According to the Third Review under the Stand-By Arrangement (SBA), which has been published on the website of the Fund, achievements cannot be stable as long as structural reforms do not start spurring a potential growth of the economy.
The IMF Executive Board completed the Third Review on 3 October with no formal discussion.
According to the material published on the IMF website, the Croatian authorities believe that Croatia does not need any further arrangement but that it would prefer close cooperation with the Fund in the context of surveillance.
"The authorities consider this program a success, a judgement the staff broadly shares. Strong policy ownership has delivered a significant fiscal adjustment and spurred a number of key reforms, although there have been persistent delays in some structural policy areas. The authorities felt that, party as a result of the progress made under this program, Croatia would not require a successor arrangement. They intended, however, to continue the close cooperation with the Fund in the context of surveillance", according to the material published on the IMF web site.
"The main success of the program has been a fundamental improvement of Croatia's public finances. The fiscal and quasi-fiscal balance improved by 3.5 percentage points of GDP during two and a half years covered by the SBA, with an additional 0.2 percent targeted in the remainder of this year," reads the text.
"Half of this adjustment has come from current expenditure savings. In addition, fiscal policy has been firmly placed in a medium-term context with the introduction of rolling three-year budgets, fiscal transparency and public expenditure and debt management have been improved, and important reforms have been initiated in pensions and health."
The government has been commended for reducing its dependance on external borrowing with the government's foreign borrowing declining faster than projected, and Zagreb was also commended for strengthening the supervision of the financial system.
The review, however, warns about the deterioration in the current account deficit and about total external debt keeping creeping up.
"Progress is being made in structural reforms, although delays in state enterprise restructuring and privatization are regrettable,".
In this context, health reform was pointed out as a major step forward.
"On privatisation, progress during the program has been disappointing. However, the recent government steps with respect to the privatisation of INA and HT provide some reassurance that these major transactions will be completed this year. Finally, despite the delays in finalizing the restructuring plans for the steel and shipyard sectors, the process is under way. In recent months, the pressure coming from Croatia's obligations under the SAA and the ongoing EU membership negotiations has started providing significant momentum in this area."
The Croatian Government pledged to formulate a new privatisation law this autumn.
It was also noted that the Croatian National Bank (whose acronym is CNB in the text) "was actively taking measures to safeguard financial stability".
Measures taken for this purpose include strengthening supervision and addressing foreign currency-induced and other credit risks as well as steps to discourage external borrowing.
In its Letter of Intent, the Croatian Government says that it expects "economic activity in Croatia to continue at a satisfactory pace in 2006".
"We project real GDP growth, which was very strong in the first quarter, to average around 4.5 percent in 2006, broadly the same pace as in 2005, and inflation to average around 3.5 - 3.75 percent, underpinned by our policy of exchange rate stability. But high oil prices could push the current account deficit to 6.75 - 7 percent of GDP for the year as a whole."