Statement by the Staff Representative on Republic of Croatia

Croatia's economic growth accelerated, but external imbalances continued to increase. Executive Directors commended the strong performance accompanied by commendable prudent policies and continued strengthening of financial supervision. They emphasized the need for continued policy efforts to mitigate imbalances and sustain high growth. They stressed the need to continue fiscal adjustment so as to manage domestic demand, address macroeconomic imbalances, and accelerate structural reforms. Directors welcomed the authorities’ intention to continue to reduce general government deficit and also pointed the importance of ensuring the sustainability of the pension system.

Abstract

Croatia's economic growth accelerated, but external imbalances continued to increase. Executive Directors commended the strong performance accompanied by commendable prudent policies and continued strengthening of financial supervision. They emphasized the need for continued policy efforts to mitigate imbalances and sustain high growth. They stressed the need to continue fiscal adjustment so as to manage domestic demand, address macroeconomic imbalances, and accelerate structural reforms. Directors welcomed the authorities’ intention to continue to reduce general government deficit and also pointed the importance of ensuring the sustainability of the pension system.

1. This statement reports on recent developments and adds to the information contained in the staff report for the 2008 Article IV consultation. It does not change the thrust of the staff appraisal.

2. Recent data releases are broadly consistent with the outlook in the staff report. Twelve-month CPI inflation fell to 5.7 percent in March. Year-on-year growth in domestic bank credit to the nongovernment sector eased to 12.3 percent at end-March. In line with EU requirements, the Croatian National Bank has changed the external debt reporting system. This resulted in an upward revision to Croatia’s end-2007 external debt of 1.3 percent of GDP.

3. Staffs proposal to reclassify Croatia’s de facto exchange rate arrangement from “managed floating with no preannounced path for the exchange rate” to “conventional pegged arrangement” (as from September 1, 2006) remains under consideration.

Republic of Croatia: 2008 Article IV Consultation: Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Croatia
Author: International Monetary Fund