The guidelines for the economic policy in the said period are presented in the Ivo Sanader Cabinet's Letter of Intent and Memorandum on Economic and Financial Policies, documents pertaining to the latest stand-by arrangement which the International Monetary Fund approved to Croatia earlier this month.
Several most important documents on the matter were released on the web site of the Croatian National Bank (HNB) on Thursday afternoon.
On 4 August 2004, the IMF Executive Board approved a 20-month Stand-By Arrangement in an amount equivalent to SDR 97 million (about US$141.3 million) for the Republic of Croatia to support the country's economic program. The Croatian authorities intend to treat the arrangement as precautionary and are not planning to draw funds under the credit.
"The unwinding of the credit boom and the restoration of fiscal discipline are expected to maintain real GDP growth to 3.5 to 3.75 percent and keep the current account deficit around 5 to 5.5 percent of GDP in 2004-05. Inflation will remain at the range of 2-3 percent per year," according to the the Memorandum.
"Given this economic outlook, we expect the policies for 2004-05 outlined in this Memorandum will result in stabilizing the external debt-to-GDP ratio at around its end-May 2004 level," it read.
Measures aim at a general government deficit of 9.3 billion kuna (41 percent of GDP) "on a GFS 2001 basis including net lending, an adjustment of 1.8 percent of GDP from 2003. This target was set in the 2004 budget," it added.
"The 2005 budget will aim at a general government deficit of 3.7 percent of GDP, with continued effort to limit HBOR's net lending. To achieve this objective, we intend to contain the general government wage bill growth to no more than the rate of inflation," the document read;
Next year, the government intends to start the medium-term process of tax reform.
Another important measure is that budget financing will gradually shift to domestic sources. The government will limit the issuance of new government debt guarantees.
The Sanader cabinet also intends to strengthen financial discipline and improve the performance of public enterprises.
The government regards structural reforms as a key element of its programme "in order both to supplement our macroeconomic policies and to prepare our economy for EU accession."
"These reforms are thus a critical part of our program also for 2004-05, and most of them are incorporated in a three-year Programmatic Adjustment Loan (PAL) from the World Bank, expected to be agreed in early 2005."
The documents highlights "urgent need to enhance transparency and efficiency in public expenditure and debt management".
The government is planning to restore momentum in the privatization process. "The HFP (Croatian Privatisation Fubnd) aims at privatizing all companies in which the government holds a share of up to 25 percent by year-end and all remaining holdings in its portfolio by end-June 2005. Outside HFP's portfolio, we will resume efforts to restructure and privatize large state enterprises. In particular, the government will sell at least 15 percent of the oil company (INA) by end-2005 and will formulate the plan on privatization of the insurance company (CO) by end-June 2005 and complete the third phase of privatization of the telecommunication company (HT) by end-December 2005. Finally, the government will disengage from Croatia Banka by end-June 2005 and consider the options for privatization or a strategic partnership for HPB," the document said among other things.