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.

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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.

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

Sunday, 13 June 2021

Milanović Says Will Insist on Accountability for Every Euro of EU Funds Not Taken

ZAGREB, 13 June, 2021 - President Zoran Milanović said during a visit to the eastern town of Našice on Sunday that as a citizen he would insist on accountability for every euro of EU funds available to Croatia but not taken.

Milanović visited the eastern town on the occasion of its day and the day of its patron saint, St. Anthony of Padua.

The president noted that he measured the performance of local government units only by how much EU funds they managed to absorb.

"As a citizen, I will insist on accountability for each euro not taken. Otherwise going to Brussels to listen to smart advice there makes no sense," he said.

He noted that Našice was a small, well-organised town.

"As such, it provides an excellent basis for a good, comfortable life," he said, adding that Croatians would not die out as a nation even though such forecasts could often be heard.

"That won't happen. Do we have reason to worry? We do. Do we have reason for action? Most certainly. Do we have reason to despair? No," he said.

Mayor Krešimir Kašuga said that Našice today was a town of pleasant and quality living, where projects worth HRK 600 million, mostly financed with EU funds, were under way.

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Wednesday, 19 May 2021

Lawmakers Call for Strengthening Absorption Capacity for EU Funds

ZAGREB, 19 May, 2021 - Croatian lawmakers on Wednesday agreed on the need to strengthen the administrative and absorption capacity for the use of EU funds and to further simplify and standardise the rules.

MP Marko Pavić (HDZ) commended the bill on the institutional framework for the use of EU funds in Croatia, saying that strengthening the capacities would facilitate and improve the absorption.

"So far we've had €10.7 billion and in the future period that will be €24.5 billion, and already now there is a shortage of 1,000 people to process applications for EU funds," said Pavić. 

MP Marija Selak Raspudić (Bridge) believes that the basic problem in the use of EU funds is that there is no independent administrative body to check the application procedures, public procurement and the criteria.

"The legality and allocation of funds is not supervised by anyone at the administrative level but instead it is sent to the State Attorney's Office or Interior Ministry, which are already inundated with work and this is where the hitch occurs. The only department that has the competence and is capable of conducting checks, doesn't have that power," she said.

"In the next two years, we would have to expend as much EU money as we barely managed to absorb in the 7 years and that's a major challenge for Croatia," claimed  MP Ivana Posavec Krivec (SDP), asking what we have been waiting for until now.

MP Sandra Benčić (We Can!) believes the key problem is the various intermediary bodies and the inconsistent practice, which she claims, will not change with the proposed institutional framework.

The proposed bill establishes a stable institutional framework for the use of EU funds for the 2021-2027 period and defines activities to strengthen the capacities of beneficiaries, partners and stakeholders in EU-funded projects.

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Saturday, 24 April 2021

President: National Recovery and Resilience Plan Insufficiently Transparent

April 24, 2021 - President Zoran Milanović said on Saturday that the recent presentation of the National Recovery and Resilience Plan was insufficiently transparent, which he considers problematic, saying the public lacks precise information on what the funds which Croatia will obtain from the EU will be spent on.

"That is a problem because it erodes the little trust that exists between citizens and the EU and that link - having information about what the money will be spent on - is very important. For the sake of transparency, so that one knows if it goes to public firms, those with political ties to the ruling party," Milanović told reporters during a visit to Samobor, where he attended an event at which awards were presented to the best local salami makers.

Milanović said that he had no information whatsoever on the content of the National Recovery and Resilience Plan and that if he were Prime Minister, he would take care everything was as transparent as possible.

Having information on projects on which EU money will be spent is important to dispel suspicion of or rumors about preferential treatment, he said, adding that the National Recovery and Resilience Plan (NPOO) should be available to a larger number of people.

The Prime Minister should not have come to the parliament with the NPOO as it is. "He has only provoked people to ask him legitimate questions," said Milanović.

Explaining his statement of Friday that the coming commemoration of the 1995 military and police operation "Flash" would turn into a show, he said that he was referring to the protocol because wreaths would again be laid by five different delegations.

"It will take until Christmas to do it instead of doing it all at once," he said.

Describing the current commemorative arrangements "as an escapist, cowardly policy that does us no good," Milanović said that they would put some of the participants in the commemoration of Operation Flash in an awkward position, primarily military commanders, whose supreme commander he is and who will come with him.

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Tuesday, 13 April 2021

Croatian Culinary Heritage to be Protected with European Union Funds

April the 13th, 2021 - CUHaCHA might seem like a strange word and a bit of a mouthful to try to pronounce, but this project is set to set just how important Croatian culinary heritage is firmly in stone.

As Poslovni Dnevnik/Marta Duic writes, aware that traditional food plays a major role in the tradition and folklore of countries and is the basis of cultural heritage, the Zadar County Agency for Rural Development - AGRRA, the Ministry of Education, Science, Culture and Sports of the Herzegovina-Neretva County-Canton, the Tivat Municipality and Zadar County have jointly launched the CUHaCHA project.

As Ana Zubcic, AGRRA's international cooperation project manager, explained, tradition, Croatian cultural heritage and that of other surrounding countries, gastronomy and catering/hospitality are inextricably intertwined in this region. In addition, Zubcic pointed out, local cuisine and local products can encourage both innovation and promotion, and ultimately ensure further development at the regional and global level, this further improving the overall tourist offer.

Accordingly, the main goal of the "CUHaCHA" project is to strengthen and preserve the identity of Croatian culinary heritage and the common culinary heritage of the programme area, as well as to further contribute to the development of tourism, and it's a project worth 710,946.94 euros in total, of which the EU is co-financing 604,304.89 euros.

"Our general goal is to revive those dishes through gastronomy and traditional dishes that are slowly falling into oblivion and thus provide tourists the opportunity to experience the authentic flavours of the region. Food has played a key role in the tradition of our area for thousands of years now and remains an important part of our cultural heritage. In this way, we not only work to promote the destination and our traditions, but also offer an opportunity for innovation in this field,'' added Zubcic.

The project started back in August last year, and the first meeting of the partners involved was held in November, when the first project activities and plans were initially agreed.

Namely, as Zubcic revealed, as part of the project, common culinary heritage trails will be developed to strengthen and diversify the tourist offer, a culinary heritage monograph will be published, and training will be held for all service providers to ensure better culinary heritage management.

The project will also arrange traditional kitchens with the aim of promoting culinary heritage. Unfortunately, like the majority of other things, this project was also slowed down by the ongoing pandemic, but a culinary heritage survey is planned for the next six months.

"By researching all three areas, we'll find out what these dishes are, and then revive them and offer them in restaurants and in the general tourist offer. We believe that this will encourage farmers as well, because tradition and home-grown food are the key to this story.

The idea is that those who already offer food, if they don't already offer traditional food, for them to go in that direction,'' concluded Zubcic, adding that they will soon adapt and equip a traditional kitchen where training sessions for caterers, chefs and restaurant managers will be held. One of the last steps will be a virtual gastro trail.

For more on Croatian culinary heritage and local dishes, check out or dedicated section.

Thursday, 18 March 2021

Minister Tomislav Ćorić Visits Recycling Yard Worth HRK 3 Million in Novi Marof

ZAGREB, 17 March, 2021 - A recycling yard worth HRK 3 million and co-financed by EU funds has been constructed in Novi Marof, and during his visit on Wednesday, Economy Minister Tomislav Ćorić said that the northwestern part of Croatia has progressed more than other parts of the country in terms of waste management.

The recycling yard in Novi Marof was co-financed from the Cohesion Fund in the amount of more than HRK 2.5 million, while the entire project is worth over HRK 3 million.

Novi Marof Mayor Siniša Jenkač underscored that the recycling yard was a continuation of the policy of efficient and responsible waste management in that northern Croatian city.

"In addition, the remediation of our landfill Čret is currently in its final phase, and it cost a total of HRK 17.5 million, including 30 years of monitoring," he said, adding that they had also procured waste sorting containers.

The remediation of the Čret landfill was co-financed with HRK 13.3 million of EU funds.

According to Jenkač, when it comes to total financing with European money, about HRK 40 million has been invested in waste management in the area of Novi Marof.

(€1 = HRK 7.6)

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Thursday, 18 March 2021

Croatian Craft Owners Also Want Access to European Union Cash

March the 18th, 2021 - Croatian craft owners want their own slice of the EU funds cash pie as they feel they're being held hostage to various systemic restraints put in place by the government.

As Poslovni Dnevnik/Suzana Varosanec writes, numerous Croatian craft owners are set to end up in precarious positions in their expansion, even in terms of their export activities if the government fails to support them.

Leverage from their own capital is nowhere near enough, while on the other hand most of them don't plan to borrow, so the projects remain in the drawer, with everyone waiting for the outcome.

In order to push them with their own participation, there is a great interest among Croatian craft owners for non-refundable cash injections from European Union (EU) funds, and as a result, talks on this topic are expected from the Croatian Chamber of Trades and Crafts in the Government.

The key issue is the tender threshold, how to lower it from the existing one million kuna down to 150,000 kuna, which would ensure access to a large number of small entities to calls for such grants.

Results of the HOK survey

Through the Chamber's research on a sample of 1772 Croatian craft owners, the planned investments in property were crystallised - from the purchase of equipment and machinery to the reconstruction and construction of production facilities, in relation to which their participation in the National Recovery and Resilience Plan (NPOO) is required.

Unofficially, based on the value of the projects surveyed, it is an item which stands at approximately 100 million euros, while it is estimated that for this year the amount of non-refundable money would be in the range of 6 to 10 billion kuna, ie in seven years - about six billion euros.

In anticipation of answers to the problems of this group of entrepreneurs and the Chamber's proposal to advise the Prime Minister, they currently don't have an appointment, but will a joint solution with the government, in accordance with the intentions of this initiative led by HOK leader Dragutin Ranogajc, projects, which would be reflected on other small entities, will be seen quickly.

The predictable total value of the projects, according to the research, which would cover the needs of most Croatian craft owners, is from 150,000 to 750,000 kuna.

Croatian craft owners, they claim, are ready to immediately invest their own funds through co-financing these projects, but they also pointed out that more than 73 percent of the respondents aren't planning to use financial instruments.

The preparation of the necessary documentation

That is why HOK, as they say, is making efforts in the preparation of documentation in the field of drafting programming documents for the financial period of the EU 2021-2027.

The goal is to adequately identify the needs of Croatian craft owners and to provide them with appropriate calls for the allocation of EU money, which presupposes intervention to reduce the criteria to the previously mentioned 150,000 kuna.

They have previously warned that it is necessary to adjust the terms of the tender to Croatian craft owners, because according to Ranogajc, it must be borne in mind that "the economy is only as resistant as the smallest of its subjects are."

This approach is supported by economist Ljubo Jurcic, accompanied by the warning that without a systematic approach, there will be no great benefits to be had. He says that a system that produces added value should be built, in which the role of Croatian craft owners should be envisaged, who, he claims, also need a cash injection to cover the damage caused by the blockade due to the coronavirus crisis, in order to preserve any sort of pre-pandemic economic position.

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Thursday, 25 February 2021

Croatian Employers Association Wants EU Funds Sum Directed to Private Sector

February the 25th, 2021 - The Croatian Employers Association (HUP) want more European Union cash to be directed towards the private sector, with employers doing their best to urge the government to amend a certain document to ensure this happens.

As Novac/Gordana Grgas writes, at least 50 percent of European Union money is set to be available to Croatia in the next period, which is a total of about 24 billion euros. The Croatian Employers Association believes that around half of that massive amount should be made available to the private sector through calls for grants.

Employers are also urging the Croatian Government to properly amend the draft National Recovery and Resilience Plan (NPOO), the first version of which it has already sent to the European Commission (EC), and to further strengthen the role of the private sector in it.

Although the draft itself hasn't yet been published, and has only recently been roughly presented to the Croatian Employers Association, it appears that most of the 6 billion euros in grants from the NPOO, to be funded by the European Recovery and Resilience Mechanism as a result of the ongoing coronavirus crisis, could end up in reform-related public sector projects. As announced by the Croatian Employers Association at a recently held press conference, they plan to urgently send their remarks and suggestions to the European Commission itself. The final draft, they say, should be ready and sent to Brussels in April.

So far, a quarter of the money available to Croatia from EU funds has gone to the private sector, warned the Croatian Employers Association's Damir Zoric. The rest ended up going to public investments and public infrastructure, and Croatia needs larger investments in production for the development of the economy. Boris Drilo, President of the aforementioned associations's ICT Association explained that previous investments in the private sector have been shown to have a significant impact on economic growth.

"It's a minute until midnight for all of us, after which we can turn into either a princess or a pumpkin," he said in a rather picturesque manner. He also stressed that investments in private sector projects lead to sustainable employment for high-value jobs.

In February, the Croatian Employers Association conducted a survey among 1,700 enterprise owners, which showed that more than two thirds of them have prepared projects or investment plans for the next financial period in the amount of more than 21 billion kuna. As many as 94 percent of them would exclusively utilise EU grants, so there is extremely little interest in these so-called financial instruments, such as loans, and 30 percent say they will not be able to invest if these grants aren't enough.

On top of that, 28 percent of enterprise owners say they will not survive the ongoing pandemic crisis without better co-financing. Most of them stated that they would invest in capacity expansion and modernisation if they could be more certain, and the projects they have in those areas are the ones which are the most ready to be realised.

Drilo explained that, in general, the investment potential of available European Union money is significantly higher if it is directed to private investments, and it is also less burdensome for the state budget. Namely, a private company from the EU receives 40 to 70 percent of the investment amount as support, and the rest is financed by itself. The public sector, on the other hand, receives 85 percent of the money from the EU for the project, and the rest is added from public sources, which is less favourable.

Answering a question related to the National Recovery and Resilience Plan, the Croatian Employers Association said that the state should be prevented from competing with the private sector with its projects.

Ana Fresl, president of the Croatian Employers Association's Association of Professionals for EU Funds confirmed that the draft plan presented to them, in which only state bodies participated, exceeded the available six billion euros, and there has not been any feedback on which parts of the plan will remain and which will be discarded. In their belief, what was presented to them under the name "economy", the first version of the plan envisages a series of projects that have nothing to do with entrepreneurship whatsoever.

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Friday, 19 February 2021

Finance Minister Maric Feels Confident About Croatian EU Cash Negotiations

February the 19th, 2021 - Croatian Finance Minister Maric has spoken of his confidence of how Croatian negotiations are progressing in relation to the payout of European Union (EU) funds.

As Poslovni Dnevnik writes, Finance Minister Maric has stated that intensive communication is being undertaken and is currently taking place, with 45 meetings having been held so far with all departments involved in them. 

''Just as it is for all European Union member states, Croatia is obliged to send the final version of the document regarding their payout by the end of April this year,'' stated Finance Minister Maric.

"After that, there will be a process of evaluation of the document by the European Commission, and the Council needs to say something on those lines too, and then, accordingly, programmes will be approved for everything that will be written inside it," he added.

In the Croatian state budget itself, he noted, the vast majority of these funds aren't there yet and Croatia has no plans to make space for that. However, he added, the country can count on the fact that according to the latest information we have on a thirteen percent advance for the first year of use of the total amount of grants for 2021,'' as was reported by HRT.

"Most importantly of all, the document is significant in itself, but its implementation is even more important. Most of them are grants and I think we negotiated it very well and we have an above-average share of grants. For the most part, those 6 billion come from the Recovery and Resilience Fund.

The European Commission's remarks aren't only directed towards Croatia, but towards all countries for which the relationship between investment and structural reforms related to recovery must be more evenly coordinated. We'll use loans if necessary, but of course the focus is on grants,'' concluded the Finance Minister Maric before the government.

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