The COVID-19 pandemic has caused dramatic loss of human life and major damage to the European economy, but thanks to an exceptionally strong policy response, potentially devastating outcomes have been avoided.
The first analysis focuses on external stability, an important issue in view of Croatia’s external imbalances and the requirements of the IMF’s 2007 Decision on Bilateral Surveillance. The paper shows that the real exchange rate is broadly in line with economic fundamentals and that external debt dynamics are sustainable as long as macroeconomic policies remain strong. The second analysis finds significant inefficiencies in Croatia’s social spending. It also discusses several reform measures to reduce inefficiencies in public spending and generate budgetary savings to reduce the general government deficit.
This paper assesses the relative efficiency of government spending on health care and education in Croatia by using the so-called Data Envelopment Analysis. The analysis finds evidence of significant inefficiencies in Croatia's spending on health care and education, related to inadequate cost recovery, weaknesses in the financing mechanisms and institutional arrangements, weak competition in the provision of these services, and weaknesses in targeting public subsidies on health care and education. These inefficiencies suggest that government spending on health and education could be reduced without undue sacrifices in the quality of these services. The paper identifies ways to do that.