World Bank urges Croatia to enact fiscal reforms

17 Dec 14
Croatia has been advised to reduce its fiscal deficit and reverse its rising public debt through a restructuring of public spending.

Publishing the latest issue of its Public Finance Review for Croatia, the World Bank said prospects for a strong recovery from recession would be slim unless the country vigorously moved forward in addressing the structural weaknesses of its economy.

The bank also called on the government of Croatia, which became the 28th member of the European Union on July 1 last year, to create some fiscal space for the absorption of large EU funds that would lay the ground for sustainable long-term growth.

Mamta Murthi, World Bank regional director for Central Europe and the Baltic Countries, said: ‘We recognise the challenge that the Croatian authorities are facing in having to significantly reduce the fiscal deficit over a relatively short period of time during a prolonged economic downturn.

‘At the same time, we strongly believe that this is achievable based on the experience of other EU countries, such as Sweden, the United Kingdom, Ireland, Germany, and Slovenia, all of which went through similar processes, most of them managing to mitigate the social cost of such adjustments.’

The report, launched yesterday with the Croatian Ministry of Finance, analysed the key issues that were standing in the way of strengthening macroeconomic stability and of laying the foundations for a robust economic recovery.

It also recommended that the country create extra revenue by broadening the tax base and reduce high levels of social contributions, such as health insurance, to promote growth and jobs.

Additionally, the country should streamline public administration and improve the efficiency and equity of social spending, the bank advised.

Croatian finance minister Boris Lalovac said the government would implement the spending review with the aim of reducing total public expenditure, while at the same time increasing the efficiency of public spending.

He said: ‘The decision foresees a package of measures which will bring about a reduction of expenditures in the amount of 10%, compared to 2014, in each of the defined categories, including: central government wage bill, subsidies, the health sector, operational costs of agencies and tax expenditures.’

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