World Bank OKs loans, urges reforms in Croatia

ZAGREB (Reuters) -The World Bank approved fresh loans to Croatia on Thursday, but urged the European Union candidate country to step up reform efforts if it wants to be competitive in the demanding common market. «The government has made noticeable efforts recently through privatization of large loss-makers and restructuring of state railways. We’ve also seen some progress in making the judiciary more efficient,» Sanja Madzarevic-Sujster, chief World Bank economist for Croatia, told reporters. «However, if Croatia wants to achieve its ambitious goal, and that is to become ready for EU membership by 2009, it needs to speed up structural reforms,» she added. The Bank approved three new loans altogether worth -285.3 million ($383.3 million). They are aimed at supporting structural reforms crucial for EU membership, improvement of water supply and wastewater collection, and modernization of the northern Adriatic port of Rijeka. The Bank said it hoped to provide in the next two years an additional $612.8 million for financing Croatia’s reform efforts but first wanted to see progress in ongoing reforms. The World Bank and the International Monetary Fund have called on Zagreb to cut red tape and subsidies to loss-making industries, like shipbuilding or steel, fight corruption, make the labor market more flexible and boost the private sector. «We commend the government for the sale of several loss-making firms in metallurgy and for some measures to improve the business climate that have caused the share of the private sector in gross domestic product to reach almost 70 percent from around 60 percent in recent years,» Madzarevic-Sujster said. But she said the public sector was still too big and expensive and urged the government to pursue fiscal consolidation, saying there was still ample space for spending cuts. The government plans to cut the budget gap this year to 2.8 percent of GDP, or even a touch lower, from 3.0 percent in 2006. But Madzarevic-Sujster said that if quasi-fiscal expenditures like the repayment of a decade-old state debt to pensioners and activities of the state investment bank HBOR were included, the deficit would be much higher.

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