ZAGREB: The International Monetary Fund urged Croatia on Monday to push ahead with fiscal and structural reforms and use its economic recovery to reduce high public debt. Croatia's public debt is expected to fall this year to around 85 percent of gross domestic product from a peak of some 87 percent. The government wants to reduce it by two further percentage points next year.
"The cyclical upturn should be utilized to continue to quickly reduce the deficit and debt," the IMF said in a mission statement following a regular visit to Croatia this month.
Croatia's public debt had been below 40 percent of GDP before its economy endured six years of recession from 2009 to 2014. In that period the ex-Yugoslav republic lost more than 12 percent of its overall output.
The IMF said Croatia needed structural reforms to improve its business climate, raise its growth prospects and cut unemployment, which now stands at 14 percent. "Reforming the health sector and the complex system of social benefits will be crucial to reduce arrears and improve targeting.
It would also be important to improve the efficiency of public enterprises via privatisation and restructuring," the IMF statement said.
"Reducing red tape and streamlining regulation will help enhance the business environment," it added.
The Croatian government expects growth of 3.2 percent next year, up from an estimated 2.7 percent in 2016, and a general budget deficit of 1.6 percent of GDP, a touch down from this year's expected 1.7 percent.
The IMF expects this year's budget gap at around 2.0 percent. However, some analysts believe the growth forecast for 2017 may be too optimistic and say the plan to cut the should have been more ambitious.
"Instead of using the current positive (economic) situation for (stronger) fiscal consolidation, we've opted for an increase in expenditures, prompted by higher revenues, as if there will be no further cyclical downturn ahead of us," said Maruska Vizek of the Zagreb Economic Institute.
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