{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Republic of Croatia",
  "publication": "IMF News, July 26, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/07/26/pr24289-republic-croatia-imf-exec-board-concludes-2024-art-iv-consult",
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  "summary": "Washington, DC – July 26, 2024: On July 26, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Croatia.",
  "publishDate": "2024-07-26",
  "sections": [
    {
      "heading": "Economic performance and outlook",
      "content": "- The economy \"has performed strongly despite consecutive external shocks.\"\n- Real GDP growth:\n  - 2021-22: \"impressive post-pandemic growth\"\n  - 2023: \"3.1 percent\"\n  - Staff projects 2024: \"3.4 percent\"\n  - Staff projects 2025: \"2.9 percent\"\n- Inflation and wages:\n  - Inflation \"has decelerated considerably since early 2023 but still persists above the euro area average.\"\n  - Inflation drivers: \"elevated food and services inflation amid a tight labor market.\"\n  - Inflation forecast: \"expected to gradually return to about 2 percent in late 2025.\"\n  - Wages: \"robust wage growth\" contributing to stickier inflation.\n- Public debt and fiscal balance:\n  - 2023 fiscal balance: \"deficit of 0.7 percent of GDP\"\n  - Public debt declined to \"63 percent of GDP\" in 2023 due to \"robust nominal GDP growth.\""
    },
    {
      "heading": "Risks to the outlook",
      "content": "- Broadly balanced risks.\n- Downside risks to growth:\n  - \"heightened regional conflicts\"\n  - \"commodity price volatility\"\n  - \"a global or regional recession\"\n- Upside and two-sided inflation risks:\n  - Upside: \"stronger-than-expected wage growth\"\n  - Two-sided: \"supply shocks could affect inflation on both sides\"\n- Structural constraint risks:\n  - \"subdued productivity and labor market shortages\" constrain actual and potential growth.\n- Mitigating factor:\n  - \"Croatia’s openness could play a mitigating factor.\""
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- General assessment:\n  - Directors \"commended Croatia’s significant strides in catching up with more advanced European peers.\"\n  - Growth prospects \"remain favorable, supported by buoyant domestic demand.\"\n  - \"Disinflation is expected to continue albeit gradually.\"\n- Fiscal policy recommendations:\n  - \"Reduce the fiscal stimulus in 2024.\"\n  - Authorities’ plan welcomed: \"meaningfully cut the deficit in 2025 and return to a structural primary balance by 2027.\"\n  - Emphasis on building buffers and safeguarding financial stability.\n  - Revenue-side measures: \"scope for broadening the tax base, including by introducing a value-based property tax and removing the excessively favorable taxation on short-term rental income.\"\n  - Spending-side measures: \"rationalize the public wage bill and ensure sustainable pension and healthcare systems.\"\n  - Strengthen \"the medium-term fiscal framework\" and improve \"public investment management and strengthen corporate governance and fiscal risk management of state-owned enterprises.\"\n- Financial sector and macroprudential policy:\n  - Financial system resilience: \"welcoming the resilience of the financial system.\"\n  - Close monitoring: \"closely monitor banks’ credit risks and the potential buildup of risks in the real estate sector.\"\n  - Macroprudential stance: \"the tight stance of capital-based macroprudential measures is appropriate.\"\n  - Authorities encouraged to \"continue to assess the need for introducing explicit borrower-based measures and stand ready to do so as warranted.\"\n- Structural reforms to boost potential growth:\n  - Leverage \"progress in implementing the National Recovery and Resilience Plan.\"\n  - Address labor shortages through coordinated policies to:\n    - \"foster labor participation\"\n    - \"facilitate labor mobility\"\n    - \"reduce skills mismatches and net emigration\"\n  - Revive productivity through:\n    - \"broad-based reforms to reduce barriers to entry\"\n    - \"improve institutional quality\"\n    - \"expand financing options for innovation\"\n  - Housing and green transition:\n    - \"Sustainably address housing affordability by boosting housing supply.\"\n    - \"Accelerate the green transition.\"\n  - AML/CFT: \"keep the momentum in addressing AML/CFT deficiencies in line with FATF recommendations.\""
    },
    {
      "heading": "Key statistics and projections (selected figures)",
      "content": "- Real GDP growth (percent, annual average):\n  - 2019: 3.4\n  - 2020: -8.5\n  - 2021: 13.0\n  - 2022: 7.0\n  - 2023: 3.1\n  - 2024 (Projections): 3.4\n  - 2025 (Projections): 2.9\n  - 2026 (Projections): 2.7\n  - 2027 (Projections): 2.6\n  - 2028 (Projections): 2.6\n  - 2029 (Projections): 2.6\n- Unemployment rate (percent):\n  - 2019: 7.8\n  - 2020: 9.0\n  - 2021: 8.1\n  - 2022: 6.8\n  - 2023: 6.2\n  - 2024 (Projections): 5.6\n  - 2025 (Projections): 5.5\n- HICP inflation (avg., percent):\n  - 2019: 0.8\n  - 2020: 0.0\n  - 2021: 2.7\n  - 2022: 10.7\n  - 2023: 8.4\n  - 2024 (Projections): 4.2\n  - 2025 (Projections): 2.8\n  - 2026 (Projections): 2.2\n  - 2027 (Projections): 2.2\n  - 2028 (Projections): 2.2\n  - 2029 (Projections): 2.2\n- Government sector (Percent of GDP, ESA 2010 definition):\n  - General government revenue (2023): 46.7; 2024 (Projections): 46.3; 2025 (Projections): 47.3\n  - General government expenditure (2023): 47.4; 2024 (Projections): 48.7; 2025 (Projections): 49.1\n  - General government balance (2023): -0.7; 2024 (Projections): -2.4; 2025 (Projections): -1.8\n  - Structural primary balance (2023): -0.4; 2024 (Projections): -1.9; 2025 (Projections): -1.2\n  - General government debt 2/ (percent of GDP): 2019: 70.4; 2020: 86.1; 2021: 77.5; 2022: 67.8; 2023: 63.0; 2024 (Projections): 59.7; 2025 (Projections): 58.4; 2026 (Projections): 57.5; 2027 (Projections): 56.7; 2028 (Projections): 55.9; 2029 (Projections): 55.0\n- Balance of payments (percent of GDP):\n  - Current account balance: 2019: 2.5; 2020: -1.0; 2021: 1.0; 2022: -2.8; 2023: 1.1; 2024 (Projections): 1.6; 2025 (Projections): 0.8; 2026 (Projections): 0.2\n  - Capital account (2023): 2.9; 2024 (Projections): 2.3; 2025 (Projections): 2.6; 2026 (Projections): 2.9\n  - Financial account (2023): -1.6; 2024 (Projections): -3.8; 2025 (Projections): -3.4; 2026 (Projections): -3.2\n- External debt and reserves:\n  - Gross official reserves (billions of euros): 2019: 18.6; 2020: 18.9; 2021: 25.0; 2022: 27.9\n  - Total external debt (percent of GDP): 2019: 73.4; 2020: 81.0; 2021: 80.3; 2022: 72.9; 2023: 83.7; 2024 (Projections): 77.5; 2025 (Projections): 73.0; 2026 (Projections): 69.2; 2027 (Projections): 66.2; 2028 (Projections): 63.5; 2029 (Projections): 61.0\n  - Total external debt excl. CNB share (percent of GDP): 2019: 71.2; 2020: 79.3; 2021: 74.2; 2022: 66.7; 2023: 57.9; 2024 (Projections): 53.6; 2025 (Projections): 50.4; 2026 (Projections): 47.8; 2027 (Projections): 45.8; 2028 (Projections): 44.0; 2029 (Projections): 42.4\n- Money and credit:\n  - Broad money (M3, percent change): 2019: 3.8; 2020: 11.5; 2021: 15.0; 2022: 10.7; 2023: 21.3\n  - Claims on other domestic sectors (percent change): 2019: 2.6; 2020: 3.3; 2021: 2.6; 2022: 10.0; 2023: 7.7\n- Interest rates:\n  - 12-month average T-bill rate (in kuna until 2023, then euros): 2019: 0.1; 2020: 0.1; 2021: 0.0; 2022: 0.1; 2023: 3.1\n  - 10-year government bond yield: 2019: 0.7; 2020: 0.6; 2021: 0.1; 2022: 2.8; 2023: 3.7\n- Exchange rate:\n  - Real effective exchange rate (percent, \"-\" = appreciation): 2019: -1.3; 2020: -1.3; 2021: -0.1; 2022: 0.2; 2023: 3.5\n- Memorandum: Nominal GDP (billions of euros): 2019: 55.3; 2020: 51.0; 2021: 58.9; 2022: 68.4; 2023: 76.5; 2024 (Projections): 82.5; 2025 (Projections): 87.7; 2026 (Projections): 92.3; 2027 (Projections): 96.8; 2028 (Projections): 101.5; 2029 (Projections): 106.5"
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    "The economy \"has performed strongly despite consecutive external shocks.\"",
    "Real GDP growth:",
    "Inflation and wages:",
    "Public debt and fiscal balance:",
    "Broadly balanced risks.",
    "Downside risks to growth:",
    "Upside and two-sided inflation risks:",
    "Structural constraint risks:",
    "Mitigating factor:",
    "General assessment:",
    "Fiscal policy recommendations:",
    "Financial sector and macroprudential policy:",
    "Structural reforms to boost potential growth:",
    "Real GDP growth (percent, annual average):",
    "Unemployment rate (percent):",
    "HICP inflation (avg., percent):",
    "Government sector (Percent of GDP, ESA 2010 definition):",
    "Balance of payments (percent of GDP):",
    "External debt and reserves:",
    "Money and credit:",
    "Interest rates:",
    "Exchange rate:",
    "Memorandum: Nominal GDP (billions of euros): 2019: 55.3; 2020: 51.0; 2021: 58.9; 2022: 68.4; 2023: 76.5; 2024 (Projections): 82.5; 2025 (Projections): 87.7; 2026 (Projections): 92.3; 2027 (Projections): 96.8; 2028 (Projections): 101.5; 2029 (Projections): 106.5"
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