ZAGREB, June 5 (Hina) - The International Monetary Fund (IMF) mission has not progressed in its negotiations with the Croatian government over a new stand-by arrangement during its two-week visit to Croatia and will return in
September, when the new arrangement should be agreed on, the IMF's mission chief, Hans Flickenschild, said on Wednesday.
ZAGREB, June 5 (Hina) - The International Monetary Fund (IMF)
mission has not progressed in its negotiations with the Croatian
government over a new stand-by arrangement during its two-week
visit to Croatia and will return in September, when the new
arrangement should be agreed on, the IMF's mission chief, Hans
Flickenschild, said on Wednesday. #L#
Emphasising that the visit to Croatia was part of regular annual
consultations, Flickenschild said that negotiations on the new
arrangement were not held because a consolidated state account was
lacking and the government was to prepare it.
He said the mission conducted a rough estimate of the
consolidation, which indicated that the state deficit could be
about 6.6 percent of Gross Domestic Product, on condition the
construction of highways commenced. This would account for two
percent of the deficit. A deficit of this kind and modest revenue
from privatisation could bring the total debt to 54 percent of GDP.
Special attention was given to the current economic situation in
Croatia, views of the macro-economic policy, and structural
reforms that the government should implement.
Flickenschild noted some positive aspects that the government has
achieved in the past two and a half years. These include last year's
growth of four percent and this year's of 3.5 percent. The inflation
rate in April was at an annual rate of 2.2 per cent. Furthermore,
record foreign currency reserves have been realised and the deficit
of the balance-of-payments current account was under three percent
of GDP. This year this figure will be even lower. Stability in
prices, Flickenschild said, has been attained and now the important
issue is how to maintain it. This could be threatened through state
expenditure and if reforms are not carried through, which is why it
is necessary to continue with a careful monetary policy, correct
the imbalance in the fiscal sector and speed up structural reforms.
It is necessary to decrease spending that does not motivate growth,
he said.
Flickenschild pointed out that the IMF mission was aware that the
country was approaching pre-election time, but said it was
necessary to decrease the percentage of GDP in salaries, incentives
and transfers. These account for large sums because 10.5 percent of
GDP is required to cover salaries, while incentives and transfers
account for 20 percent of GDP. It is possible to allow a modest
growth in salaries, but only if the number of those employed in the
public service is decreased, he said.
The IMF believes that the pension system has improved but that this
is only a temporary measure which requires speedier reforms of the
first pension column. As regards labour market reforms,
Flickenschild said the government had to conclude negotiations
with social partners as soon as possible and start applying the new
labour act. If these measures are implemented and labour
flexibility is made possible, economic growth will be made possible
and unemployment decreased, Flickenschild said.
If the government wishes to discuss the conclusion of the new
arrangement with the IMF with parliament, that is its business,
Flickenschild said, adding that this should not prolong the
process.
(hina) sp sb