At a session to be held on Thursday, the Croatian government will adopt a national reform programme which is designed to tackle the three biggest problems of the country's public finances - public companies and the pension and health systems.

Reforms will not be easy but they will be fair, a high government source said on Wednesday, stressing that the ultimate goal this year was to make 2016 the first year in which public debt would not grow but rather start to fall.

The government plans to pay around EUR 200 million of public debt as soon as possible, but for now it does not want to reveal how it intends to do it.

The government source said that the government wanted rating agencies to change as early as July their forecasts for Croatia's economy from negative to stable ones, which, the source said, would help create a positive atmosphere.

The government will submit the national reform programme to the European Commission by the end of this month, and it expects to receive recommendations from the EC in mid-May. Government officials describe the reform programme as ambitious but possible to implement, noting that this was not the case in 2015, when Croatia was brought on the verge of corrective measures that are part of the Excessive Deficit Procedure.

The reform programme also focuses on public companies, which account for a half of the public debt.

Under the programme, public companies will advertise vacancies for their management who will also be hired through specialised employment agencies. In that context, the government also plans to strengthen the supervisory role of the State Property Management Office (DUUDI). Public companies will have to draw up medium-term business plans and DUUDI will supervise their implementation, on which the remuneration of strategic public companies' management would depend. DUUDI will also have an important role in collecting revenues in the amount of EUR 500 million from the activation of state-owned property, namely the sale of state-owned flats, land and stakes in companies.

As for the pension system, the government is expected to propose that a scheme to raise the age for old-age pension from 65 to 67 years should go into force in 2028, ten years earlier than regulated by the current law. Also, the deadline for equating the age for retirement for men and women would be moved to 2025, six years earlier than envisaged by the current legislation.

Changes are also expected in the way early retirement is penalised - instead of a drop in pension allowance of 0.10% to 0.34% for each month of early retirement as envisaged by the current law, linear penalisation of early retirement will be introduced, envisaging a 0.30% cut in pension allowance per month of early retirement. It will not be possible to go into early retirement before the age of 62, with the current age for early retirement being 60.

As for the health system, changes are expected in supplementary health insurance, whose price is to be increased so as to increase revenues, and the hospital system is to be reformed by merging hospitals according to their specialisation, by reforming emergency medical care and rationalising non-medical hospital services.

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