"The Croatian authorities have achieved significant progress since they signed the current arrangement with the Fund more than two years ago," reads the statement signed by IMF Resident Representative Athanasios Vamvakidis.
"They have more than halved the general government deficit, substantially improved fiscal transparency and reduced quasi-fiscal activities, taken steps to bring the pension and health care systems closer to sustainability, considerably reduced the reliance of the government on external financing, and strengthened financial sector supervision.
"This progress should be followed by further steps forward. A deteriorating current account deficit and a high level of external indebtedness leave no room for complacency and highlight the importance of continuing the fiscal consolidation effort. Reforms that rationalize spending and improve its targeting, but also steps to simplify the tax system and reduce the tax burden deserve a high priority in the policy agenda.
"Restructuring of loss-making, state-owned enterprises should progress avoiding further, costly delays, in particular in the shipbuilding sector. And privatization, with progress so far slower than in peer countries, should move ahead at a considerably faster pace, to relieve the budget from a heavy burden and reduce the still significant role of the state in the economy. The Croatian National Bank should continue supporting the government"s reform efforts, by implementing policies that limit external vulnerabilities and ensure macroeconomic stability," it is noted in the statement.
Croatia's current stand-by arrangement was approved in August 2004 for a period of 20 months, and the IMF Executive Board in late March approved prolonging it until 15 November this year.
Its successful completion requires meeting the targets on macroeconomic policies and structural reforms agreed with the authorities for September and October, the IMF Zagreb office said in its statement.
An IMF mission, led by Robert Feldman, will visit Zagreb in the period between October and November 2006, the statement said.