{
  "title": "IMF Executive Board Concludes 2021 Article IV Consultation with Croatia",
  "publication": "IMF News, September 10, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/09/10/pr21258-croatia-imf-executive-board-concludes-2021-article-iv-consultation-with-croatia",
  "canonical": "https://www.imf.org/en/news/articles/2021/09/10/pr21258-croatia-imf-executive-board-concludes-2021-article-iv-consultation-with-croatia",
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  "summary": "The Croatian economy experienced a 8.0 percent drop in activity in 2020 driven by the pandemic and two devastating earthquakes.",
  "publishDate": "2021-09-10",
  "sections": [
    {
      "heading": "Pandemic shock and policy response",
      "content": "- The Croatian economy experienced a 8.0 percent drop in activity in 2020 driven by the pandemic and two devastating earthquakes.\n- Tourism receipts fell by some 60 percent (yoy) in 2020.\n- Policy responses and support:\n  - Ample fiscal and monetary policy support and appropriate relaxation of supervisory requirements contained effects of the pandemic.\n  - EU funds (loans, transfers) financed most fiscal support measures, somewhat alleviating the government’s financial position.\n  - The CNB intervened in the currency market and purchased government securities amounting to about 5.5 percent of GDP.\n  - The CNB lowered reserve requirements and conducted repo operations.\n  - A €2 billion SWAP arrangement with the ECB was announced in mid-April 2020.\n- External and price developments:\n  - The current account posted a small 0.4 percent deficit in 2020 despite the collapse in tourism receipts.\n  - Gross public and external debt climbed by almost 16 and 6 percentage points, respectively.\n  - Inflation remained benign, with a recent uptick noted."
    },
    {
      "heading": "Growth and inflation projections",
      "content": "- Short-term projections:\n  - 2021 growth projected at 5.4 percent.\n  - 2022 growth projected at 5.8 percent.\n  - Projections assume 2/3 recovery of tourist arrivals in 2021 and nearly full recovery in 2022.\n  - Investment to be bolstered by large EU investment grants over the medium-term.\n- Medium term:\n  - Growth projected to ease closer to 3 percent over the medium term.\n  - Inflation projected to pick up and stay at 2 percent through 2023, in line with the ECB inflation target.\n- Risk factors:\n  - Large risks on both sides, including virus mutations in the near-term which could result in significant economic scarring.\n  - Medium-term downside risks include slower recovery in EU trading partners, ineffective absorption of EU funds, and challenges in delivering promised complementary reforms.\n  - Upside possibilities include a more rapid and successful vaccination campaign and larger-than-projected positive effects from green investments and digitalization."
    },
    {
      "heading": "Executive Board Assessment and policy advice",
      "content": "- Directors welcomed:\n  - Swift measures taken to combat COVID-19 that built foundations for the projected recovery underpinned by tourism and investment.\n  - Authorities’ efforts to balance pandemic recovery with fiscal prudence while remaining vigilant to support the nascent recovery as needed.\n- Fiscal policy guidance:\n  - Important to avoid further tax cuts to conserve fiscal resources.\n  - Place public debt levels on a downward trajectory over the medium term.\n- Structural reforms and EU funds absorption:\n  - Call for accelerated implementation of structural reforms and increased capacity to absorb EU structural funds, particularly in public investment management.\n  - Such reforms are essential to close the income gap to the EU average and to achieve decarbonization, digitalization, and diversification.\n  - Welcomed plans to implement a civil service remuneration system that rewards productivity and merging of healthcare services across sub-national governments.\n- Monetary, exchange rate, and euro adoption:\n  - Monetary policy considered appropriately accommodative within exchange rate anchor limits and ample global liquidity.\n  - Welcomed ERM II membership in July 2020 and authorities’ strategic priority of euro adoption.\n  - Noted benefits of euro adoption and welcomed commitment to observe convergence criteria and improve the AML/CFT framework and SOE governance.\n- Financial sector vigilance:\n  - Need to remain vigilant to financial and banking sector risks with expiration of regulatory easing introduced under European Banking Authority guidelines.\n  - Welcomed decision to facilitate write-offs of NPLs and efforts to strengthen the insolvency framework.\n  - Urged vigilance over credit developments in the real estate market and readiness to absorb excess liquidity and impose adequate macroprudential measures if needed."
    },
    {
      "heading": "Selected economic indicators (highlights from 2016–26 projections)",
      "content": "- Real GDP growth (percent change, annual average):\n  - 2016: 3.5\n  - 2017: 3.4\n  - 2018: 2.8\n  - 2019: 2.9\n  - 2020: -8.0\n  - 2021 (Proj.): 5.4\n  - 2022 (Proj.): 5.8\n  - 2023 (Proj.): 4.0\n  - 2024 (Proj.): 3.3\n  - 2025 (Proj.): 3.2\n  - 2026 (Proj.): 3.1\n- Unemployment rate:\n  - 2016: 15.0\n  - 2017: 12.4\n  - 2018: 9.9\n  - 2019: 7.8\n  - 2020: 9.0\n  - 2021 (Proj.): 8.5\n  - 2022 (Proj.): 8.0\n  - 2023 (Proj.): 7.7\n  - 2024 (Proj.): 7.2\n  - 2025 (Proj.): 7.0\n  - 2026 (Proj.): 6.8\n- CPI inflation (avg.):\n  - 2016: -1.1\n  - 2017: 1.1\n  - 2018: 0.8\n  - 2019: 0.1\n  - 2020: 1.8\n  - 2021 (Proj.): 1.9\n  - 2022 (Proj.): 2.0\n- Domestic investment (percent of GDP):\n  - 2016: 21.0\n  - 2017: 22.0\n  - 2018: 23.4\n  - 2019: 22.6\n  - 2020: 25.6\n  - 2021 (Proj.): 26.4\n  - 2022 (Proj.): 27.2\n  - 2023 (Proj.): 28.0\n  - 2024 (Proj.): 28.5\n  - 2025 (Proj.): 27.6\n  - 2026 (Proj.): 27.0\n- Domestic saving (percent of GDP):\n  - 2016: 23.2\n  - 2017: 25.5\n  - 2018: 25.3\n  - 2019: 25.7\n  - 2020: 25.8\n  - 2021 (Proj.): 25.9\n  - 2022 (Proj.): 26.8\n  - 2023 (Proj.): 27.7\n- General government revenue (percent of GDP):\n  - 2016: 46.5\n  - 2017: 46.0\n  - 2018: 46.2\n  - 2019: 47.5\n  - 2020: 48.0\n  - 2021 (Proj.): 51.2\n  - 2022 (Proj.): 52.4\n  - 2023 (Proj.): 52.1\n  - 2024 (Proj.): 50.5\n  - 2025 (Proj.): 48.8\n  - 2026 (Proj.): 48.1\n- General government expenditure (percent of GDP):\n  - 2016: 47.4\n  - 2017: 45.2\n  - 2018: 47.2\n  - 2019: 55.4\n  - 2020: 55.3\n  - 2021 (Proj.): 54.1\n  - 2022 (Proj.): 51.7\n  - 2023 (Proj.): 49.4\n  - 2024 (Proj.): 48.5\n- General government balance (percent of GDP):\n  - 2016: -1.0\n  - 2017: 0.4\n  - 2018: -7.4\n  - 2019: -4.1\n  - 2020: -2.9\n  - 2021 (Proj.): -1.2\n  - 2022 (Proj.): -0.5\n  - 2023 (Proj.): -0.4\n- Structural balance (percent of GDP, simplified approach):\n  - 2016: 0.5\n  - 2017: -5.7\n  - 2018: -3.2\n  - 2019: -2.6\n  - 2020: -1.8\n- General government debt (percent of GDP, Maastricht definition):\n  - 2016: 80.8\n  - 2017: 77.5\n  - 2018: 74.2\n  - 2019: 72.8\n  - 2020: 88.7\n  - 2021 (Proj.): 87.6\n  - 2022 (Proj.): 84.4\n  - 2023 (Proj.): 81.6\n  - 2024 (Proj.): 78.9\n  - 2025 (Proj.): 76.1\n  - 2026 (Proj.): 73.3\n- Current account balance (percent of GDP):\n  - 2016: 2.2\n  - 2017: 3.0\n  - 2018: -0.6\n  - 2019: -0.8\n  - 2020: -0.2\n- Gross official reserves (billions of euros):\n  - 2016: 13.5\n  - 2017: 15.7\n  - 2018: 17.4\n  - 2019: 18.6\n  - 2020: 18.9\n  - 2021 (Proj.): 24.0\n  - 2022 (Proj.): 25.4\n  - 2023 (Proj.): 26.1\n  - 2024 (Proj.): 26.6\n- IMF metric (percent):\n  - 2016: 88.5\n  - 2017: 102.0\n  - 2018: 112.4\n  - 2019: 103.4\n  - 2020: 125.6\n  - 2021 (Proj.): 138.9\n  - 2022 (Proj.): 143.2\n  - 2023 (Proj.): 147.2\n  - 2024 (Proj.): 146.9\n  - 2025 (Proj.): 145.7\n  - 2026 (Proj.): 144.4\n- Total external debt (percent of GDP):\n  - 2016: 95.8\n  - 2017: 88.4\n  - 2018: 81.9\n  - 2019: 81.3\n  - 2020: 79.4\n  - 2021 (Proj.): 75.0\n  - 2022 (Proj.): 71.0\n  - 2023 (Proj.): 67.9\n  - 2024 (Proj.): 65.3\n  - 2025 (Proj.): 63.1\n\nSource: IMF Communications Department, Press Release No. 21/258 (Executive Board conclusions on the 2021 Article IV consultation with Croatia).\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Republic of Croatia and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2021/09/10/pr21258-croatia-imf-executive-board-concludes-2021-article-iv-consultation-with-croatia"
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    "Published: September 10, 2021",
    "The Croatian economy experienced a 8.0 percent drop in activity in 2020 driven by the pandemic and two devastating earthquakes.",
    "Tourism receipts fell by some 60 percent (yoy) in 2020.",
    "Policy responses and support:",
    "External and price developments:",
    "Short-term projections:",
    "Medium term:",
    "Risk factors:",
    "Directors welcomed:",
    "Fiscal policy guidance:",
    "Structural reforms and EU funds absorption:",
    "Monetary, exchange rate, and euro adoption:",
    "Financial sector vigilance:",
    "Real GDP growth (percent change, annual average):",
    "Unemployment rate:",
    "CPI inflation (avg.):",
    "Domestic investment (percent of GDP):",
    "Domestic saving (percent of GDP):",
    "General government revenue (percent of GDP):",
    "General government expenditure (percent of GDP):",
    "General government balance (percent of GDP):",
    "Structural balance (percent of GDP, simplified approach):",
    "General government debt (percent of GDP, Maastricht definition):",
    "Current account balance (percent of GDP):",
    "Gross official reserves (billions of euros):",
    "IMF metric (percent):",
    "Total external debt (percent of GDP):",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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