World Bank lauds Croatia

ZAGREB (Reuters) – The World Bank praised Croatia’s progress in structural reforms yesterday, but analysts said they should be faster and deeper if the economy is to prepare for competition in the European Union. «It’s part of our job that we’re never fully satisfied, but progress has been made as we saw the private sector share rising to 69 percent of gross domestic product from 60 percent where it had been stuck for years,» the World Bank’s representative for Croatia, Anand K. Seth, said. He was speaking at a ceremony at which he and Croatian Finance Minister Ivan Suker signed a loan deal worth 150 million euros aimed at giving a further boost to structural reforms. «Croatia has achieved a lot in the last four years in terms of structural reforms, but there is still a job to do. With this loan we want to help improvement of business climate, make public administration more efficient and address reforms in some sectors like health and railway,» Seth said. He also said that Croatia, which hopes to join the EU around 2010, needed to make further effort in judicial reform and in controlling high external vulnerabilities. The World Bank and the International Monetary Fund have in recent years praised Zagreb for its macroeconomic performance but warned that economic growth would suffer unless reforms moved faster. Analysts, however, said the pace of reforms was still sluggish, which could affect Croatia’s ambitions to be entirely ready for EU membership in 2009. «The pace of reforms is quite slow. Public expenditures are not falling, which is a clear sign that reforms are not fast enough,» said Goran Saravanja, an analyst at CAIB investment bank. Uncertainty The sore points of Croatia’s economy are red tape, high subsidies to loss-making industries, a common perception of widespread corruption, an inefficient judiciary, high social contributions and an inflexible labor market. Government officials at the ceremony said subsidies were falling as a percentage of GDP, while the backlog of unresolved court cases had been reduced and some huge loss-makers in the steel and aluminium industries had been sold. The government said economic growth would this year surpass 5 percent, thanks to reforms. The original target was between 4.5 and 5 percent. It also said the budget deficit could be lower than the planned 2.8 percent of GDP. «It’s true that budgetary revenues are higher than expected, but it’s a cyclical phenomenon. Also, higher growth reflects in a higher current account deficit. What reforms should do is cut expenditures,» Hrvoje Stojic of Hypo Alpe-Adria-Bank said. Parliamentary elections are due in November, and analysts said they expected no major reforms this year, but were also uncertain about their pace after the elections, which will pit the ruling conservative Croatian Democratic Union (HDZ) against the main opposition party, the Social Democrats. «It’s hard to say what we could expect in terms of reforms after the polls, as debates go mostly around what the state will spend on, and not about how to cut expenditures and what are priorities in reforms,» Saravanja said. He said Croatia would not be able to fulfill its ambition of joining the eurozone two to three years after the EU entry without faster reforms.

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