Economic Policy Reforms 2023

Croatia

See more data for Croatia on the related dashboard.

Product and labour markets functioning

Performance gaps

• Efforts are underway to lessen the considerable barriers from regulatory enforcement and the justice system to starting and operating a business. Reforms to the insolvency framework are improving its quality and recovery rates.

• The large role of state-owned enterprises in competitive sectors impedes innovation and market dynamism. Many of the expanding firms are not the most productive.

Recommendations

• Undertake reviews of existing regulations and enforcement approaches and align approaches across regions and levels of government.

• Review state asset holdings, to progressively divest assets that do not meet public service criteria and improve management oversight of those that are retained by the public sector.

• Promote dispute avoidance mechanisms tailored to business needs, such as out-of-court mediation or a Business Ombudsman, to help expedite the legal process and reduce the cost of disputes.

Digital transition

Performance gaps

• Access to high-speed broadband lags other European countries, especially in remote areas or among more disadvantaged populations.

• Digitalisation of the public sector, from the core administration to services ranging from health care to the judiciary, is progressing but from a low base and is central to efforts to improve the public sector’s effectiveness.

• Shortages of key digital and related skills are a barrier to digitalisation and firms’ growth, and participation in training is low.

Recommendations

• Expand access to digital and foundation skills training, e.g., by developing individual accounts that finance education programmes. Provide additional resources to lower-skilled adults and other groups with weak labour market attachment.

• Pursue digitalisation of the public sector, prioritising developing platforms that support digitalisation across public bodies, while simplifying and reforming underlying work processes to align with the digitalised systems.

• Expand access to cost-effective and reliable high-speed internet infrastructure for all groups and regions.

Inclusiveness, social protection, and ageing

Performance gaps

• The population is projected to shrink by one-quarter over the next half-century, reflecting low fertility and net emigration. Yet the budgetary costs of ageing are relatively modest and projected to be stable. Income adequacy among the elderly may fall further, bringing risks of higher old-age poverty and endangering the financial sustainability of current retirement income policies.

• The COVID crisis highlighted some weaknesses in the health system, including access to quality care and inefficient management practices.

• Family policies, while substantial, do not encourage carers to work.

Recommendations

• Reform the pension system by linking retirement ages with life expectancy, and by introducing incentives for older workers to continue working and to build their future retirement incomes.

• Improve health system effectiveness by aligning financing with management responsibilities, and pooling procurement and other common management functions.

• Reform family policies to provide greater support to carers who work, reducing the loss in net income or career disruption from having children.

Climate transition

Performance gaps

• Croatia is reducing its greenhouse gas emissions in line with its international commitments, but substantially more progress will be required. Emissions are high relative to output, despite services’ large share of activity and the high share of electricity generated from renewable and nuclear sources. Climate change is bringing more frequent floods and hotter summers.

Recommendations

• Ensure that investments in building renovations and reconstruction, achieve high levels of energy efficiency.

• Pursue measures to raise the rail system’s attractiveness and energy efficiency for passenger and freight transport.

• Improve the efficiency of water use by upgrading the fresh- and waste-water infrastructure, reducing leakages, and improving utilities’ management and financial sustainability.

Overall performance