## IMF Executive Board Concludes 2021 Article IV Consultation with Croatia

_IMF News, September 10, 2021_

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## Bibliographic details
- Published: September 10, 2021

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### Pandemic shock and policy response
- 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:
  - Ample fiscal and monetary policy support and appropriate relaxation of supervisory requirements contained effects of the pandemic.
  - EU funds (loans, transfers) financed most fiscal support measures, somewhat alleviating the government’s financial position.
  - The CNB intervened in the currency market and purchased government securities amounting to about 5.5 percent of GDP.
  - The CNB lowered reserve requirements and conducted repo operations.
  - A €2 billion SWAP arrangement with the ECB was announced in mid-April 2020.
- External and price developments:
  - The current account posted a small 0.4 percent deficit in 2020 despite the collapse in tourism receipts.
  - Gross public and external debt climbed by almost 16 and 6 percentage points, respectively.
  - Inflation remained benign, with a recent uptick noted.

### Growth and inflation projections
- Short-term projections:
  - 2021 growth projected at 5.4 percent.
  - 2022 growth projected at 5.8 percent.
  - Projections assume 2/3 recovery of tourist arrivals in 2021 and nearly full recovery in 2022.
  - Investment to be bolstered by large EU investment grants over the medium-term.
- Medium term:
  - Growth projected to ease closer to 3 percent over the medium term.
  - Inflation projected to pick up and stay at 2 percent through 2023, in line with the ECB inflation target.
- Risk factors:
  - Large risks on both sides, including virus mutations in the near-term which could result in significant economic scarring.
  - Medium-term downside risks include slower recovery in EU trading partners, ineffective absorption of EU funds, and challenges in delivering promised complementary reforms.
  - Upside possibilities include a more rapid and successful vaccination campaign and larger-than-projected positive effects from green investments and digitalization.

### Executive Board Assessment and policy advice
- Directors welcomed:
  - Swift measures taken to combat COVID-19 that built foundations for the projected recovery underpinned by tourism and investment.
  - Authorities’ efforts to balance pandemic recovery with fiscal prudence while remaining vigilant to support the nascent recovery as needed.
- Fiscal policy guidance:
  - Important to avoid further tax cuts to conserve fiscal resources.
  - Place public debt levels on a downward trajectory over the medium term.
- Structural reforms and EU funds absorption:
  - Call for accelerated implementation of structural reforms and increased capacity to absorb EU structural funds, particularly in public investment management.
  - Such reforms are essential to close the income gap to the EU average and to achieve decarbonization, digitalization, and diversification.
  - Welcomed plans to implement a civil service remuneration system that rewards productivity and merging of healthcare services across sub-national governments.
- Monetary, exchange rate, and euro adoption:
  - Monetary policy considered appropriately accommodative within exchange rate anchor limits and ample global liquidity.
  - Welcomed ERM II membership in July 2020 and authorities’ strategic priority of euro adoption.
  - Noted benefits of euro adoption and welcomed commitment to observe convergence criteria and improve the AML/CFT framework and SOE governance.
- Financial sector vigilance:
  - Need to remain vigilant to financial and banking sector risks with expiration of regulatory easing introduced under European Banking Authority guidelines.
  - Welcomed decision to facilitate write-offs of NPLs and efforts to strengthen the insolvency framework.
  - Urged vigilance over credit developments in the real estate market and readiness to absorb excess liquidity and impose adequate macroprudential measures if needed.

### Selected economic indicators (highlights from 2016–26 projections)
- Real GDP growth (percent change, annual average):
  - 2016: 3.5
  - 2017: 3.4
  - 2018: 2.8
  - 2019: 2.9
  - 2020: -8.0
  - 2021 (Proj.): 5.4
  - 2022 (Proj.): 5.8
  - 2023 (Proj.): 4.0
  - 2024 (Proj.): 3.3
  - 2025 (Proj.): 3.2
  - 2026 (Proj.): 3.1
- Unemployment rate:
  - 2016: 15.0
  - 2017: 12.4
  - 2018: 9.9
  - 2019: 7.8
  - 2020: 9.0
  - 2021 (Proj.): 8.5
  - 2022 (Proj.): 8.0
  - 2023 (Proj.): 7.7
  - 2024 (Proj.): 7.2
  - 2025 (Proj.): 7.0
  - 2026 (Proj.): 6.8
- CPI inflation (avg.):
  - 2016: -1.1
  - 2017: 1.1
  - 2018: 0.8
  - 2019: 0.1
  - 2020: 1.8
  - 2021 (Proj.): 1.9
  - 2022 (Proj.): 2.0
- Domestic investment (percent of GDP):
  - 2016: 21.0
  - 2017: 22.0
  - 2018: 23.4
  - 2019: 22.6
  - 2020: 25.6
  - 2021 (Proj.): 26.4
  - 2022 (Proj.): 27.2
  - 2023 (Proj.): 28.0
  - 2024 (Proj.): 28.5
  - 2025 (Proj.): 27.6
  - 2026 (Proj.): 27.0
- Domestic saving (percent of GDP):
  - 2016: 23.2
  - 2017: 25.5
  - 2018: 25.3
  - 2019: 25.7
  - 2020: 25.8
  - 2021 (Proj.): 25.9
  - 2022 (Proj.): 26.8
  - 2023 (Proj.): 27.7
- General government revenue (percent of GDP):
  - 2016: 46.5
  - 2017: 46.0
  - 2018: 46.2
  - 2019: 47.5
  - 2020: 48.0
  - 2021 (Proj.): 51.2
  - 2022 (Proj.): 52.4
  - 2023 (Proj.): 52.1
  - 2024 (Proj.): 50.5
  - 2025 (Proj.): 48.8
  - 2026 (Proj.): 48.1
- General government expenditure (percent of GDP):
  - 2016: 47.4
  - 2017: 45.2
  - 2018: 47.2
  - 2019: 55.4
  - 2020: 55.3
  - 2021 (Proj.): 54.1
  - 2022 (Proj.): 51.7
  - 2023 (Proj.): 49.4
  - 2024 (Proj.): 48.5
- General government balance (percent of GDP):
  - 2016: -1.0
  - 2017: 0.4
  - 2018: -7.4
  - 2019: -4.1
  - 2020: -2.9
  - 2021 (Proj.): -1.2
  - 2022 (Proj.): -0.5
  - 2023 (Proj.): -0.4
- Structural balance (percent of GDP, simplified approach):
  - 2016: 0.5
  - 2017: -5.7
  - 2018: -3.2
  - 2019: -2.6
  - 2020: -1.8
- General government debt (percent of GDP, Maastricht definition):
  - 2016: 80.8
  - 2017: 77.5
  - 2018: 74.2
  - 2019: 72.8
  - 2020: 88.7
  - 2021 (Proj.): 87.6
  - 2022 (Proj.): 84.4
  - 2023 (Proj.): 81.6
  - 2024 (Proj.): 78.9
  - 2025 (Proj.): 76.1
  - 2026 (Proj.): 73.3
- Current account balance (percent of GDP):
  - 2016: 2.2
  - 2017: 3.0
  - 2018: -0.6
  - 2019: -0.8
  - 2020: -0.2
- Gross official reserves (billions of euros):
  - 2016: 13.5
  - 2017: 15.7
  - 2018: 17.4
  - 2019: 18.6
  - 2020: 18.9
  - 2021 (Proj.): 24.0
  - 2022 (Proj.): 25.4
  - 2023 (Proj.): 26.1
  - 2024 (Proj.): 26.6
- IMF metric (percent):
  - 2016: 88.5
  - 2017: 102.0
  - 2018: 112.4
  - 2019: 103.4
  - 2020: 125.6
  - 2021 (Proj.): 138.9
  - 2022 (Proj.): 143.2
  - 2023 (Proj.): 147.2
  - 2024 (Proj.): 146.9
  - 2025 (Proj.): 145.7
  - 2026 (Proj.): 144.4
- Total external debt (percent of GDP):
  - 2016: 95.8
  - 2017: 88.4
  - 2018: 81.9
  - 2019: 81.3
  - 2020: 79.4
  - 2021 (Proj.): 75.0
  - 2022 (Proj.): 71.0
  - 2023 (Proj.): 67.9
  - 2024 (Proj.): 65.3
  - 2025 (Proj.): 63.1

*Source: IMF Communications Department, Press Release No. 21/258 (Executive Board conclusions on the 2021 Article IV consultation with Croatia).*

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## References

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- [Republic of Croatia and the IMF](http://www.imf.org/external/country/HRV/index.htm)
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_Source: https://www.imf.org/en/news/articles/2021/09/10/pr21258-croatia-imf-executive-board-concludes-2021-article-iv-consultation-with-croatia_