The meeting noted Croatia's good economic results and progress in individual areas made over the last few years.
In the area of fiscal policy, progress was recognised in efforts to cut the fiscal deficit and implement fiscal consolidation.
The IMF pointed to the importance of continuing fiscal adjustment and accomplishing the target deficit of 2.8 percent of GDP in 2007, and recommended a more ambitious plan of medium-term fiscal adjustment.
Since 2004, when it signed a stand-by arrangement with the IMF that was successfully completed in November 2006, Croatia had carried out strong fiscal adjustment and significantly reduced its fiscal deficit, the ministry said in the statement.
Preliminary data show that the fiscal deficit in 2006 was three percent of GDP, while in 2003 it was 6.2 percent.
According to the 2007 budget, Croatia will continue with fiscal consolidation and reduction of the fiscal deficit to 2.8 percent of GDP.
Croatia is aware of the importance of reducing the deficit and will continue with medium-term fiscal adjustment. The current medium-term projection of the deficit is 2.4 percent of GDP.
An even stronger fiscal adjustment can be expected if planned structural reforms are implemented and budgetary spending consolidated, the ministry said in the statement.
Finance Minister Ivan Suker has expressed satisfaction with the successful completion of consultations on Article IV and the IMF's clear message to Croatia, the statement read.
An IMF mission visited Zagreb from 26 October to 8 November 2006, when it presented its preliminary conclusions.
The IMF issued also a press release stating that it concluded with Croatia Article IV consultations.
Commenting on the 16 February meeting, the IMF stated on its web site that "Croatia has experienced solid growth and low inflation in recent years, with GDP growth averaging around 4.75 percent in 2001-06 and headline inflation contained to 2-4 percent. But domestic demand pressures and higher international energy prices caused the current account deficit to widen in 2005-06."
"Although external competitiveness appears adequate, export growth has been significantly below the average in Croatia's peer countries, which have been more successful in attracting greenfield foreign direct investment. Survey measures of competitiveness underscore structural weaknesses in the business environment."
"Policies in 2004-06, supported by a precautionary Stand-By Arrangement, sought to mitigate external vulnerabilities by lowering Croatia's current account deficit and stabilizing the external debt-to-GDP ratio. The authorities largely relied on fiscal adjustment, accompanied by measures by the Croatian National Bank (CNB) to safeguard financial sector stability and discourage external debt accumulation by banks. Reform of pension indexation, wage moderation, and investment cuts contributed to a reduction in the fiscal deficit from 6.1 percent of GDP in 2003 to an estimated 2.8 percent in 2006. However, despite these countervailing policy efforts, gross external debt and the current account deficit remain high," it stated, among other things.
IMF Directors "welcomed the improvements in policies in recent years, but noted that continued efforts will be needed to address significant external vulnerabilities. They stressed the importance of faster and deeper structural reforms if Croatia is to boost potential growth. Progress in these areas should be high on the agenda of the next government."