May 3 (SeeNews) - The International Monetary Fund (IMF) urged Croatia to implement structural reforms in order to make its economy more dynamic, divesting inefficient state-owned firms which continue to burden the economy, it said on Thursday.
"Inefficient state-owned enterprises compromise the productivity of the economy. Decisive action is needed to divest non-essential state assets and strengthen the financial management of essential ones," the IMF said in a statement after their regular staff visit to Croatia.
The IMF suggested reduction in public employment, modernisation of labour contracts for the youth to avoid emigration, simplification of business starting processes, preservation of the pension system sustainability and creation of financially self-sufficient health system.
"Time is of the essence, as changes in these areas are highly sensitive to broader economic conditions, and are best carried out when times are good," it added.
Growth is gradually moderating from its recent highs, inflation remains subdued, international reserves have increased, and public debt has been declining. Fiscal performance has been strong despite sizable recent shipyard guarantee payments. Private demand and tourism continue supporting economic activity which is also underpinned by the CNB’s continued accommodative monetary policy. Overall, the banking sector is liquid, profitable, and well-capitalized, the IMF also said.
If a slowdown were to emanate from Europe, the authorities are encouraged to let the social safety net work, before considering fiscal stimulus, it added.
"The recently approved Convergence Program for 2019-22 projects further reduction of public debt, which is welcome. Achievement of the underlying surpluses will require continued restraint with current expenditures. EU funds need to be increasingly utilized to ramp up public investment," it noted.
It is encouraging to note recent initiatives to reduce parafiscal fees and simplify the process of starting a business. However, uncertainties and back-logs associated with legal processes are impediments to enhancing the business climate, the IMF also said.