Economist says Croatia needs radical reforms

Croatia needs radical reforms and the independent coalition MOST (Bridge) should be given the opportunity to form the new government and nominate a prime minister designate, Zeljko Lovrincevic of the Institute of Economics said at a conference of economists in Opatija on Wednesday.

Lovrincevic said that he was in favour of "forming, to the greatest possible extent, a government of experts and giving priority to those who have raised the issue of the content of reforms," adding that Bridge should nominate a prime minister designate.

"That should be the starting point... and both big coalitions should join in the process and contribute with their proposals," said Lovrincevic, noting that if Bridge falls apart, the notion of a third political camp in Croatia would be lost for a long period of time. "Masks will be falling down in the coming days. It will become obvious if there is interest in really doing something for Croatia's benefit or if we will be witnessing a brutal battle for ruling positions, marked by personal animosity," said Lovrincevic.

Speaking of economic trends this year, Lovrincevic said that he expected GDP to grow 2% in the third quarter this year, and to drop in the fourth quarter in relation to Q3.

"The budget deficit is set to be 4.9% of GDP and next year it is expected to stand at 4.7%," Lovrincevic said, adding that citizens' living standards had declined by around 8% in the period from 2011 to 2015, that Croatia had the highest risk premium except Greece in the EU and that big investment projects had largely been suspended.

He went on to say that public debt was expected to reach around 89.2% of GDP at the end of this year and that next year it would account for 95% of GDP. Croatia has the highest public debt of all new EU members and it is likely to continue growing, Lovrincevic said, adding that the euro was not likely to be introduced in the next 20 years. He added that it was good that tourism had managed to compensate for other weaknesses.

Lovrincevic said he expected GDP to grow 1.4% in 2016 and 1.7% in 2017, with employment growing mildly by 0.7% in 2016 and productivity increasingly slightly as well. In 2016, 2017 and in the long run Croatia will have the highest budget deficit of all EU countries, and outlays for the public sector interest will reach 4.2% of GDP in 2016, he said.

Speaking of challenges in 2016, he said those were a need to step up reforms, the refugee crisis and its impact on the economy, notably tourism, the formation of a new government and the continuation of the emigration of young people.

"The process of social euthanasia is likely to intensify and that implies a long-term loss of competitiveness, a crisis of trust in political structures, the falling apart of the institutional public infrastructure, deterioration of vital statistics and emigration. I hope that people in charge of that see that this is a problem slightly bigger than their ego," said Lovrincevic.

The head of the Croatian Association of Economists, Ljubo Jurcic, said that Croatia needed demographic investments and that the new government also had to devise a migration policy. As for the economic situation, he said that the solution was simple - policy change.

He noted that unlike some other countries, Croatia did not overcome the crisis in 2009 but "has continued to sink" in relation to the EU, countries in transition and other countries. "Politics is the only obstacle to growth. We are prisoners to unusual policies," he said.

Croatia lacks an investment policy, exports are insufficient and without tourism, Croatia would be the worst country in the region in terms of the export-to-GDP ratio, Jurcic said, noting that the state should be financed with the domestic currency, with interest not higher than 2%.

Andjelko Akrap of the Faculty of Economics in Zagreb said that a sudden change of the country's territorial organisation would be disastrous and that those making decisions on that should bear that in mind.

Projections that do not include the latest emigration trends show that if those trends continue, Croatia will have around 3.4 million residents in 2051, and there will be 900,000 fewer working-age people, Akrap said, adding that the country needs a systematic and long-term demographic policy to deal with the problem of its dwindling population.

Last update: Wed, 11/11/2015 - 16:05

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