Overview

The World Bank has been a partner to Croatia for over 27 years. During this period, the Bank has supported more than 50 projects worth roughly US$4 billion, produced numerous studies, and provided technical assistance to help strengthen institutions and support the design of policies and strategies. 

The current Country Partnership Framework for the period of 2019–24 is aimed at supporting Croatia on its path toward an inclusive society where communities, businesses, and regions can prosper for the benefit of all Croatians; where public institutions provide effective and efficient services; and where Croatia’s rich natural capital is preserved and used in a sustainable manner.

The Bank’s current program focuses on the mitigation of the economic and social impact of COVID-19, post-earthquake reconstruction, transport, justice, innovation, the business environment, land administration, science and technology, and the economic development of the Slavonia region.

KEY ENGAGEMENT

The World Bank’s recent program includes assistance to reconstruction efforts following the two devastating earthquakes in March and December 2020. The US$200 million Earthquake Recovery and Public Health Preparedness Project is the first big reconstruction loan for Zagreb following the March 2020 earthquake, helping with the reconstruction and rehabilitation of health and education facilities. The project is also aiming to strengthen the institutional capacity of the national authorities to deal with future public health outbreaks, strengthen disease surveillance systems, and develop epidemiological capacity for the early detection and confirmation of diseases. In addition, the Bank supported the authorities in the preparation of a Rapid Damage Needs Assessment (RDNA) for the March 2020 Zagreb earthquake to assess the damages and losses and is now providing support for a new RDNA for Sisak-Moslavina County, which was struck in December 2020. The total cost of the earthquake in Zagreb and its environs is estimated at €11.3 billion, and the Sisak-Moslavina County quake at €4.8 billion, totaling around 30 percent of the country’s GDP. The Zagreb RDNA was a key input for mobilizing €683.7 million from the European Union Solidarity Fund, the second highest amount ever paid by the Fund for emergency and recovery operations after a natural disaster. 

Additional lending activities include the Justice for Business Project, which is aimed at improving business regulatory procedures and judicial service standards for businesses and citizens. Reforms are focused on reducing the administrative burdens on companies in their interactions with government, removing the regulatory barriers on firms to entering the market, simplifying the construction permit process, and improving market functioning in the construction sector. The Bank is also supporting the public roads and railway companies to make them more competitive and financially less reliant on state subsidies and helping to modernize land registration.

Last Updated: Apr 07, 2021

RECENT ECONOMIC DEVELOPMENTS

Economic activity continued to recover at the end of 2020 from a drop during the first half of the year. However, the pace of recovery was much slower due to the reintroduction of social distancing measures. Overall, Croatia’s real GDP is estimated to have contracted by 8.4 percent in 2020. The tourism sector bore the brunt of the impact. Private consumption and investment also improved in the second half of 2020, which further helped to cushion the annual decline in the manufacturing sector, while construction activity continued to increase. Fiscal support measures, together with the decline in economic activity, led to a rise in public debt, estimated at 87.2 percent of GDP in 2020. The current account balance is estimated to have fallen to -1.3 percent of GDP in 2020 after six years of surpluses. 

Due to the relief measures, the decline in employment was relatively modest, and administrative unemployment averaged 9 percent, 1.3 percentage points higher than in 2019.The Rapid Household Assessment conducted in December 2020 showed that people with low incomes continue to be the most affected by the crisis. Nearly 30 percent of Croatian households reported an annual reduction in overall income in 2020, with 80 percent indicating inadequate savings to weather the shock from a prolonged pandemic. The situation is more challenging for poor and rural households. Poverty is estimated to have increased to 2.6 percent in 2020, with approximately 14,000 additional Croatians living on less than US$5.5 a day at 2011 PPP prices.

ECONOMIC OUTLOOK

Economic activity in Croatia is projected to gradually recover from the downturn experienced in 2020, growing at an average annual rate of 4.5 percent in the 2021–23 period. Implementation of the vaccination strategy and other epidemiological measures in Croatia and the rest of Europe are expected to get the pandemic under control by the summer of 2021, allowing countries to partially lift travel restrictions. For Croatia, this would result in an increase in tourist arrivals and, together with the recovery of its trading partners, lead to strong growth in exports of goods and services. Investments are projected to be supported by EU funds, including for earthquake reconstruction. The economic situation in Croatia is likely to continue to improve as the pandemic abates and the uptake of EU funds increases. A continued rise in economic activity and a phasing out of the fiscal support measures should reduce the fiscal deficit and bring public debt below 80 percent of GDP by 2023. 

The gradual recovery is expected to reduce poverty. However, the compounded impacts of the crisis and the low savings rate among working poor households could mean a longer recovery process for this vulnerable group. 

The risks in the forecast are tilted to the downside, reflecting a possible prolongation of the pandemic and the related travel restrictions, and phasing out the fiscal support measures could lead to a rise in unemployment. This would weaken the recovery and slow down the fall in the poverty.

Last Updated: Apr 07, 2021