Croatia's reforms insufficient to boost growth and competitiveness for the future

•Changes to the labour law and improvements in tax collection have helped the fiscal side, yet reforms have been insufficient to boost growth and competitiveness for the future.•Fitch revised Croatias outlook from Negative to Stable and affirmed its rating at BBB-. Moodys...

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 E-mail article  Print  Save Additional News in English Još vesti na Srpskom Επιπλέον ειδήσεις στα Ελληνικά  Text

Croatia's reforms insufficient to boost growth and competitiveness for the future



ING - 27.11.2012

•Changes to the labour law and improvements in tax collection have helped the fiscal side, yet reforms have been insufficient to boost growth and competitiveness for the future.
•Fitch revised Croatias outlook from Negative to Stable and affirmed its rating at BBB-. Moodys left the rating and outlook unchanged at BBB- and Negative. Fitch focused on fiscal consolidation, whereas Moodys pointed to the economy as lacking growth drivers.
Fitch pointed to the governments progress in fiscal consolidation as a basis for improving its outlook. The low growth profile, lack of competitiveness and structural changes needed were noted as risk factors.
On the fiscal side, important changes to the labour law will make benefits for civil servants negotiable and hence the wage bill more flexible. Changes to the labour law with the removal of permanent benefits in the public sector and higher flexibility in the wage bill should have a positive impact on next years budget. Furthermore, the government has also shown success in improving tax collection and fighting tax avoidance. We expect a budget deficit of 4.3% of GDP in 2012, down from 5.5% in 2011. For next year we expect a further improvement in the budget deficit to 3.9% of GDP. The government needs to reduce expenditures by 1% of GDP each year until a primary balance is achieved, according to Croatias fiscal responsibility law. Public debt is 50% of 2012 forecasted GDP (67% including guarantees).
Moodys focused on the economy lacking growth drivers, constrained by the weak regional growth outlook and insufficient reforms in 1) the business environment; 2) the role and efficiency of the public sector; and 3) the rigidities of the labour market. Croatia will become the 28th EU member, scheduled for July 2013. In the absence of pro-growth reforms and improvements in institutional capacity, the anticipated benefits from EU accession are unlikely to fully materialize, according to Moodys.
Source: bne


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