Croatia continues to be among EU countries that have excessive macroeconomic imbalances due to high levels of public, private and external debt, denominated largely in foreign currency, in a context of low potential growth, the European Commission said on Wednesday.
The EC published results of an in-depth review of macroeconomic imbalances in 13 member-countries that are at risk of macroeconomic imbalances. Of those 13 countries, six are experiencing excessive macroeconomic imbalances, six have macroeconomic imbalances and Finland has been found to no longer experience macroeconomic imbalances.
Croatia is among the six countries with excessive imbalances, the other countries in that group being Bulgaria, France, Italy, Portugal and Cyprus.
The six countries with macroeconomic imbalances are Germany, Ireland, Spain, the Netherlands, Slovenia and Sweden.
Those 12 countries will be under special EC monitoring which will be adjusted to the degree and nature of the imbalances.
"Croatia is experiencing excessive imbalances. Vulnerabilities are linked to high levels of public, private and external debt, both largely denominated in foreign currency, in a context of low potential growth," the EC says.
The current account surpluses have begun to translate into a decrease of the gross external debt, which nevertheless remains elevated, says the EC.
The acceleration of the economic recovery is contributing to a further reduction in the private debt-to-GDP ratio, and as of this year public debt-to-GDP is also on a declining path.
Despite recent losses, the financial sector remains relatively well-capitalised and profitability is recovering.
The rate of non-performing loans has started to decrease, but remains high, the EC says.
A number of measures on insolvency frameworks and improving labour market flexibility have been adopted in previous years and public finances have improved markedly, but progress with structural reforms has been stalling since mid-2015, the EC says.
Policy gaps remains, notably on the front of the management of public finances, the modernisation of public administration, improving the business environment and addressing the low activity rates, the EC says in a comment on Croatia.
Reports on the individual countries are part of a winter package of assessments of the EU member-countries' financial and economic situation. The winter package is part of a review of implementation of the European Semester, one of the instruments for the coordination of the member-countries' economic policies.
The European Semester covers the period from end-November to the first half of July, during which member-countries adjust their budgetary, macroeconomic and structural policies at EU level so that the EC could warn them of a possible crisis in a timely manner.
The package includes reports on the situation in all member-countries, except Greece, which has been under special monitoring, being in a programme of financial assistance, as well as reports on macroeconomic imbalances in 13 member-countries and a report on the transposition of the fiscal compact into national laws.
Croatian Finance Minister Zdravko Maric said in Brussels yesterday that it was realistic to expect the EC's assessment to acknowledge that Croatia could not implement some of the measures defined in its reform programme "due to the objective circumstances last year", a reference to early parliamentary elections held in September 2016.
Maric also said that in April this year the government would submit to the EC an ambitious plan of reforms for the next three years.