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Croatia: Preparing for European Union Membership

April 17, 2012

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Rijeka’s port and waterfront is getting a massive overhaul to bring in tourists, container and other maritime traffic.

On July 1, 2013, Croatia will crown almost twenty years of impressive economic and social progress with European Union membership. To become a successful EU member, the Government will need to boost economic competitiveness and ensure Croatians enjoy sustainable improvements in their quality of life—a difficult task given the current external environment. The International Bank for Reconstruction and Development (IBRD) is helping the government mitigate the impact of the economic crisis and prepare for EU membership.
1,340

new jobs created during 2006-2010

PROJECT MAP

Challenge

Croatia’s overarching priority is to enter the European Union on July 1, 2013 with a competitive and growing economy and the institutional capacity to meet the demands of EU membership. Before the global crisis, the Croatian economy grew at a healthy 4-5 percent annually, incomes doubled, and economic and social opportunities dramatically improved. However, the prolonged global crisis is now putting this progress and Croatia’s aspirations to test. Croatia faces several challenges, including completing the unfinished structural reform agenda, focusing on reforms that promote private sector growth, and freeing up space in the budget for investments that support growth and protect the vulnerable. Beyond ensuring macroeconomic stability and achieving smart, sustainable, and inclusive growth, the government also needs to raise Croatia’s competitiveness to compete in the large and demanding EU market and maximize the opportunities the membership will bring, especially the absorption of a large amount of EU Structural Funds.

Approach

IBRD has focused its support on strengthening the competitiveness of the economy through:

  • Long-term investments in major trading routes such as the Port of Rijeka in the northern Adriatic Sea and the Port of Ploce in the southern Adriatic Sea;
  • Promoting research and development and commercialization of research and development;
  • Supporting exports and jobs during the crisis by ensuring that a steady flow of credit is available to private businesses;
  • Assisting the authorities in mitigating the impact of the global economic crisis through timely budget support.

IBRD has been working with the Croatian authorities to align these different areas to the EU requirements. The Bank is contributing to the increase in coverage and quality of wastewater services and safeguarding seawater quality along the Adriatic coastline. It is also helping Croatia bring its nature-conservation standards in line with the EU’s. In addition, IBRD projects are focusing on increasing efficiency of the judiciary and land registry and cadastre systems. IBRD has also helped the authorities improve the quality of life of the population by: revitalizing war-affected areas through job creation and mine-clearing, improving the quality and delivery of social services to the most vulnerable, and enhancing the quality of education and provision of emergency medical services. All of these efforts aim to help Croatia enter the EU as prepared as possible and maximize gains from EU membership.

Results

  • IBRD contributed to Croatia’s efforts in fiscal consolidation and mitigation of the social impact of the financial crisis with timely budget support through two development policy loans, one in January 2010 and one in May 2011.
  • Jobs and exports are being preserved through loans to private companies for working capital and new investments, through a EUR 100 million loan to the Croatian Bank for Reconstruction and Development.
  • The Port of Rijeka has become a more attractive trading route and a desirable port of call for many shipping companies. In March 2011, a leading international container operator for the first time became a majority stakeholder in the concessionaire operating the Brajdica Container terminal.
  • The Agriculture Acquis Cohesion Project has helped Croatia meet the EU accession requirement in the agriculture and rural development areas by building capacity of civil servants to manage EU pre-accession and accession funds for rural development programs; preparing the Ministry of Agriculture staff for smooth interactions with EU bodies upon accession through IT, English-language and technical-skills training and study tours and/or academic scholarships; and improving Croatia’s food safety system by strengthening the capacity and infrastructure of the Croatian Food Agency, the Plant Protection Institute and four National Veterinary Institutes.
  • The Science and Technology Project’s “Unity Through Knowledge Fund” is backing 55 R&D projects with Croatian companies and institutions, through collaboration with the diaspora in the fields of scientific and technology projects.
  • Over 80 science and research institutes and more than 200 researchers from Croatia and abroad are working on joint projects.
  • From 2006 until the end of 2010, about 1,340 new jobs have been created in the underdeveloped and war-affected areas across the country, rebuilding lives and livelihoods through activities under the Social and Economic Recovery Project. The same project also supported capacity building for regional and local authorities for planning and implementing regional development approaches in line with EU principles. Around 5,000 local and national officials and civil society representatives were trained in strategic regional planning, cost management and project management.
  • Since 2005, the Social and Economic Recovery Project helped clear some 12 square kilometers of mine-contaminated land allowing people to use their land safely without fearing for their lives or property.
  • From the beginning of 2006, 3,400 beneficiaries (including elderly, disabled people, and children-at-risk) have benefited from new and innovative social services programs supported through the Social Welfare Development Project.
  • Since 2010, half a million people per year, including tourists, benefit from cleaner seawater and improved living conditions through construction of wastewater treatment plants along the Adriatic coast as a result of the first phase of the Coastal Cities Pollution Control Program.
  • A series of IBRD policy notes and knowledge products contributed to the dialogue on achieving quicker EU convergence, labor market and pension reform options, the fiscal responsibility framework, and long-term care for the elderly.

Bank Contribution

IBRD has been extensively engaged in providing financial support, technical assistance, policy advice, and analytical services to Croatia since the country joined IBRD in 1993. To date, the Bank has supported 47 operations amounting to more than US$ 3.3 billion. As Croatia progressed in EU accession talks and gained access to EU pre-accession grant funds, the Bank portfolio has become more selective. The current active portfolio is about US$ 1.1 billion, and the number of projects is expected to drop by half over the next two years. Traditionally, the Croatia portfolio focused on infrastructure and environment, while current operations are designed to support the country’s accession efforts and mitigate the impact of the global economic crisis. Investment contributions were complemented by around 60 analytical studies, sector studies, and technical assistance grants, including periodic country memoranda, public expenditure and fiduciary reviews, and living standards assessments. As Croatia approaches EU membership, the portfolio and knowledge activities will focus on supporting policy reform for the Europe 2020 Strategy and convergence, supporting strategies and institutions to better absorb EU funds, and providing selective financing that complements EU financing.

Partners

Throughout its engagement in Croatia, IBRD has developed and maintained strong partnerships with international institutions active in the country. Key partners include the European Commission, the European Bank for Reconstruction and Development, United Nations agencies, and several bilateral donors, who have either co-financed many projects or been involved in preparatory work. IBRD maintains regular dialogue with other stakeholders, including members of parliamentary committees, academics, bankers, entrepreneurs, leaders of the trade unions, and non-government organizations.

Moving Forward

The current Country Partnership Strategy (CPS) objectives of supporting Croatia’s accession and income convergence with the EU served as a useful framework for supporting the authorities’ development goals over the past few years. Given the still uncertain global environment and eurozone vulnerabilities, IBRD will continue to support the authorities in mitigating the impact of the crisis through budget support, lending that supports private sector growth, and knowledge products in support of structural reforms that boost competitiveness. A more selective approach will be taken to lending and the focus will be placed on areas where the Bank can provide added value in supporting Croatia’s EU-related responsibilities and contributing to an enabling environment to absorb EU grant funds.

Beneficiaries

Marija Ozbolt had been taking care of her mother, who is suffering from Alzheimer’s disease, until three years ago, when it became increasingly difficult. A new center in Pula, financed through the Social Welfare Development Project, opened to support adults in varying stages of dementia and their families—the first center in Croatia offering counseling for family members learning how to handle a loved one’s illness and living situation. Ongoing consultations and daycare support have helped many patients stay with their families, while the center provides 24-hour expert care for the most severe cases.

“At the center, my mother is cared for 24 hours a day. She receives all the necessary care. At home we could not provide her that and this center has made a big difference in our lives,”explains Marija. “It is a safe place for those who can’t cope on their own and a lifesaver for those taking care of them while holding down a job.”