WASHINGTON, Jan 31 (Hina) - The new Croatian government is faced with major challenges including an insufficiently flexible domestic economy and a huge foreign debt, the International Monetary Fund's Board of Executive Directors said
in a report published at the IMF headquarters in Washington on Monday. "Executive Directors noted that following several years of favourable economic performance, the economy had recently fallen into recession", the report reads. It adds that "there was some prospect for a resumption of positive economic growth, facilitated by the revival of external demand, the recent real effective depreciation of the currency, and a recovery of confidence in the wake of the parliamentary and presidential elections." If it intends to achieve economic growth and make it durable, "the new government would need to adopt policies that stabilised the external current account
WASHINGTON, Jan 31 (Hina) - The new Croatian government is faced
with major challenges including an insufficiently flexible
domestic economy and a huge foreign debt, the International
Monetary Fund's Board of Executive Directors said in a report
published at the IMF headquarters in Washington on Monday.
"Executive Directors noted that following several years of
favourable economic performance, the economy had recently fallen
into recession", the report reads. It adds that "there was some
prospect for a resumption of positive economic growth, facilitated
by the revival of external demand, the recent real effective
depreciation of the currency, and a recovery of confidence in the
wake of the parliamentary and presidential elections."
If it intends to achieve economic growth and make it durable, "the
new government would need to adopt policies that stabilised the
external current account deficit at a more sustainable level."
The Board also noted the need for a cut in expenditures sufficient
to balance the budget and make room for a reduction of nonwage
labour costs. "The need for durable expenditure cuts was all the
more urgent as privatisation proceeds would dry up soon after the
sale of a few large state enterprises and financial institutions."
The Board also emphasised the need for restoring the fiscal
balance, which would not be possible without redressing the
finances of the pension and health care systems. Directors agreed
that structural reform was another essential dimension in any
successful strategy for renewed growth and welcomed the steps taken
to improve the soundness of the financial sector, and of the banking
system in particular.
Included in the report are tables with data showing that after three
years of continual growth of some six percent, GDP in 1999
registered a negative 2.1 percent. This trend was followed by a
steady increase in unemployment, which, according to the IMF data,
now exceeds 20 percent. Croatia's foreign debt in 1999 reached
almost 40 percent of GDP, whereas currency reserves amounted to 2.8
billion dollars. The inflation rate last year was about 5 percent
and the nominal salary growth was above 10 percent.
(hina) rml