alone could add as much as 2.9 percentage points to real GDP over the next twenty years (estimate relative to a policy neutral real GDP baseline).\n- Potential outcomes if investments and reforms are implemented:\n - Significant upgrade of public capital stock, decarbonization, digitalization catch-up, improved maritime and rail transport.\n - Narrowing of a 35% gap in per capita income with respect to the EU average, over time.\n - Reduced outward migration and lowered risks to sustainability of healthcare and pensions systems.\n- IMF recommendation: fully absorb funds efficiently and in a timely manner, accompanied by needed reforms." }, { "heading": "Public investment management and IMF support", "content": "- Need to strengthen public investment management practices: planning, selecting, budgeting, and implementation to meet international best practice across the public sector.\n- Authorities requested a Public Investment Management Assessment (PIMA) from the IMF for August 2021 to prepare an action plan ensuring effective and climate-sensitive investment spending.\n- NRRP (National Recovery and Resilience Plan) commitments across five components: green and digital economy; public administration and judiciary; education, science and research; labor market and social protection; and healthcare. The plan is “front-loaded” with a significant share of reforms slated for completion over the next three years." }, { "heading": "Structural reforms and fiscal-strengthening measures (priority areas)", "content": "- Civil service and administrative reforms, including:\n - Modernization of the public salary system.\n - Improving territorial organization of sub-national governments.\n- Healthcare reforms:\n - End stop-gap measures for healthcare arrears by overhauling cost structure (centralize procurement of medicines, merge medical services to exploit economies of scale).\n - Explore a more sustainable revenue base to preserve healthcare quality standards.\n- State-owned enterprises (SOEs):\n - Develop and implement a full-fledged SOE strategy: separate core from non-core businesses, strengthen oversight for core SOEs so they remain financially durable after public service obligations.\n - Authorities’ commitments to sell some non-core SOEs over the next few years noted as promising.\n - IMF stands ready to provide capacity development for SOE oversight if desired.\n- Pensions: ensure long-term sustainability given population aging.\n- Competitiveness: continue improving competitiveness via active dialogue with the private sector; recent proposed improvements for tourism and non-tourism sectors are steps in the right direction.\n- Business environment: reforms to debt restructuring, insolvency, and legal predictability/efficiency are central to unlocking private investment." }, { "heading": "Monetary and financial sectors: vigilance recommended", "content": "- Monetary policy: remains highly expansionary within the exchange rate anchor in place since 1993; stance considered appropriate to nurse the economy back to health.\n- Liquidity: more than ample funds in the banking system to meet credit demand.\n- Inflation: recent pick-up likely transitory (energy prices and nascent recovery); if inflation proves more persistent than in the euro area, the CNB may consider reducing excess liquidity while maintaining exchange rate stability.\n- Banking system: liquid and on average well capitalized.\n- Credit dynamics:\n - Restoration of credit register welcomed to help banks’ risk management.\n - Bank lending to companies initially strong but recently tapered off; bank lending for housing remains firm.\n - Uncollateralized retail cash loans have fallen—considered a healthy development.\n- Asset quality:\n - Ratio of non-performing loans (NPLs) to total loans has remained stable.\n - Stage II loans (forward-looking indicator of future asset quality problems) have risen, particularly for non-financial corporations — warrants continued close monitoring.\n- Housing market:\n - Upward trend in house prices in Zagreb and coastal areas continues.\n - If housing purchases are not driven by excessive household borrowing, they do not constitute an immediate financial stability risk, but require continued CNB monitoring.\n - CNB could consider more formal macro-prudential measures if circumstances require (beyond the current implicit debt-service-to-income ratio in the Foreclosure Act)." }, { "heading": "Conclusion and policy message", "content": "- Croatia faces a rare opportunity over the next five years to restore its people and economy to health by ramping up public investments with EU funds.\n- Success requires:\n - Timely and efficient absorption of EU funds.\n - Broad stakeholder support for vital reforms.\n - Re-energizing private investment and innovation.\n - Strong focus and preparation for euro adoption to reap full benefits of the currency union.\n- The time to act is now.\n\nSource: Croatia: Staff Concluding Statement of the 2021 Article IV Mission, June 23, 2021.\n\n---\n\n Content in this bundle\n\n- Country Report\n - Country Report (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - Country Report (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- Republic of Croatia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json)", "Published: June 23, 2021", "Between the pandemic and two large earthquakes, Croatia was severely tested; resilience has come through.", "Economic contraction in 2020: 8 percent.", "Recovery outlook 2021: growth between 5 and 6 percent, driven by rebound in services and investment, conditional on pandemic developments.", "Recovery caveats: tourism and directly related sectors not fully recovered; full recovery likely to take another year or two.", "Best-case 2021 scenario: with successful vaccination drive and favorable tourism outcomes, growth could exceed 6 percent.", "Q1 2021: recovery picked up noticeably; construction and manufacturing activity already above 2019 levels.", "Registered unemployed persons: fallen by nearly 13 percent since a year ago.", "Tourism-related recovery: likely to take another year or two.", "If the pandemic fades by end of this year, growth could remain high over the next few years, provided timely and full use of forthcoming EU funds.", "Support measures enacted in 2020 included subsidy and job retention schemes, tax relief and deferrals, opt-in limited time debt service moratorium, guarantees and grants to businesses.", "IMF staff view: most important fiscal goal in 2021 is to focus on spending available resources wisely to restore the economy to health.", "Support measures should:", "Healthcare priorities:", "Revenue stance:", "Recovery and Resilience Fund (RRF) grants: amount to 10.6 percent of GDP to be utilized by 2026.", "Taken together with regular structural EU funds: total inflows could be 35.7 percent of GDP over the next six years.", "IMF staff assessment: RRF funds alone could add as much as 2.9 percentage points to real GDP over the next twenty years (estimate relative to a policy neutral real GDP baseline).", "Potential outcomes if investments and reforms are implemented:", "IMF recommendation: fully absorb funds efficiently and in a timely manner, accompanied by needed reforms.", "Need to strengthen public investment management practices: planning, selecting, budgeting, and implementation to meet international best practice across the public sector.", "Authorities requested a Public Investment Management Assessment (PIMA) from the IMF for August 2021 to prepare an action plan ensuring effective and climate-sensitive investment spending.", "NRRP (National Recovery and Resilience Plan) commitments across five components: green and digital economy; public administration and judiciary; education, science and research; labor market and social protection; and healthcare. The plan is “front-loaded” with a significant share of reforms slated for completion over the next three years.", "Civil service and administrative reforms, including:", "Healthcare reforms:", "State-owned enterprises (SOEs):", "Pensions: ensure long-term sustainability given population aging.", "Competitiveness: continue improving competitiveness via active dialogue with the private sector; recent proposed improvements for tourism and non-tourism sectors are steps in the right direction.", "Business environment: reforms to debt restructuring, insolvency, and legal predictability/efficiency are central to unlocking private investment.", "Monetary policy: remains highly expansionary within the exchange rate anchor in place since 1993; stance considered appropriate to nurse the economy back to health.", "Liquidity: more than ample funds in the banking system to meet credit demand.", "Inflation: recent pick-up likely transitory (energy prices and nascent recovery); if inflation proves more persistent than in the euro area, the CNB may consider reducing excess liquidity while maintaining exchange rate stability.", "Banking system: liquid and on average well capitalized.", "Credit dynamics:", "Asset quality:", "Housing market:", "Croatia faces a rare opportunity over the next five years to restore its people and economy to health by ramping up public investments with EU funds.", "Success requires:", "The time to act is now.", "**Country Report**", "[Republic of Croatia and the IMF](http://www.imf.org/external/country/HRV/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](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)" ], "related": [ { "title": "Country Report", "role": "report", "sourceUrl": "https://www.imf.org/-/media/files/news/mission-concluding-statement/croatia-hrv-staff-concluding-statement-of-the-2021-article-iv-mission.pdf", "summary": { "path": "/-/media/files/news/mission-concluding-statement/croatia-hrv-staff-concluding-statement-of-the-2021-article-iv-mission.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/news/mission-concluding-statement/croatia-hrv-staff-concluding-statement-of-the-2021-article-iv-mission.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/index.md", "json": "/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2021/06/22/mcs062321-croatia-staff-concluding-statement-of-the-2021-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-26T00:29:42.053Z" }