The World Bank Supports the Government of Croatia in Mitigating the Impact of the Global Crisis

January 13, 2010

ZAGREB, January 13, 2010 - Vice Prime Minister and Minister of Finance, H.E. Ivan Šuker and the World Bank’s Country Manager for Croatia, Andras Horvai, signed today a Loan Agreement in the amount of EUR200 million (USD$297 million equivalent) for the Fiscal, Social and Financial Sector Development Policy Loan to the Republic of Croatia aimed at recognizing and supporting the Government’s efforts in alleviating the impact of the global economic crisis.

These efforts include measures taken by the Government that, among others, have supported fiscal consolidation and improved public finance management, strengthened the system of social protection to provide better safety nets for vulnerable groups and enhanced the efficiency and stability of the financial sector.

Some of the measures taken by the Government to
mitigate the impact of the crisis

  • Through politically-difficult rationalization of public expenditures for public administration, health, pensions and public investments, the Government has strengthened public finances;
  • The Parliament, for the first time in Croatia’s history, enacted a 3-year rolling budget which will further strengthen the public finance management processes and improve medium-term fiscal and strategic planning;
  • The public procurement system has been strengthened and is fully harmonized with the acquis communautaires;
  • Most vulnerable groups in society are being better protected by ensuring that adequate funding is set aside in the 2010 - 2012 budget to cover the anticipated rise in the number of claimants for unemployment benefits and social support allowance; and
  • The efficiency and stability of the financial sector has been further strengthened by putting in place a new regulatory framework for financial industry adherent to Basel-II and IOSCO standards, while the system for interagency coordination on financial crisis preparedness and management has been set up among the Ministry of Finance, the Croatian National Bank and the Croatian Financial Services Supervisory Agency (HANFA).

‘Cooperation with the World Bank (International Bank for Reconstruction and Development) is of exceptional importance and we value the Bank’s support from the very beginning of this cooperation and the very first approved project – the Emergency Reconstruction Project, as it duly recognized the specific need of the Republic of Croatia and adapted its instruments accordingly. It remains so today, when Croatia is at the doorstep of the European Union. By approving this new project, the World Bank has confirmed its support for the Government’s measures targeted at further stabilization of the macroeconomic situation in the Republic of Croatia and alleviation of the impact of the global financial crisis. In line with the adopted four-year Strategy with the World Bank (which ends in 2012), we expect to continue this successful joint cooperation which will contribute to the strengthening of private sector led growth, reduction of unemployment, improvement of the quality of life and the increase of the sustainability of long-term development’, stated Ivan Šuker, Vice Prime Minister and Minister of Finance of the Republic of Croatia, and added: ‘To enable further successful cooperation and create additional operating space, the Republic of Croatia is ready to support activities aimed at further financial strengthening of the World Bank.’ said, Ivan Šuker, Vice Prime Minister and Minister of Finance of the Republic of Croatia

‘As Croatia’s partner, the World Bank has been ready to step up its support in order to assist the Government in addressing the impact of the global economic crisis. Following a EUR100 million loan last year to help preserve exports and jobs, this EUR200 million budget support operation aims to assist the authorities in maintaining macroeconomic stability and an appropriate fiscal framework, assisting the most vulnerable groups in society to cope with the economic hardship, and further strengthening the financial sector’, said Andras Horvai, World Bank Country Manager for Croatia. ‘The authorities have taken some very difficult decisions to preserve macroeconomic stability, and we hope that this year will provide further opportunities for reform enabling the restoration of economic growth and further convergence with the European Union. The World Bank is prepared to help the country move along the path to economic recovery.’

The loan was approved by the World Bank’s Board of Executive Directors on January 12, 2010 at 6-month LIBOR for EUR plus a fixed spread (which would currently translate into an interest rate of about to 2 percent), due for repayment after 15 and a half years.

Since joining the World Bank in 1993, Croatia benefited from financial and technical assistance, policy advice and analytical services provided by the global development institution.  To date, the Bank has supported 43 operations with a total value of US$2.96 billion, and approved 52 grants with a total value of US$70 million.

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