Croatia to implement wide-ranging economic reforms

18/04/2014

Urged by the European Commission, Croatia will implement economic reforms to create conditions for recovery and growth.

By Cornelis van Zweeden for Southeast European Times in Dubrovnik -- 18/04/14

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Croatia's railway infrastructure could benefit from EU funds, one expert said. [AFP]

Croatia will implement wide-ranging economic reforms to improve the economy, which has declined since 2008. The package, sparked by pressure from the European Commission (EC), will focus on reforming the labour market, improving public finances and restoring competitiveness.

"We are strongly committed to structural reforms, without which it will be difficult to create healthy conditions for economic recovery and growth," Dubravka Belas, a government spokesperson, told SETimes.

Details of the reforms will be revealed by the end of this month, Belas said.

Last month, the EC urged Croatia make improvements, saying the country faced "excessive macro-economic imbalances, which require strong policy action."

However, pressure from Brussels should prove to be a bonus in the medium term, analysts said. "We expect EU membership to further strengthen Croatia's institutional framework in ways that benefit its credit profile,'' Atsi Sheth, vice president at the ratings agency Moody's, told SETimes.

Upon its entry to the Union in 2013, Croatia gained access to the huge EU internal market. At the same time, access to neighbouring countries' markets such as Bosnia and Herzegovina became more difficult as Croatia was obliged to leave the Central European Free Trade Agreement.

"This impedes the role exports could play in Croatia's economic recovery,'' Sheth said.

Although the EC survey offered a grim reading, officials in Brussels said there is room for optimism.

"We believe that Croatia also has areas of strength, such as the banking sector, which has proved resilient during the five-year recession,'' Simon O'Connor, an EC spokesperson, told SETimes.

"Banks are well capitalised and capable to absorb negative shocks,'' O'Connor said. The Institute of Economics in Zagreb said it was expecting investments to pick up by 2.6 percent this year.

"The adoption of the law on strategic investments should facilitate investments,'' Dubravka Alibegovic, the institute's director, told SETimes.

Alen Kovac, the chief economist at Erste Bank in Zagreb, said tourism revenues are promising.

"The sector has been developing well, even throughout the crisis, and we continue to see it as a lasting supportive factor,'' Kovac told SETimes.

The country's access to 8.2 billion euros in EU funds for the 2014-2020 period is a "big mid-term opportunity," he added.

The amount of EU aid available through 2020 is eight times more than the pre-accession funding Croatia was entitled to in the 2007-2013 period.

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Croatia used just 56 percent of the pre-accession funds, but the remainder can be accessed until 2016, O'Connor said.

According to the EC, optimal use of the funds could increase the country's GDP by 3 percent. EU funds are available for capacity-enhancing projects that do not easily attract commercial money.

"We expect to see EU funds used for the development of the railway infrastructure and the logistics business,'' Kovac said.

What types of economic reforms would you like to see in your country? Join the discussion in the comment field below.

This content was commissioned for SETimes.com.
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