May the 8th, 2021 - The plan for many different Croatian reforms and investments, packaged as the Croatian Recovery and Resilience Plan, is on its way to the European Commission's door in the Belgian capital.

As Poslovni Dnevnik/Ana Blaskovic writes, the Croatian Recovery and Resilience Plan, the key to an enormous 49 billion kuna intervention injection, has been completed and it is time to send it to Brussels, with a final agreement set to take another ten days. The more than 1,100 pages list 77 Croatian reforms and 152 investments that the Government, with the practical absence of public debate, envisioned as a springboard for recovery from the ongoing coronavirus crisis and the transformation of the domestic economy.

Finance Minister Zdravko Maric stated that the focus was on grants and that the core of the document was Croatian reforms and both public and private investments. The plan is designed for five components and one initiative - 26.2 billion of the total amount (54 percent) should be poured into the economy, 4.36 billion (10 percent) into public administration, judiciary and state property, education, science and research should get an injection of 7 .5 billion (15 percent). Then, for the labour market and social protection, another 2.09 billion (4 percent), for the healthcare system 2.56 billion (5 percent of the amount). A large amount of these funds, 5.95 million, is intended for building renovation initiatives.

GDP growth

The effect of this Croatian plan this year should be reflected in 5.2 percent of real GDP growth, which would have stopped at 4.9 percent without it. Next year, growth is expected to reach 6.6 percent instead of what would have been 5.2 percent without such a plan, in 2023 it should reach 4.1 percent instead of 2.7 percent. In 2024, Croatia's GDP should grow by 3.4 percent instead of 2.5 percent, and in 2025 by 2.7 percent instead of 2.5. It should be noted that the predictions of the acceleration of the economic momentum are based on the (rather optimistic) assumption of a successful withdrawal of this money, although Croatia has so far withdrawn less than half of the total funds available to it.

Brussels has already warned that payments will be conditional on the fulfillment of very specific goals, if a member state fails there is a (theoretical) possibility of payment at the discretion of the EC, which, despite the offer, should not be counted on.

About two thirds of the funds will go directly to investments, and one third to desperately needed Croatian reforms. What the funds won't and cannot be used for is "patching up any holes", such as resolving debts in the healthcare sector. The government has begun work on a rebalance in that regard which is planned for early June.

"The purpose of implementing Croatian reforms is to influence the better use of factors of production, those that create added value," Maric added. In particular, education reform would improve the quality of human capital by including children in occupations where there are needs in the labour market. In the judiciary system, reforms will be aimed at greater efficiency and the faster resolution of cases in order to improve the business climate. Referring to the segment of state property, Maric pointed out that many companies are owned by the state. From his words, one can read the good news for the stock market is because “activation can directly contribute to the revival of the capital market”.

Looking ahead...

After the European Commission gives its consent over the next two months, the draft plan will be sent to the European Council, and by the autumn, Croatia could receive a six billion kuna advance (13 percent). Implementation begins at the end of the year.

Commenting on the criticism that insufficient funds are directed to the private sector, which should be the engine of recovery and job creation, Maric reiterated: ''There's no need to divide investments into the public and private sectors because public investments also mean the participation of the private sector. The greatest value of the document is looking ahead, as resilience in the long run means implementing 77 Croatian reforms.''

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As Poslovni Dnevnik writes on the 30th of December, 2019, next year will show the results of the Croatian Government's reform package. Tax and pension reforms are part of a series of legal changes that should improve citizens' lives on the whole, for both Croatian workers and Croats drawing their pensions.

However, Croatian retirees will not receive a higher pension next year either. For Željko, for example, the pension adjustment towards the end of the summer brought him only a small increase.

"It raised it by some 50 or 60 kuna. They raise the pensions a little, and then the rest goes up,'' Željko told Dnevnik.hr.

An increase in the pension for 10,000 pensioners meant a loss in actuality, because they were left without free supplementary health insurance due to the income census. However, there was a solution to this problem.

"In the first month of 2020, the law will increase this threshold to 2,000 kuna and adjustments will occur to that threshold," stated Višnja Fortuna of the National Council of Retired and Older Persons.

Tax benefits await Croatian workers, too, as long as they are under the age of 30. In order to secure higher wages for young people, the government has prepared a type of tax relief in the form of an income tax deduction. This tax is 100 percent lower for those under 25 and 50 percent lower for young people between the ages of 26 and 30.

For 23-year-old hairstylist Ingrid, this is good news: "I'm glad the taxes are being reduced, I'm only sorry that this happens once a year and at the end of 2020. It would be good to do it every month," she said.

She also added that she hoped for better conditions: "Higher wages, an increase in the minimum wage, because we're actually more or less working for minimum wage."

Minimum wage will grow by around 250 kuna a month from the New Year going forward. Tax expert Anja Božina explains that the real question should be whether or not young people who earn lower wages will be covered by the tax burden.

"Let's say that the effect might be felt by young Croatian workers who have about 6000 kuna in gross wages. It will be very small, some 200-300 kuna a month," Božina said.

Employed Croatian workers who are over the age of 30 and who work an average Croatian salary can hope for an increase of 50 kuna per month. Igor Mamek, who has 25 years of experience in the hospitality industry under his belt, naturally expects a raise.

"Given that VAT will be 13 percent in 2020, my employer has announced that there will be an increase in pay," Memek said.

Those in the Croatian hospitality sector see the lowering of VAT as a kind of last-minute salvation.

"Everyone who works with food will definitely have a much easier way of doing business and much easier conditions in order to compete with other Mediterranean countries. They'll have room to raise their wages for their workers, they will be able to stop the quality workforce from going abroad,'' said Marin Medak, president of National caterers' associations, writes Dnevnik.hr.

Make sure to follow our dedicated lifestyle and politics pages for much more.

ZAGREB, April 26, 2019 - Addressing a special session of Karlovac County Assembly on County Day on Friday, President Kolinda Grabar Kitarović said that the most significant measure at the moment needs to be "reforming our mentality," in order to make the Croatians think and work faster, more resolutely and in a better organised manner.

In her speech the president advocated that each measure, including tax, monetary or any other policy and each investment, has to be measurable demographically and in particular in this county.

She praised the Andrej Plenković cabinet for reducing taxes and administration levies, however, she claimed that the "most significant reform we need to implement is to reform our mentality," so that at all levels, we can think and work more resolutely, faster and in a more organised manner.

The head of state pointed out that population policy and economic measures must go hand in hand because money is needed for new investments – and people are needed even more.

"People are our greatest capital, but also the greatest issue, as we have no workers to hire for new jobs," the president said.

She emphasized that for Karlovac County this matter is particularly important in terms of security and in the context of migration issues.

"Keeping the border areas populated is of utmost importance for the State because the border is best guarded by the people who live on it," she underscored.

Plenković commented on a list of projects for the county valued at 5.5 billion kuna, adding that state-owned real estate, estimated at 64 million kuna, had been granted to the county.

He noted already visible effects of the reform, as he said, in particular, decentralisation which means that 56 million kuna more will remain in the county. He underscored that a new development index is being applied and that new statistical regions will be formed to correct the injustice and illogicality of the previous system toward areas such as the town of Slunj for example.

"I think that it will correct the injustice that that will be a much better support to the economy in those parts of Croatia that we want to attract investments to, which should be a big step. That is why I am glad that Karlovac County has sped up procedures for investors," the prime minister underscored.

He added that in 2017, 2018 and now in 2019, 1.3 billion kuna had been secured from the state budget for regional imbalance policies and for the reduction of inequalities in Croatia.

More news about President Kolinda Grabar-Kitarović can be found in the Politics section.

ZAGREB, April 18, 2019 - The national reform programme aims to achieve three key objectives - a better business environment, connect the education system with the labour market and strengthen the consolidation of public finance, Prime Minister Andrej Plenković said at a regular cabinet meeting on Thursday.

The national reform programme, a 120-page document which the government adopted on Thursday, analyses the progress made in implementing the Council of the EU recommendations, reform priorities, economic policy measures and measures aimed at achieving the goals of the Europe 2020 strategy.

The main objective of the national reform programme is to strengthen the competitiveness of the Croatian economy, with a projected growth rate for 2019 of 2.5 percent, Plenković said.

The programme sets out three main goals - strengthening the competitiveness of the national economy, connecting the education system with the labour market and ensuring the sustainability of public finance - which should be achieved by implementing 30 economic policy measures divided into 10 reform priorities and 100 activities.

The government is required to send this document and the convergence programme to the European Commission by the end of April as part of the process of mandatory reporting and adjustment of EU member states’ economic policies to the jointly defined goals and regulations of the EU. Failure to comply results in sanctions, including "a freeze" on funding.

To improve the business environment, the government says in the programme that it will enable starting a business online and continue liberalisation of the services market and the regulatory reform by reducing the administrative burden on the business sector and cutting parafiscal charges.

The government plans to prepare a project for the construction of national next-generation broadband infrastructure, to be leased to all operators of electronic communications networks and services.

Most of the cohesion policy funding will go towards further development of the public drainage system, reducing losses in the public water supply system and ensuring that water is safe for human consumption.

The programme provides for new incentives to boost investment.

"Investment growth is a priority, the main lever for economic growth in Croatia, and new investment incentives will be introduced. The existing programme and incentives for investment in new technologies will be combined and the capacities of counties for investment attraction and promotion will be strengthened," Deputy Prime Minister for Economy and Minister of Agriculture Tomislav Tolušić said.

The reform programme provides for the adoption of a plan for the digital transformation of the economy and for establishing an independent body, the Committee on Productivity, to analyse, design and implement policies relating to productivity and competitiveness.

The government plans to improve the management and use of state property, including the business and financial restructuring of road and railway companies.

As part of the public administration reform, efforts will be made to ensure more efficient management of human resources by reviewing the wage setting system, digitising work processes, introducing quality control and further professionalisation.

The judicial system will be improved through further development of electronic communication between courts and other participants in court proceedings and by upgrading the eDelivery service and the eNoticeboard.

As for education and training in accordance with labour market needs, the focus will be on the further implementation of the curricular reform, life-long learning, and an effective and relevant higher education.

In strengthening public finance management and fiscal consolidation, the accent will be on establishing a more efficient system of financial and statistical planning and reporting on the part of extra-budgetary beneficiaries in the transport sector.

The stimulation of the demographic revival will continue with measures aimed at raising social security for families with children.

In order to encourage family leave for employed parents and improve the financial status of families with new-borns, the current 3,990 kuna family leave allowance will be increased.

The further enhancement of welfare envisages a transparent system of allowances with comprehensive records so as to better administer allowances and programmes, reduce territorial inequalities and create more effective welfare policies.

Ensuring the financial stability, viability and quality of healthcare is planned through enhanced management of human and other hospital resources, the use of IT to improve organisation, cost planning and control, and by increasing the availability and quality of health care.

Structural and organisational measures will be launched in the prevention, diagnosis and treatment of malignant diseases. According to Croatian Institute of Public Health data, 22,503 malignant diseases were recorded in 2015 and data on mortality from 2017 show that 13,638 people died of them.

The programme also contains 15 measures to achieve national goals in employment, research and development, climate and energy, education, and combating poverty and social exclusion, given that activities for achieving Europe 2020 strategy goals related to smart, sustainable and inclusive growth are implemented and overseen through the European Semester.

More economic news can be found in the Business section.

ZAGREB, December 3, 2018 – Croatian President Kolinda Grabar-Kitarović warned on Monday that despite reforms, Croatia was the least competitive of all countries of the so-called New Europe, and called for amalgamating economic and demographic policies to curb emigration.

Speaking at an event at which awards were presented to the best business people and business events of 2018, the president said that there was no doubt that the numerous positive economic indicators, recorded this years and in previous years, were owing to economic policies that had successfully launched positive trends, visible in public finance sustainability, macroeconomic and fiscal stability and the growth of export, consumption and employment.

"Given the estimates that 2019 will also be a year of growth, we have reason to be moderately optimistic," she said, but warned that there was no room for complacency because "not all citizens have felt the economic growth nor have we successfully responded to the challenges that lie ahead."

She said the first challenge was insufficient intensity of work on reforms designed to step up productivity growth and create a favourable business environment. "Even though work on reforms has been ongoing, we are still lagging behind comparable peers in the EU and in Central and Eastern Europe," she said, noting that the World Bank and the World Economic Forum "consider Croatia the least competitive country, with worst business conditions in the so-called New Europe club," said Grabar-Kitarović.

She called for stepping up reforms that can secure long-term, higher rates of growth and the growth of living standards. "We all want a growth rate of more than 2.8%," she said.

Grabar-Kitarović said the second challenge was the unfavourable structure of the national economy, relying mostly on tourism, and added that the third challenge was the lack of a clear vision and strategy of economic development.

She reiterated that Croatia had to start developing those economic sectors in which it had a comparative advantage and decide where it wanted to be in 5, 10 or 20 years.

She identified as the fourth challenge external negative risks, such as an increasingly insecure environment caused by tensions in international trade, oil price oscillations, possible interest growth, uncertainties related to Brexit, migrations, etc.

The president particularly underlined the challenge of a growing labour shortage caused by increased emigration and depopulation.

If the current disastrous demographic trends are not reversed, by 2051 Croatia will lose more than 1.1 million inhabitants in relation to the 2011 census. The working contingent will shrink to 1.8 million, the number of young people under the age of 14 will drop by 49.1%, the number of working-age people will shrink by 36.5% while the number of elderly people will grow by 24.4%, Grabar-Kitarović said, calling for focusing on the implementation of population-boosting measures.

She noted that depopulation trends were economically motivated to a significant extent and called for amalgamating economic and demographic policies to stop emigration and reverse the extremely unfavourable internal migration trends.

Addressing the event, Economy Minister Darko Horvat said that investments, innovations and digitisation were crucial for enabling economic growth.

Investments this year are expected to amount to two billion euro, which will make 2018 the most successful year in terms of investment in Croatia's history, the minister said.

Investments mean investing into economic security, Horvat said, adding that 2019 should be a year of digital transformation.

At the ceremony, awards were presented to the companies Geni-i, Solvis, Agrimatco and Zagreb's international airport.

For more on the Croatian economy, click here.

ZAGREB, November 7, 2018 - Addressing a traditional conference of the Croatian Economic Association in Opatija on Wednesday, President Kolinda Grabar-Kitarović expressed satisfaction with positive economic trends and praised the government for the reform measures it is taking, but she also warned about crucial problems affecting the national economy.

In her address, titled "Key Challenges and Preconditions for the Economic Development of Croatia", the head of state underscored a GDP growth rate of 2.9%, continued economic growth, a 3.5% increase in retail sales in the first eight months of this year and positive employment trends, as the biggest achievements in the period since last year's meeting of the Croatian Economic Association.

In addition, a surplus in the general government budget of 2.8 billion kuna or 0.8% of last year's GDP, plus a surplus of 1.6 billion in the first half of this year, were also underlined as successes. In her speech, the president pointed to a fall in the public debt-to-GDP ratio to 80.2% at the end of 2017 and further to 74.3% at the end of the first half of this year.

"The above-mentioned facts clearly indicate that we have made some headway in the context of increasing economic growth, reducing unemployment and bringing order to public finances. These results can satisfy us to a certain extent, but we must not rest on our laurels. They are just the first step and a sign of encouragement for us to accomplish our real goal, and that is an annual growth rate of 5%," the president said.

She praised Finance Minister Zdravko Marić for implementing tax measures that make an additional 6.3 billion kuna disposable to the business sector, and described this as an impulse for a more robust growth. She said that unlike his predecessors, the current finance minister had done a good job by easing the tax burden.

Grabar-Kitarović, however, called for a fairer income taxation system and proposed the introduction of "a synthetic tax system whereby the aggregate income would be taxed equally, regardless of the source of income."

Currently, income from work is taxed progressively, while income from the property rent is taxed with a preferential rate of 12%, which applies to only 70% of the base. "That, together with some other taxes, has turned us into a society of rentiers," she said. "We can change that and the tax policy can be conducive to such efforts," the president said.

President recommends strengthening of second pension pillar

In connection with the reform of the pension schemes, Grabar-Kitarović warned that the pension system in the present-day circumstances "is unsustainable and poses the biggest financial risk for the state". Therefore, reinforcing the second pillar for pension contributions is the only right way to improve the system in parallel to cost cutting and certain changes in the structure of investments by pension funds, she said.

Concerning demographic trends, gradually raising the statutory retirement age and encouraging workers to retire later can help efforts to make the pension system viable, she added, praising the efforts which Labour and Pension System Minister Marko Pavić has been investing in that regard.

The president said that she attached great attention to decentralisation and regional development and in that context welcomed the government's tax measures resulting "in positive headway towards intensified fiscal decentralisation, more effective fiscal balancing and more even regional development."

She called for the strengthening of administrative and financial capacities of local authorities for the absorption of EU funds, noting that 32 out of 127 towns and municipalities had failed to withdraw any money from EU funds since Croatia's admission to the EU in mid-2013.

In her comment on the latest Doing Business report of the World Bank that criticises Croatia for a low level of productivity of the state administration and a slow judicial system as well as a poor business climate, the president called for a reform of the state administration and legal system so as to reduce red tape and lessen legal insecurity.

Lack of clear vision, development strategy biggest problem, says president

Grabar-Kitarović said that the biggest problem of the national economy "is the lack of a clear vision and a development strategy", adding that "we have to decide what we want to present and with what we want to position ourselves on the European and global markets in the long run."

She underlined tourism in that context and warned that it was both "impressive and discouraging" that through its direct and indirect effects, tourism accounted for close to 20% of GDP.

The question is how long the current concept of tourism, based on the country's geographical features, can be sustainable, while the existing transport and local infrastructure is becoming more and more vulnerable to a growing number of visitors, the president said.

She added that she saw Croatia's agricultural sector as its comparative advantage. "It is amazing that the Dutch make polders to meet their needs for agricultural production... while we have very good and fertile soil that is largely not cultivated," she said. "Maybe it is true that the national farm sector was destroyed by excessive imports, but that means that we joined the EU unprepared and did not have a pre-accession strategy, she said.

"I believe that these two examples - tourism and farming - are sufficient to illustrate how problematic it is not to have a strategy and how much the lack of a clear vision and economic development strategy can also affect the segments where we are very competitive," said Grabar-Kitarović.

Croatia must work to change the structure of its economy towards the production of technologically more complex products with added value as well as create conditions for greater productivity and development of the private sector, notably small and medium businesses, without neglecting public companies, she said. "This is important primarily for the sake of our people who are disappointed and are emigrating. If we want to stop or reverse that trend, we must primarily ensure job creation and higher salaries," she said.

She warned that a clear vision and an economic development strategy were especially important "in the context of geopolitical reshuffling, in which Croatia must capitalise on its position in terms of geo-transport and energy routes, as well as ongoing business and technological changes" so that it could become a strong European transport and energy hub.

"I am a big optimist and can say with certainty that we can succeed in all our efforts. We have enough wisdom and competence but we need a little more resolve, a proactive approach and optimism," Grabar-Kitarović said.

For more on Croatian economy, click here.

ZAGREB, November 3, 2018 - Croatian President Kolinda-Grabar Kitarović has said in an interview with the Split-based Slobodna Dalmacija newspaper that Croatia needs consensual development strategy and that resolute reforms are required even at the expense of losing the elections.

The politician who is ready to undertake resolute and also unpopular reforms, even at the expense of losing the next elections, would give the biggest contribution to the prosperity of Croatia," Grabar-Kitarović said in the interview which the daily published on Saturday.

She went on to say that Croatia should adopt a development strategy on which a consensus must be reached. That strategy supported by all political parties is to be about the course which Croatia should take in 10, 15 or 50 years, according to the president. "Where can the national shipbuilding industry find its place in that, how can it be competitive? What is about other industries and branches? Where are we going to put the emphasis on?" the president said citing the issues of demography, labour market, pension and healthcare system and education.

The president criticised the government for having "lost too much time on dealing with the Agrokor problems". Therefore, there is an impression that other reform possibilities have been pushed to the back burner, Grabar-Kitarović added.

The president called on the government to work more on tax reforms and thus on enabling a higher rise in salaries. She says she is sure that the emigrations from the country will stop if the average monthly pay is about a thousand euro.

She went on to say that she is not for any changes in the President's powers and added that she believes that the Croatian Democratic Union (HDZ) led by Prime Minister Andrej Plenković will support her if she decides to rerun for office. Her five-year presidency term expires in January 2020.

She recalled that she had come from that party adding that she also believed that she "behaves as an above-party president that has never favoured any party". "I was elected by over one million and a hundred thousand citizens and I am responsible to them just as to those who did not vote for me," she said.

Grabar-Kitarović said that she was "really concerned over the situation in Bosnia and Herzegovina". As for the Croatia-Serbia relations, she said that she felt disappointed by a lack of progress in addressing the issue of those who went missing during the 1991-1995 war of independence. "I don't know how Mr Aleksandar Vučić feels but I personally feel very disappointed at the failure to reach progress in solving the issue of the missing people."

During his visit to Zagreb in mid-February this year, Serbian President Aleksandar Vučić said at a news conference at resident Kolinda Grabar-Kitarović's office in Zagreb that he would do his best to help find the war missing. Vučić paid a two-day official visit to Croatia then at the invitation of his Croatian counterpart Grabar-Kitarović.

For more on relations between Croatia and Serbia, click here.

ZAGREB, September 23, 2018 - Prime Minister and HDZ leader Andrej Plenković said on Saturday that his government's policy focused on fiscal consolidation, structural reforms and investment, adding that structural reforms were being implemented and that claims that reforms were not being carried out should be ignored.

ZAGREB, May 24, 2018 - The European Commission on Wednesday gave Croatia four recommendations which Zagreb is expected to carry out this and next year and which are mostly the same as those given in 2017.