The FINANCIAL — Minister of Finance, H.E. Slavko Linić and the World Bank’s Country Manager for Croatia,Hongjoo Hahm, signed a Loan Agreement in the amount of EUR150 million (US$206.8 million) for the Second Economic Recovery Development Policy Loan to the Republic of Croatia, according to the World Bank Group.
The loan is aimed at supporting the Government of Croatia’s efforts in accelerating sustainable economic recovery through the consolidation of public finances and the strengthening of the investment climate. The World Bank’s Board of Directors approved the loan yesterday, April 29th.
Specifically, the loan supports reforms in two broad areas. The first area focuses on fiscal consolidation efforts through expenditure-based adjustments in public administration, health, pensions, and social welfare areas. These efforts will lead to improvements in the management of public spending, and will strengthen the medium-term sustainability of public finances, with the goal of achieving macroeconomic stability, according to the World Bank Group.
Second, the loan supports the growth of the private sector by improving the business environment and reducing state involvement in the corporate sector. Croatian authorities have already taken measures to enhance labor market flexibility, reduce administrative and regulatory barriers for businesses, speed up the privatization of state-owned companies, and strengthen the innovation framework.
Key Expected Results from the Second Economic Recovery Development Policy Loan
Primary general government spending reduced by 2 percent in real terms from 2012 to end-2014;
General government wage bill reduced by 6 percent in real terms from 2012 to end-2014;
Total public health spending reduced by 9 percent in real terms from 2012 to end-2014;
Social benefit spending reduced by 6.5 percent in real terms from 2012 to end-2014;
Pension spending reduced by 2.6 percent in real terms from 2012 to end-2014;
Labor force participation rate (ages 15-64) increased to 61 percent in 2014;
Global Competitiveness Index Institutions’ score increased from 3.5 in 2012-2013 to 3.7 in 2014-2015;
Private sector share in GDP increased from 70 percent in 2012 to 72 percent in 2014; and
Research and development spending increased by 8.5 percent in real terms from 2012 to end-2014.
“We are encouraged that the Croatian authorities are moving forward with the structural reforms in labor, pension, health, and social benefits, as well as in the investment climate areas. These will help reduce the fiscal deficit, stimulate job creation, productivity, and social cohesion,” said Hongjoo Hahm, World Bank Country Manager for Croatia. “We would also encourage the authorities to accelerate and deepen the reforms under the Excessive Deficit Procedure to speed up economic recovery. We are committed to supporting the government, in partnership with the European Commission, in this challenging fiscal consolidation process, and at the same time, we will continue supporting the authorities’ efforts in minimizing the impact of this process on the bottom 40 percent of the population,” Hahm added.
“This loan is recognition of the reforms implemented by the Government of Croatia in the areas of public administration, health and social welfare, labor markets, and the business climate with the aim of achieving economic growth," stated Slavko Linić, Minister of Finance of the Republic of Croatia. “Fiscal consolidation measures that were implemented relate to: the harmonization of wages of government agencies, civil, and public services; rationalization of health expenditures; consolidation of social benefits and improved targeting of those benefits; improved fiscal and social sustainability of the pension system; and increased labor market flexibility and collective agreement negotiations,” Linić added.
“Since 2012, we also implemented measures which are aimed at improving the business climate and which have been recognized in the World Bank's Doing Business report. These measures include: resolution of insolvency and illiquidity; reduction of business registration costs; and introduction of a single electronic construction permit. The Government of the Republic of Croatia also focused its efforts on increasing the private sector share in the GDP. With this loan, the World Bank is supporting the Government's structural reforms program aimed at economic recovery and fiscal consolidation, which also has the full support of the International Monetary Fund (IMF) and the European Commission,” Linić said.
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