December 17 (SeeNews) - Croatia needs to increase public sector investment, boost productivity, and make the state a source of greater dynamism through reforms in order to raise future living standards and keep its youth at home, the International Monetary Fund (IMF) said.
In the past five years, Croatia has managed to achieve strong growth and reduce unemployment, while cutting public debt and keeping healthy external reserves, thanks to prudent domestic policies and supportive global conditions, yet looking ahead it needs wise investment in order to catch up with countries that have made greater progress, the IMF said in a statement on Monday after its 2019 Article IV consultation with Croatia.
"Croatia must rise to the significant challenge of successfully deepening integration with Europe—including through future Euro adoption—during a period of rapid technological change," the IMF said.
In July, the Croatian authorities sent a letter of intent to join the European Exchange Rate Mechanism II (ERM II), the first formal step towards adopting the euro. The whole process of joining the euro area is expected to take at least four years to complete, including the two-year mandatory stay in ERM II.
The IMF also said it is supporting Croatia's efforts to develop a meritocratic system for public sector wages, while strongly urging restraint to any further wage demands.
It has also advised the country to invest more in improving its railway infrastructure, in particular for freight purposes, in order to make its upgraded port infrastructure fully productive.
In addition, Croatia should as well upgrade its technological infrastructure and create a single independent entity in charge of digitalisation.
"Croatia significantly lags behind advanced European peers and many other New Member States when it comes to leading edge fast and ultra-fast digital technology. At a time of historic technological change, any country that gets left behind will find it far more difficult to catch up later," the statement said.
The IMF also said that the economic expansion needs to be felt more broadly across the population.