February 22 (SeeNews) - The European Commission (EC) said on Wednesday that Croatia is experiencing excessive imbalances linked to high levels of public, private and external debt in a context of low potential growth.
Croatia has made limited progress in implementing the 2016 country-specific recommendations, in the context of two general elections in less than a year, the EC said in a report on macroeconomic imbalances.
Progress with structural reforms has been stalling since mid-2015, it said.
"Only a few of the policy commitments put forward in the 2016 national reform programme have been implemented to date", the Commission noted.
Croatia has yet to make real progress in reinforcing numerical fiscal rules, improving budgetary planning, strengthening the multi-annual budgetary framework, as well as in the divestment process of state asset, the EC noted. Parafiscal charges and the administrative burden on businesses are also fields requiring urgent government attention.
"Policy gaps remain, notably on the front of the management of public finances, the modernisation of public administration, improving the business environment and addressing the low activity rates," it said.
Croatia is among only six countries with excessive imbalances, the other countries in that group being Bulgaria, France, Italy, Portugal and Cyprus.
The EC also noted that although Croatia's current account surpluses have begun to translate into a decrease of the gross external debt, it nevertheless remains elevated.
"Private sector debt is decreasing, but remains high, especially in the corporate sector, and heavily exposed to currency risk", it said. "The financial sector is set to support the recovery, but remains exposed to indirect credit risk."
The Commission noted that although the unemployment rate is falling rapidly, thanks to moderate job creation, the country's labour force is also shrinking.
The EC, however, commended Croatia on the accelerated economic recovery which is contributing to a further reduction in the private debt-to-GDP ratio, and as of this year, the public debt-to-GDP ratio.
The report on Croatia is part of the EU's winter package of assessments of the Union member-countries' financial and economic situation.