"During the last two years, the authorities have reduced the general government deficit by 2 percentage points of GDP, substantially improved fiscal transparency and reduced quasi-fiscal activities, considerably reduced the reliance of the government to external financing, and taken steps to improve financial sector supervision," the statement said.
"The authorities" request for an extension of the current arrangement signals their commitment to build on past progress and accelerate economic reform. Policy plans for 2006 envisage a significant further reduction in the general government deficit; the start of an ambitious health reform; and acceleration of privatization, an area where progress so far has been relatively slow. Successful implementation of these plans will bring Croatia closer to fiscal sustainability, help address persistent external vulnerabilities, and stimulate private sector economic activity.
"To achieve these objectives and ensure macroeconomic stability, policies should remain flexible to adjust further if needed. In this context, we welcome the government"s readiness to address potential macroeconomic risks resulting from the payment of the "pensioners" debt" that starts in June. The authorities should take advantage of the currently fast economic growth to take measures that will prevent overheating of the economy and introduce reforms to restructure loss-making publicly-owned enterprises, reduce the size of the government, and increase further private sector growth," the statement said.
The IMF representative said that a third and final review of the arrangement would take place this summer, and added that the IMF was "ready to provide its expertise and cross-country experience to Croatia"s policy implementation in 2006."