An IMF mission completed its Oct 30-Nov6 visit to Croatia, saying it now expects a real GDP decline of 0.75% in the Adriatic country for 2013. This is somewhat worse tahn the 0.6% contraction projected by the Fund in the latest World Economic Outlook report issued in October.

A modest recovery is projected for the following 2014, based on better external outlook and larger government-funded investments, the IMF said in a statement after the end of the mission. Despite this, the risks for the country remain high stemming from tighter global financing possibilities, slower-than-expected euroarea recovery or slowing down of key structural reforms, the IMF mission points out.

Croatia’s entrance into the EU’s Excessive Deficit Procedure (EDP) could be an important fiscal anchor to guide the actions of the government in Zagreb, the report says. Elements of the adjustment under the EDP could strengthen policy initiatives like pension system reform, VAT streamlining and better targeting of social assistance and subsidies.

Intensification of structural reforms is strongly recommended by the Fund’s mission. Easing of hiring restrictions, reduction of incentives for early retirement and restructuring of insolvent state-owned enterprises are all steps that the IMF sees as having a positive influence. Those should be followed by acceleration of pension reform, increase in labour market participation and strengthening of the business climate.