Monday, 20 September 2021

More Than 1.2 Million Rubbish Containers Placed in Croatian Locations

September the 20th, 2021 - 407 Croatian locations (cities and municipalities) received containers for separate waste collection from households that were procured and distributed through the Fund for Environmental Protection and Energy Efficiency recently.

As Poslovni Dnevnik/PD and VL native tim writes, to be more precise, Croatian locations received 1,230,695 various bins and containers of various volumes for the separate collection of paper, plastic, biowaste and other recyclable waste.

The containers were procured as part of a project with a total investment of around 370 million kuna, and the vast majority of this amount was provided through EU funds through the Ministry of Economy and Sustainable Development.

“Logistically speaking, this was a very demanding project. After the public procurement procedure was carried out and contracts were signed with the selected bidders, a schedule of activities was made and deadlines for their execution were agreed.

In the Environmental Protection Sector, several teams have been formed that have been on the ground almost every day for the past six months and in constant communication with representatives of local governments, utilities and suppliers,'' explained Aleksandra Cilic, pointing out that despite all of the unprecedented challenges the coronavirus pandemic and the earthquake presented, this project has been successfully implemented on time.

She added that they also had the professional support of other sectors and services from within the same fund, which took on a lot of work and without whose help this project couldn't have been successfully implemented.

"Now that almost every household will have the proper containers for separate waste collection, no one will have an alibi or an excuse not to do so," said Cilic.

The rate of separate waste collection from Croatia is encouragingly growing from year to year. According to the data for last year, it amounted to 41 percent, and it is to be expected that the result for this year will be even better with this newly purchased and distributed communal infrastructure.

According to Cilic, the number of Croatian household properly separating their household waste will certainly grow, but education at all levels is crucial - from utility companies engaged in the processes involved to regular citizens.

"This summer, a video of an Italian tourist who wanted to throw his plastic packaging in the designated waste container spread across social media, but after he lifted the lid, he was unpleasantly surprised when he saw that all the waste had ended up being placed in the same bag. Unfortunately, such a reckless practice of some utility companies puts a dampener on all the efforts made to establish a waste management system and it undermines public confidence in the same system,'' stated Cilic.

Regardless of such isolated cases, it is crucial that people collect and dispose of their waste separately because all useful components, especially paper, plastic, glass and bio-waste are all properly recycled or composted. It is therefore necessary to transform a take-use-discard linear economy into a true circular economy, which is why thinking about sustainable circular systems needs to be implemented across all activities and sectors, including policies, products, production processes and business models. Education and public information play a key role in all this, and many Croatian locations now having the proper means should mean there can be no more excuses.

For more, make sure to check out our lifestyle section.

Monday, 6 September 2021

Contracts for Co-financing Implementation of EU Projects Presented in Osijek

ZAGREB, 6 Sept 2021 - The Minister for Regional Development and EU Funds, Nataša Tramišak, on Monday presented Osijek-Baranja County Prefect Ivan Anušić with six contracts for co-financing the implementation of EU projects at the local and regional level.

The contracts concern projects in which the Osijek-Baranja County administration is the holder or beneficiary of grant contracts, and their total value is HRK 10.9 million.

According to Minister Tramišak, the most valuable contract concerns the construction of a business center in Osijek. The project is worth HRK 65.5 million, of which HRK 45 million has been secured from the EU's Competitiveness and Cohesion operational program and the City of Osijek's ITU mechanism, while HRK 9.3 million will come from the state budget.

The center is expected to be built and become fully operational in a year's time and serve as a venue for trade shows and similar events.

Tramišak said that 49 contracts for co-financing EU projects in Osijek-Baranja County, worth over HRK 78 million in total, would be presented soon. She added that their purpose was to support local government units and their utility companies in the successful implementation of EU projects.

(€1 = HRK 7.5)

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Wednesday, 25 August 2021

Three Continental Croatian Cities Cooperate in Name of EU Funding

August the 25th, 2021 - Numerous continental Croatian cities are hoping to get their hands on European Union (EU) Funds. Koprivnica, Cakovec and Varazdin are all on the hunt for EU cash injections following their recent decision on cooperation.

As Poslovni Dnevnik/Ana Blaskovic writes, this year's Spancirfest not only turned the historic core of Varazdin into a festival stage once again, but also opened the door to cooperation between three continental Croatian cities: Varazdin, Koprivnica and Cakovec, all of which agreed on a joint application for individual European Union projects.

"We've agreed on the models of our future joint cooperation in applying for some EU projects and funds, where each of us is too small to be able to apply on our own,'' said Varazdin Mayor Neven Bosilj, who hosted Cakovec Mayor Ljerka Cividini and their colleague Misel Jaksic from Koprivnica on Monday.

According to Bosilj, these three continental Croatian cities are among the top six in the entire country in terms of employment and are the (probably rather unexpected) drivers of economic activities.

At the same time, these three continental Croatian host the largest traditional events in the country, such as the aforementioned Spancirfest which is held annually in beautiful Varazdin, whose edition this year has been being visited by about 20,000 people a day, Porcijunkulov in Cakovec, and the Koprivnica Renaissance Festival, all of which attract crowds year after year.

"Tourism doesn't solely exist down by the coast. These are the three most important tourist events not only in this part of the country, but in the whole of continental Croatia,'' said Bosilj.

Cividini stressed that they must not miss out on grabbing the opportunity for cooperation on projects that are opening up through the ITU mechanism and other European Union funds.

"Cooperation will take place through the economy, tourism, cultural development. Today, we've shown that we have the will and that we want to do this, and there are a lot of projects," she said.

"I think this is a good trigger for our agricultural production, traditional crafts, cultural development and everything that makes life what it is up here in the north," Jaksic said.

For more on Croatian access to EU funding, follow our dedicated politics section.

Sunday, 22 August 2021

Galic Winery Must Return 10 Million Kuna in European Union Funds

August the 22nd, 2021 - Bad news for the well known Galic Winery, which now must return a massive 10 million kuna from the Wine Envelope which was allocated to it.

As Poslovni Dnevnik writes, the Galic Winery, owned by entrepreneur Josip Galic from Kutjevo, must return 10 million kuna from the Wine Envelope allocated to it through the European Agricultural Guarantee Fund for the construction of a new winery building in Kutjevo which was worth seven million euros.

The Agency for Payments in Agriculture, Fisheries and Rural Development, based on the recommendation of the European Anti-Fraud Office (OLAF), recently issued a decision to annul the decision on the Galic Winery project approval and made a decision on the return of paid aid in the amount of 10,047,442.29 kuna, Jutarnji list writes. This is the first such case, according to the same publication.

OLAF stated that during the construction of the winery, there was malversation and abuse in the selection of contractors, ie subcontractors. In this particular case, one of the subcontractors of construction work on the wine cellar was the company Presoflex owned by Ina Galic, the child of Josip Galic.

It should be noted that the Galic Winery hired one company as a contractor, and it then hired five subcontractors, including Galic's child's aforementioned company, which OLAF considers a conflict of interest, explaining that ''the legislative framework prohibits users of EU funds from projects for which they received money to hire companies with which they have personal or business connections,'' reports Jutarnji list.

The Galic Winery has stated that it is shocked by this decision, which they're trying to challenge because they consider it to be illegal. The Agency said that the decision was made “based on Article 33, paragraph 2 of the Ordinance on the implementation of the measure Investments in wineries and wine marketing from the National Wine Sector Assistance Programme 2014-2018, which stipulates that the Paying Agency will request a refund if it is determined that the beneficiary has acted contrary to the provisions of the Ordinance and the rules for the use of such funds for the Investment measure, ie in case of an established irregularity,''

They also stated that during the approval of the now disputed Galic Winery project, as well as during the control of its implementation, the Agency didn't know that a company owned by Galic's offspring was being engaged in the project, and that the beneficiary had previously been instructed in all of the obligations based on the project approval decision.

For more, follow our business section.

Friday, 20 August 2021

Over €1Bn To Be Set Aside for Development of Islands Until 2027

ZAGREB, 20 Aug, 2021 - EU Funds and Regional Development Minister Nataša Tramišak said on Friday in Split that HRK 7.8 billion would be earmarked for development projects on Croatian islands until 2027.

The national plan for the development of islands will provide a scope for investments, and we have assessed that 7.8 billion kuna will be necessary for the implementation of measures envisaged by the plan. However, that amount is not definite and other ministries are expected to make contributions to additional investments in compliance with the money made available in EU funds until 2027, Minister Tramišak told the press.

Tramišak held the news conference after she awarded seven contracts, worth HRK 22 million in total, on regulating the state's co-funding of the EU-funded projects.

The total value of those seven projects which will be implemented in Split-Dalmatia County stands at 223 million kuna, and 140 million will be covered by EU funding.

After Split, Tramišak travelled to Hvar for a ceremony of awarding HRK 4 million worth of contracts on that island.

The registry of islands and the national island development plan will be presented at that ceremony.

More than six billion kuna was invested from national funds into different activities and projects for the islands in the 2016-2020 period.

Croatia has 1,244 islands, and 45 islands are permanently or temporarily inhabited, with 51 maritime routes, 58 community health centres, 102 primary and 13 high schools, and 23 care homes.

(€ 1 = HRK 7.482172)

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Friday, 13 August 2021

Slow Croatian Project Processing Major Issue for EU Funding Access

August the 13th, 2021 - Croatian administration is, for anyone who has had even the remotest of dealings with it, horrendously slow. The country is famous for its draconian rules and masochistic love of stamps and red tape, and needing to get anything done in a rush is outside the realm of normal expectation. Croatian project processing is unfortunately no different, and it represents a major obstacle in withdrawing EU cash.

As Poslovni Dnevnik/Jadranka Dozan writes, when it comes to the withdrawal of money from the European Structural and Investment Funds for the previous financial period (2014-2020), Croatia has shifted to a somewhat higher speed. In one year, the country has fortunately grown by almost 20 percent in terms of utilisation, Minister Natasa Tramisak recently emphasized.

However, that means more than two-fifths of the financial envelope, worth about 80 billion kuna or 10.7 billion euros, still remains to be withdrawn. So far, more than 45 billion kuna has been paid out, ie 56 percent (with 47 percent of it having been finally certified).

A kind of fuse for the maximum use of available funds in the given deadline, which is the end of 2023, is the "stock" of contracted projects. About 20 percent more than the available "quota" was agreed upon. In addition to that, the procedures for users, including the rules for public procurement, have been facilitated, and the communication of the competent ministerial department with the European Commission (EC) has been accelerated, they claim.

With the exception of things having been skewed in the sense of the context of the ongoing pandemic, the absorption process is no longer at a snail's pace, says Tramisak. She attributes the difference in terms of utilisation compared to some other EU member states to the fact that this was Croatia's very first programme perspective, while others had been transferring large projects from previous ones, so they were faster in terms of money withdrawal.

In addition, in the first two years of the past period, calls and contracted funds weren't announced at all, and this, as she points out, is difficult for Croatia to compensate for.

However, there is something obvious in the (in)efficiency of Croatia's infamous public administration in the selection procedures for projects set to be co-financed through EU funds. The results of the recently published analysis from Jaksa Puljiz, Sanja Malekovic and Sanja Tisma from the Institute for Development and International Relations are also on this track.

They analysed about thirty calls under the Competitiveness and Cohesion Operational Programme 2014-2020 (OPCK) as the most financially important programme co-financed from the EU budget for Croatia, implemented in the period between 2014 and 2018 and worth about 12.4 billion kuna. It was confirmed that the low efficiency of the system is mostly influenced by Croatian project processing times, ie in terms of dealing with those applications. In Croatia, this implies a significantly longer time than the time prescribed by the Common National Rules, but also than the time of implementation of selection procedures that some previous studies have shown for other EU countries.

Making the first decision on funding in as many as 97 percent of the analysed calls lasted longer than 120 days for Croatia, and most often their duration was from 180 to 360 days. This is likely not a surprise to anyone who has ever tried to do, well, just about anything official here.

“These are extremely long deadlines that have numerous consequences for the absorption and the quality of project implementation. In such a long period of waiting for the beginning of their realisation, it's clear that the circumstances which are very important for successful implementation can change significantly,'' the aforementioned authors point out.

For comparison, they say that similar research once showed that in Germany, neighbouring Slovenia, Austria, the Czech Republic, the Netherlands and Slovakia, between 31 and 49 percent of respondents using EU funds waited less than three months for their project evaluation results.

The problem of the duration of these Croatian project procedures has recently been highlighted by enterprises who have faced a drastic rise in the prices of certain industrial raw materials and construction materials this year. Some argue the issue to the extent that certain projects co-financed by European Union funds could even come into question.

"It used to happen, for example, that the tender (in terms of deadline) states that the competent authority will notify the applicant of the results of the tender within four months, and 10-12 months will elapse before its conclusion," a consultant for EU projects explains.

When it comes to tenders for businesses (not counting, therefore, public bodies and social groups), the impression, he says, is that they are better off and more consistently organised for farmers than those for enterprises or, for example, those engaged in the fishing industry.

In the Competitiveness and Cohesion Operational Programme, which was the subject of scientific work of the IRMO analysis, the duration of selection procedures is, among other things, a consequence of the large volume of documentation required in most cases from the applicants.

In almost 60 percent of these calls, Croatian applicants quite unsurprisingly had to submit at least 11 different documents, which is quite a high number, according to the authors. Sometimes that figure is even higher, with between 16 and 20 documents needing to be submitted, and in seven percent of cases, even more paperwork than that was required in Croatia.

Nearly 40 percent of applicants stated that their entire application with all of the required attachments had more than 100 pages when complete. Among the more extensive were, for example, public calls related to the energy renovation of buildings, the promotion of sustainable development and the restoration of cultural heritage, as well as the modernisation and construction of student dormitories.

Approximately the same percentage of applications had less than 50 pages in total, which is still a lot.

There is also a large number of frequently asked questions about published invitations, which suggests that the tender documentation needed is often very unclear to applicants. In more than two thirds of the analysed calls, there were more than 100 questions asked. This shows that the Croatian project procedure is not only longer than it should be, but complex and as clear as mud. That also shouldn't come as much of a shock to most.

All this leads to changes and additions to the tender documentation, then the extension of application deadlines, and then the later contracting or later start of Croatian project implementation in relation to the original plans. In less than a quarter (23 percent) of cases, calls didn't undergo any changes, and nearly half (47 percent) underwent two or more changes, only adding to the confusion.

This also indicates that the preparation of tender documentation for competitive tenders for the state administration was a demanding task that often resulted in its amendments and the long duration of Croatian project selection procedures.

The competent ministries and state agencies received a lot of complaints due to the request for documentation that the applicants consider to be entirely necessary.

“Among such examples is the insistence on the original excerpt from the court register instead of the competent clerk simply checking it directly over the Internet. The same is true for the original BON2 certificate from the bank instead of the "downloaded" certificate from internet banking, as well as for the tax certificate confirming the absence of tax debt instead of direct verification,'' said one EU project expert.

Some changes in that direction are already being worked on, thankfully. Minister Tramisak recently said that reforms are being made so that the eFunds system is connected to all of Fina's public services, which will reduce administrative burdens. "People will just need to give their consent for documentation to be accessed online for certain items that they had to supply themselves so far,'' she assured.

For more on EU and Croatian projects, follow our dedicated lifestyle section.

Saturday, 10 July 2021

As Country Gets Hands on European Funds, How Will Croatian GDP Fare?

July the 10th, 2021 - Croatia has an enormous sum of money waiting to be utilised in various ways thanks to the European Union, but how will it do so? More importantly, what will be the effect on Croatian GDP?

As Poslovni Dnevnik writes, this plan which involves this EU cash should raise Croatian GDP growth by 1.5 percentage points in 2021 and by 2.5 to 2.9 percentage points in all years until 2026, including that final year, which is a huge boost following the coronavirus pandemic which left horrendous scars on the Croatian and European economies.

It should create 21,000 new jobs, too, and this is just an assessment of the direct impact of all the investments envisaged in the plan, not including the many reforms, which are an equally important part of the National Recovery and Resilience Plan. If Croatia manages to close the half of the gap with the European Union average with structural reforms, in the next 20 years, Croatian GDP would be as much as 15 percent higher than today.

These are just some of the figures that European Commission experts came up with when analysing and approving the much talked about Croatian NPOO. After the approval of the Croatian plan, Vecernji list found out about their thoughts and impressions from a high-ranking European official in Brussels.

It should not be forgotten, they added from the Belgian capital, that in addition to these 6.3 billion euros provided by the completely new fund from the mechanism for recovery and resilience, Croatia has about 9 billion euros at its disposal from the classic, structural EU funds.

''In front of you is a gigantic effort, you need to be able to manage and implement projects that will see all that money spent in a very short amount of time. You need to focus on that common challenge,'' said the official, who spoke only on the condition of anonymity.

After yesterday's green light from the European Commission, the EU Council has four weeks to adopt an implementing decision, which is a formal approval and allows for the payment of an advance of 13 percent of the value of the NPOO, which in the Croatian case totals about 819 million euros. In Brussels, everyone hopes that the Croatian plan will be approved by the Council before collective holidays begin during August.

For more, follow our politics section.

Friday, 9 July 2021

REPLACE Project Presented at JOINT SECAP Workshop in Rijeka

July 9, 2021 - The REPLACE Project was presented at the JOINT SECAP workshop in Rijeka on June 23. There is no better way to end a year and a half-long Interreg project for Croatia, which was one more ecosystem-concerned cooperation between Italy and Croatia.

When it comes to energy efficiency in Croatia, there is no doubt anybody cares about it more than the scientific community working and associating with Energy Institute Hrvoje Požar (EIHP).

Not only is the EIHP building on its way to becoming the first nearly zero energy building in the whole of the country, but EIHP's expertise also plays a big role in REPLACE Project from Horizon Europe. As TCN previously covered, the project aims to make Primorje Gorski Kotar County energy-renewable territory, and the ongoing meetings about the project (in collaboration with the University of Rijeka) see slow but steady progress in those respects.

As EIHP reports on its website, June 23 saw REPLACE Project presented in the congress hall of Rijeka's Jadran Hotel as part of the final workshop of the JOINT SECAP project.

„On behalf of EIHP, Antonia Tomas Stanković presented REPLACE in the second half of the event. The goal is to support European energetic, climate, environmental, economic, and social goals by 2030 and 2050 by encouraging the gradual replacement of inefficient and outdated cooling and heating systems with new, energy-efficient systems based on renewable energy sources“, informed EIHP.

JOINT SECAP, part of Interreg Italy-Croatia strategic program (much like the CASCADE Project TCN previously wrote about) aims to improve the climate change monitoring and planning of adaptation measures tackling specific effects in the cooperation area.

„The project idea reflects the necessity to operate at a wider district level and better define strategies and actions for climate change adaptation, especially for those weather and climate changes and hydrogeological risks affecting coastal areas. The first phase is developed to build the common methodology for Joint Actions definition and implementation and to share the basic knowledge about issues concerning climate change adaptation strategies and energy efficiency measures. The second phase starts upon the analysis uploaded in the web platform, acting as a useful tool for the development of scenarios for the Joint Actions to be implemented in the Joint SECAP plans, those last constituting the main project deliverable“, explained JOINT SECAP on its website. The workshop in Rijeka was the conclusion of the project as JOINT SECAP ended on June 30 after it began on January 1, 2012, with a budget of € 2,094,857.

The workshop in Rijeka, writes the EIHP website, was organized by Primorje Gorski Kotar County Office for Regional Development Infrastructure and Project Management and by Kvarner Regional Energetic Agency. Representatives of local authorities of Primorsko-Goranska county that were enrolled in creating an Energetic and Climate Sustainable Development Action Plan. These local authorities include towns such as Opatija and Kastav and the districts of Čavle, Matulji, and Viškovo.

„Joint SECAP analyzed energy spending for the included towns and districts, their risks and vulnerability regarding climate change, yearly emissions of CO2 in sectors of building construction industry, public lighting, and traffic. Concrete measures with the goal of adjusting to the effects of climate change and CO2 emissions down to at least 55% by 2030 were suggested“, stated EIHP.

With measures identified, the race with time begins as these measures should be in place as fast as possible to tackle one of the biggest challenges humanity is facing, and Croatia isn't able to be isolated from the threat.

Learn more about Rijeka on our TC page.

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Wednesday, 23 June 2021

IMF: Generous EU Funds Offer Croatia Historic Opportunity

ZAGREB, 23 June, 2021 - Despite the considerable setback dealt by the pandemic, Croatia has a rare opportunity in the next five years to restore its economy to health and to ramp up the public investments necessary for appreciably higher growth rates with the help of EU funds, an IMF mission says in a Concluding Statement.

"Following a painful contraction of 8 percent in 2020, the economy looks set for growth between 5 and 6 percent in 2021 driven by a rebound in the services sector and investment - provided the pandemic does not provide further unwelcome surprises," the mission says the statement published on Wednesday after visiting Croatia as part of regular consultations with member states.

"With sufficient luck regarding tourism outcomes, and a successful vaccination drive within the next months, growth could even exceed 6 percent this year. Assuming the pandemic fades by the end of this year, growth could remain high over the next few years, if the country makes full and timely use of the potentially sizable forthcoming inflow of EU funds," according to the statement.

"Since the first quarter, the recovery has picked up noticeably with areas like construction and manufacturing already reaching activity levels higher than in 2019. Overall, the number of registered unemployed persons has fallen by nearly 13 percent since a year ago. However, tourism and directly related sectors are yet to fully recover. This process is likely to take another year or two."

Swift measures by the authorities

"Between the pandemic and two large earthquakes, Croatia has been severely tested, and the country’s resilience has come through. The economic contraction in 2020 - painful as it has been -was not as severe as those experienced by many other economies with a strong tourism component. This is mainly due to the swift measures enacted by the authorities," the IMF staff said.

"Support measures must remain in place until the health of the population and the economy have been fully restored. As conditions improve, support measures need to rotate toward preparing the workforce for the post-pandemic world, and facilitating balance sheet repair of viable businesses. Thereafter, the challenge of once again reducing deficits and the public debt whilst shifting growth into a new high gear must be taken on. The generous funding from the EU represents a historic opportunity, to help meet these challenges successfully - an opportunity that must be fully utilized, in a timely fashion," the IMF mission said.

Not the right time to further cut taxes

Noting the government's support measures, the mission said, "Just as these support measures were essential during the worst of the crisis, they must now be better targeted to lagging sectors of the economy - and they must remain in place till the economy has more fully recovered."

"It is paramount that a vaccination drive be as successful and widespread as possible, that extra healthcare costs are fully met and arrears in the healthcare system are reduced to the maximum possible extent," according to the statement.

"Complementing the use of funds such as the European Social Fund, fiscal resources saved this year due to improving conditions can also be usefully redeployed to train more workers in sectors like greening and digitalization."

"In sum, in the view of IMF staff, the most important fiscal goal in 2021 is to focus on spending available resources wisely to restore the economy to health. If this is successfully accomplished this year, it will more firmly ground the efforts to reduce the deficit and debt over the next few years," said staff said in the Concluding Statement.

"Regarding revenues, the authorities need to conserve all available resources to meet any unexpected expenditures into 2022, and well beyond. This is one clear lesson from this completely unforeseen shock the world has suffered. We hold that this is not the right time for any further tax cuts or weakening of the tax base. Current conditions are still far too fragile for the country to afford them," they said. 

Recovery and Resilience Fund provides unique opportunity for economic development

They said that there were few doubts that a post-pandemic "will be more digitalized in the most basic aspects of our lives, and that it should be greener. In these two areas, Croatia has great strides to take, from which there will be a sizable return on investment, for decades to come."

The IMF reiterated that "our most important recommendation was to raise public investment, for the sake of future growth. Now, that conviction has only deepened, as it is important to acknowledge a singular aspect in which Croatia is actually better off than it was before the pandemic."

That is "the generous allocation of EU Funds, including from the Recovery and Resilience Fund (RRF). The RRF resources amount to 10.6 percent of GDP in grants to be utilized by 2026."

"These funds reflect a truly unique opportunity along the path of economic development, which many countries in the world are not fortunate enough to have. It is important for all stakeholders in Croatia to fully understand the significance of this opportunity. These funds are available, but they need to be absorbed efficiently, and in a timely manner. They must also be accompanied by needed reforms," the IMF said.

"Thanks to the influx of these EU funds beginning towards the end of this year, Croatia can significantly upgrade its public capital stock, decarbonize its economy, catch up with digitalization, and improve its maritime and rail transport systems. If the projected investments go according to plan, we currently assess that the funds from the RRF alone could add as much as 2.9 percentage points to real GDP over the next twenty years."

Opportunity to reduce income gap in relation to EU

"When the effects of the planned reforms, as well as the other EU structural funds are put together, Croatia now has its best chance since independence to significantly narrow the current 35% gap in per capita income with respect to the EU average," the mission said.

It added that "the prospect of living in a vibrant society with prosperity rapidly converging to EU levels could cause the young to fundamentally re-evaluate their future, thereby further stemming the tide of outward migration. That, in turn, would have the positive effect of reducing risks to the sustainability of the healthcare and pensions systems. It is very much possible now, and unlike ever before, to start a virtuous cycle - and to definitively escape past vicious circles."

The authorities have requested a Public Investment Management Assessment from the IMF, to take place in August 2021, the statement noted. "This assessment will help prepare an action plan to help make sure investment spending is effective, is sensitive to climate change related considerations and supports sustainable long-term growth."

The authorities’ National Recovery and Resilience Plan "has laid out major complementary reform commitments across five components: green and digital economy, public administration and judiciary, education, science and research, labor market and social protection, and healthcare. These are essential for the flexibility Croatia needs to operate its economy smoothly, once inside the eurozone."

Reforms needed for stronger public finance

Within the reform areas where the strength of public finances is the focus, IMF staff re-emphasizes the importance of support, from all stakeholders, for civil service and administrative reforms, "including a modernization of the public salary system, as well as improving the territorial organization of sub-national governments."

Support is also called for ending "stop-gap measures to take care of healthcare arrears, through an overhaul of its cost structure" and "exploring a more sustainable revenue base, to preserve healthcare quality standards."

The IMF also recommends the development and implementation of a full-fledged strategy for state-owned enterprises (SOEs), "including the separation of core from non-core businesses, and a strengthened oversight system for the former to ensure that they contribute their fair share to the budget by remaining financially durable after their public service obligations are met. The authorities’ commitments to sell some non-core SOEs over the next few years is a promising start." 

Also recommended is ensuring the long-term sustainability of the pension system, given population aging.

In addition to these areas, constantly improving the competitiveness of the Croatian economy through active dialogue with the private sector, remains essential.

"For the forthcoming increase in public investment to have maximum effect on the economy’s growth rate, it must be complemented by increases in private investment, as well. Reforms to the framework of debt restructuring, insolvency, and efforts to further improve predictability and efficiency in legal procedures remain central to unlocking more resources from investors, as it allows them to invest with greater confidence."

Banking system liquid and sufficiently capitalized

"Monetary policy remains highly expansionary, within the exchange rate anchor in place since 1993. This stance is appropriate given the need to nurse the economy fully back to health," the IMF staff said.

The recent pick-up in inflation is more likely than not to be transitory in nature, but should inflationary pressures prove more persistent than in the euro area, the central bank "may consider reducing excess liquidity in the banking system, while maintaining exchange rate stability."

"The banking system has remained liquid and is on average well capitalized," the mission said, adding that there was more than enough money to meet the demand for corporate loans.

Housing lending remains strong, while uninsured household cash loans have decreased, which the IMF said was positive.

Although the ratio of non-performing loans to total loans has remained stable, the so-called stage II loans, a forward-looking indicator of future asset quality problems, has risen - particularly for non-financial corporations. This development warrants continued close monitoring."

"The pandemic has not affected the upward trend in house prices in Zagreb and coastal areas. To the extent that housing purchases are not driven by excessive household borrowing, they do not constitute an immediate financial stability risk," the IMF said.

However, this also requires continued monitoring by the central bank, If circumstances require it, the central bank "might wish to consider putting in place more formal macro-prudential measures (than the current implicit debt-service-to-income ratio included in the Foreclosure Act)."

"Despite the considerable setback dealt by the pandemic, Croatia has a rare opportunity, over the next five years, to restore its people and economy to health. It can ramp up the public investments necessary for appreciably higher growth rates, with the help of EU funds. Such opportunities should not be taken for granted. The onus of efforts is not exclusively on the authorities. All stakeholders in society must offer them the support for vital reforms, while doing their parts to re-energize private investment, and innovation. Adopting the euro will help remove some existing economic frictions by removing exchange rate risk. Yet, reaping the full benefits of the currency union requires strong focus and preparation. A brighter future is very much within reach. The time to act is now," according to the Concluding Statement.

For more about business in Croatia, follow TCN's dedicated page.

 

Monday, 21 June 2021

Milanović: We Need To Utilise EU Grants To The Maximum

June 21st, 2021 - President Zoran Milanović visited the town of Popovača on Monday and attended a special City Assembly meeting on the occasion of the town's day, where he welcomed efforts by local authorities to absorb EU grants to the maximum in order to realize essential projects for economic and demographic revival.

We have to utilize the benefits of membership in the European Union, he underscored.

"That is why for me, the only criterion for any city, municipality, and the state is to absorb the last euro possible. But for each one that we didn't, I want to see who was responsible and not just as the president of this country, but as a citizen," said Milanović.

We owe that to ourselves. Otherwise, we will once again be in some large conglomeration where we have no influence, he underscored.

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