ZAGREB: Croatia must press on with reforms to change the structure of its economy and avoid the risk of low growth and lagging behind other new European Union member states, a World Bank official said on Friday.
Elisabetta Capannelli, the World Bank country manager for Croatia, also welcomed Croatia's ambition to adopt the euro, but warned that the way ahead would be demanding.
"Croatia is a heavily euroised country and being part of the euro zone would be beneficial, but not before the country's economy becomes resilient by implementing the bold reforms," Capannelli told Reuters.
Croatia's Prime Minister Andrej Plenkovic announced in late October the goal of adopting the euro within 7-8 years in a country where a majority of loans and deposits are denominated in the single currency.
Capannelli said Croatia's reformist drive had subsided since the country joined the EU in 2013.
"The momentum has pretty much been lost. Croatia is heavily reliant on tourism and has a very large and inefficient public sector. The private sector is small and insufficiently dynamic. Reforms are also needed for better growth prospects," she said.
The World Bank is a key international player in Croatia providing assistance to make the economy more robust.
On a visit to southern Croatia on Friday, Plenkovic acknowledged it was necessary to work more on boosting productivity and structural reforms. "It is important to make a major move forward in 2018," he said.
Croatia's economy is seen growing around 3 percent this year, which is below most of its EU peers in central and eastern Europe. Many analysts warn that the country's longer-term growth prospects hardly surpass 2 percent, a figure too low to efficiently deal with its debt problem.
Croatia's public debt is slightly above 80 percent of gross domestic product and the government wants to reduce it to below 70 percent by 2020.
"The private sector is still burdened by high taxes and various parafiscal charges. There is much uncertainty in the way the judicial system works, labour productivity is rather low, loss-making health and pension systems must be tackled. Making changes at one step at the time is not enough," Capannelli said.
She said the figures showed good fiscal performance in the last two years, but the efforts on the fiscal front were still lacking major action on the expenditure side.
In the last two years Croatia managed to reduce the budget deficit to 0.6 percent of GDP from more than 5 percent, but largely on improved revenues.
Capannelli welcomed the government's promise to make 2018 a year of dealing with economic reforms seriously.
"There is awareness among top policy-makers about what needs to be done. The question is who and when will get the ball rolling," she said.
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