WASHINGTON, March 20 (Hina) - Approving a 14-month stand-by arrangement for SDR 200 million (some US$255 million for Croatia on Monday evening, the International Monetary Fund (IMF) released a statement on the stand-by credit and a
program summary on the Croatian fiscal and monetary policy and structural changes. The following are parts of the Program Summery issued in Washington:"Croatia's economy has pulled out of the 1998/99 recession and the banking system has recovered from its recent crisis. Consumption was boosted in 2000 by large wage increases granted during 1999, the lifting of political uncertainties, and monetary easing, while exports benefited from the recovery in Europe, past real effective depreciation, and a strong tourist season. Real GDP growth is likely to accelerate to 4 percent in 2001 from an estimated 3.5 percent in 2000. However, this moderate acceleration is still too l
WASHINGTON, March 20 (Hina) - Approving a 14-month stand-by
arrangement for SDR 200 million (some US$255 million for Croatia on
Monday evening, the International Monetary Fund (IMF) released a
statement on the stand-by credit and a program summary on the
Croatian fiscal and monetary policy and structural changes.
The following are parts of the Program Summery issued in
Washington:
"Croatia's economy has pulled out of the 1998/99 recession and the
banking system has recovered from its recent crisis. Consumption
was boosted in 2000 by large wage increases granted during 1999, the
lifting of political uncertainties, and monetary easing, while
exports benefited from the recovery in Europe, past real effective
depreciation, and a strong tourist season. Real GDP growth is
likely to accelerate to 4 percent in 2001 from an estimated 3.5
percent in 2000. However, this moderate acceleration is still too
little to make a dent in unemployment at a time of planned public
sector layoffs. Although both its headline and core rates have
risen in 2000, the outlook for inflation remains benign, with
retail price inflation subsiding to 4.5 percent during 2001 from
7.4 percent in 2000 as a result of wage restraint, exchange rate
stability, and oil price moderation.
The authorities are committed to slashing the size of government
and its financial imbalance, while maintaining price stability on
the basis of a broadly stable exchange rate. The new government has
made a good start in 2000 in reducing government spending, tax
pressure, and the fiscal imbalance. Concurrently with fiscal
adjustment, the CNB (the Croatian National Bank) has eased monetary
conditions. Under its fiscal framework for 2001-03, the government
intends to reduce consolidated central government spending from
46.2 percent to 37.6 percent of GDP and the fiscal deficit to 1.3
percent of GDP from 6.5 percent.
The authorities' program for 2001 is based on further fiscal
adjustment, wage restraint, and structural reform. The policies
are designed to ensure the desired stability of the exchange rate
under the chosen managed float regime. But the CNB will not resist
persistent or large exchange market pressures or tolerate
endangering achievement of its quarterly international reserve
targets.
Fiscal policy aims to reduce the consolidated central government
deficit to 5.3 percent of GDP in 2001 from an expected 6.5 percent in
2000, implying a 4.3 percentage point reduction of expenditure in
light of tax reductions and court-mandated additional pension
spending. The required expenditure savings will result mainly from
cuts in the wage bill, purchases of goods and services, investment
and social transfers. The deficit is expected to be financed mainly
with privatization receipts, without recourse to domestic bank
financing. The program contains contingency measures to offset
wage policy implementation and other fiscal slippages and an
adjuster for delays in privatization. Wage restraint is to be
achieved by a reduction of the government sector wage bill, a freeze
of average wages in public enterprises, and a social pact that
limits wage increases in the rest of the economy to somewhat below
productivity gains.
The CNB's monetary policy for 2001 is based on a stable exchange
rate and seeks to reduce retail price inflation to 4.5 percent by
year-end. The CNB expects the demand for broad money to grow
further?although at a reduced rate?in 2001, reflecting faster
growth in economic activity and strengthening confidence in the
banking system, especially after repayment of the balance of
insured deposits in failed banks at the end of 2000. The CNB will use
part of the rising demand for base money during the tourist season
to accumulate international reserves so as to keep their gross
level at about 4.25 months of imports.
Meanwhile, banks that survived the 1998/99 banking crisis have
attracted new deposits and rebuilt their capital base, reflecting
strengthened confidence in the banking system. While banks now have
long foreign exchange positions, foreign currency lending to
potentially unhedged borrowers is likely to involve substantial
indirect exchange rate risk. Ownership concentration is expected
to continue within a strengthened regulatory and supervisory
framework.
Structural reforms aim at economic liberalization, restructuring,
and privatization. The authorities intend to improve the finances
of the pension and health funds and the competitiveness of the
economy to attract foreign investment, directly through
privatization and indirectly through a more welcoming
institutional and regulatory framework. They view these measures
as necessary to achieve their growth and employment objectives.
Measures to strengthen the pension and health fund finances,
safeguard the confidence in the banking system, increase the
flexibility of labor markets, and improve enterprise efficiency
are important to the present program.
Croatia joined the IMF on December 14, 1992, and its quota1 is SDR
365.1 million (about US$465 million). Its outstanding use of IMF
financing currently totals SDR 121 million (about US$155
million)."
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