## Republic of Croatia: Selected Issues

_IMF Staff Country Reports, July 29, 2024_

## Source details

**Canonical URL:** [Republic of Croatia: Selected Issues](https://www.imf.org/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566)

## Other formats

- [Markdown version](/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566/index.md)
- [Structured JSON version](/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566/index.json)
- [Bundle manifest](/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566/bundle-manifest.json)

## Bibliographic details
- Published: July 29, 2024
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400285400.002

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### Overview
- This Selected Issues paper analyzes corporate sector balance sheet vulnerabilities in Croatia and serves as a background analysis to the systemic risk assessment presented in the staff report.
- The paper follows established approaches to stress-test the corporate sector.

### Key findings on corporate sector health and trends
- Croatian firms have significantly improved their balance sheets since the prolonged recession after the Global Financial Crisis.
- Improvements were helped by deleveraging and narrowing country risk premium as Croatia advanced its euro adoption agenda.
- Declining borrowing costs and improving financial strength of nonfinancial corporations (NFCs) in Croatia point to the need to examine both financing and nonfinancing related obstacles.

### Stress-test design and calibration
- The calibration of shocks follows the macro-financial scenarios of the 2023 EU-wide banking sector stress tests by the European Banking Authority.
- The paper applies micro-level simulations to assess corporate resilience to adverse shocks to profitability and financing costs.

### Simulation results and systemic implications
- Micro-level simulations confirm the resilience of the corporate sector against adverse shocks to profitability and financing costs.
- The well-capitalized banking sector overall is found to have buffers to absorb negative spillovers from the corporate sector.
- Simulated results suggest that shocks to nonfinancial corporations (NFC) could significantly raise banks’ nonperforming loans.

### Policy implications and areas for further analysis
- Given the resilience identified, policy focus should include monitoring and preserving corporate deleveraging gains and low borrowing costs.
- The potential for NFC shocks to raise banks’ nonperforming loans indicates a need for continued vigilance in bank supervision and macroprudential oversight.
- The declining borrowing costs and improving NFC financial strength imply that policy analysis should examine both financing-related and nonfinancing-related obstacles to firm performance and investment.

*Republic of Croatia: Selected Issues, July 29, 2024.*

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## Content in this bundle

- **Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024**
  - [Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024 (Markdown version)](/-/media/files/publications/cr/2024/english/1hrvea2024002-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Republic of Croatia: Selected Issues; IMF Country Report No. 24/247; June 26, 2024 (PDF)](/-/media/files/publications/cr/2024/english/1hrvea2024002-print-pdf.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2024/07/26/republic-of-croatia-selected-issues-552566_