The government presented its plan to the EC vice-president, and Prime Minister Oreskovic said that the focus of the plan was on reducing debt, increasing investment, cutting the budget deficit, reducing unemployment and launching specific reforms.
Croatia might become the first European Union country on which the European Commission might impose corrective measures as part of the Macroeconomic Imbalance Procedure because it has made progress only in one out of six recommended areas, a press conference was told after a meeting between Prime Minister Tihomir Oreskovic and Commission Vice-President for the Euro and Social Dialogue Valdis Dombrovskis in Zagreb on Friday.
Addressing the press, Dombrovskis said that macroeconomic imbalances had been identified in Croatia last year and that the European Commission had defined six recommendations to address them.
The recommendations concerned fiscal policy, notably consumption, the reform of the labour market and the pension system, including the problem of early retirement, and parafiscal levies.
The one area in which Croatia has made significant progress is tackling the problem of companies' insolvency, Dombrovskis said, adding that the Commission would decide on whether to take corrective action against Croatia and on the nature of corrective measures within several weeks.
The Macroeconomic Imbalance Procedure is a relatively new mechanism that has been introduced to address problems faced by EU economies as a result of the global financial crisis. No country has been subjected to this procedure to date. Dombrovskis said that he could not prejudge the Commission's decision, adding that the Commission would closely monitor the implementation of the government's programme of structural reforms.
Oreskovic said that the situation was serious and that Croatia had failed to implement the necessary reforms over the past four years. "As a result, today we face a possibility of corrective action," he said, noting that Croatia might become the first member state to be subjected to corrective measures.
"The vice-president of the European Commission said very clearly that things were not good and that we needed to carry out reforms and see results in the end," Oreskovic said.
Dombrovskis said that the European Commission welcomed the reform momentum of the new Croatian government and its readiness to tackle major economic challenges faced by the country. He recalled that the EC expected Croatia's economy to grow by 2.1% this and next year.
The public and household debts are still high, and the unemployment rate is still relatively high, not just because of weak job creation, but also because of a labour force drain. The banking sector has a relatively high proportion of non-performing loans, which prevents it from financing the real sector more seriously. As regards public finance, the Commission estimates that last year Croatia failed to achieve the goal of reducing the budget deficit to 3.5% of GDP, but final figures will be known in April, Dombrovskis said.
That's why it is important to take immediate action to address these imbalances and this has been a good opportunity to hear what the new government's plans are and how it will respond to these challenges. We are encouraged to have heard that there is a clear reform momentum in the government and the will to face these challenges, Dombrovskis said, welcoming the government's plan to reduce the deficit to below 3% of GDP.
He said that the Commission would provide Croatia with technical assistance in implementing the necessary structural reforms, adding that talks on this were already under way. He also said that the Commission was ready to help Croatia increase the absorption of EU funds.
Asked to comment on the figures released earlier today showing a 1.9% increase of GDP in the fourth quarter of 2015 and a 1.6% increase of GDP in the entire year 2015, Oreskovic said that this was not enough because entire Europe had growth rates above 2% and some countries even above 3%.
The government will prepare a programme to increase investment by small and medium-sized enterprises, draw EU funds and accelerate growth, Oreskovic said.
Asked what the government's priorities were, he said that the focus would be on all measures that could help reach the goal of reducing the budget deficit and public debt, such as the reforms of the public and health sectors.
(Text: Hina)
News
