After a ten-day visit to Zagreb and talks on the review of the current stand-by arrangement, the IMF Mission left a number of recommendations to the Croatian Government.
The Government is expected to adopt conclusions on these recommendations in the next two to three weeks and inform the IMF about it, either via the IMF permanent representative in Croatia or by visiting Washington D.C., Demekas told a news conference.
Along with positive results regarding the reduction of the current account deficit and the stabilisation of the foreign debt, Demekas stressed that the collection of budgetary revenues this year was rather poor, due to tax incomes that were lower than expected and due to the failure to implement the revision of the pension indexation.
The IMF recommended to the government to take measures as soon as possible so as to come as close as possible to the planned state deficit of 3.7 percent of GDP this year.
Demekas said that the formula for the adjustment of pensions must change, adding that this was included in this year's budget.
In connection with the repayment of the debt to pensioners, the IMF expects details about the Fund for the Repayment of the Debt, and recommends that the stocks included in the fund be not immediately placed on market, that the repayment in the starting period be gradual and that the stocks be managed carefully and professionally.
Demekas expressed satisfaction with the understanding of what must be done in the health sector and reiterated that subventions and state support are much higher in Croatia than in the EU.
We saw the Croatian Government's plan for this area, it is good, but it is not being implemented due to two things - shipbuilding industry and ironworks, Demekas said. Now it is really time to adopt a medium-term plan for solving these two things, he said and added that the ironworks is an example of how these problems could be solved if there was a will for it.
Demekas said progress was also achieved in privatisation, but added that the Croatia Osiguranje insurance company and the rest of the state shares in the INA oil company and Croatian Telecom were yet to be privatised.
Asked about the announced changes in the tax system, Demekas said that some changes were necessary in the process of adjustment with the EU referring to excise duties and Value Added Tax which, according to him, cannot be zero-rate for some products.
Demekas stressed the IMF supported the policy of the Croatian National Bank and its measures aimed at limiting the foreign debt of banks.
These measures are efficient, but produce only a short-term effect, the IMF official said stressing, however, that the critical issue was the budgetary deficit which the central bank cannot influence.