The six-member team, led by Dimitri Demekas, will stay in Croatia two weeks.
The first meetings will be held on Tuesday with officials of the Finance Ministry and the central bank (HNB).
"The mission will assess policy performance in 2004 and during the first months of 2005, and discuss policy plans for the rest of the year, focusing primarily on progress with fiscal consolidation and structural reforms," Athanasios Vamvakidis from the IMF office in Zagreb told Hina on Monday.
"A lot of progress has been achieved since the SBA was approved by our Board (of Directors) last August: the general government deficit was reduced considerably, although somewhat less than envisioned; the authorities have met all other targets in the SBA, with the exception of the target to reduce arrears (state unpaid bills) primarily because of the well known problems in the health sector; recent data indicate that the external debt has been stabilized as a share of GDP; and the current account deficit was reduced considerably during 2004," the IMF representative said.
The general government deficit was 4.9 percent of Gross Domestic Product in 2004, which was slightly more than the planned 4.5 percent. The stand-by deal envisages that this year's deficit is likely to be 3.7 percent of GDP.
"However, many difficult reforms are still ahead. Areas in which further steps forward are needed include: accelerating privatization, primarily of large public loss-making enterprising burdening the budget; reducing and reforming subsidies and state aid programs, where spending is considerably above EU levels; progressing with the restructuring of the Croatian Railways company according to its recent medium term plan," Vamvakidis said.
In this context he also said that it was necessary to continue with further health sector reform to increase the role of co-payments; changing the pension indexation formula, since its present form implies spending that cannot be sustained; improving tax administration and fighting tax evasion; and reaching an agreement on a public sector wage policy framework that would be compatible with Croatia's fiscal targets in the Preaccession Economic Program.
"These reforms will contribute considerably to Croatia's efforts to address external imbalances, bring fiscal policy back on a sustainable track and ensure macroeconomic stability. It would be important to avoid further delays, as postponing dealing with these issues would only make it more difficult in the future. The Croatian authorities should grab the opportunity to build on the successes of 2004 and introduce the needed reforms in the above areas," Vamvakidis said.