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Croatia needs to step up reforms for joining ERM II - EBRD

Croatia needs to step up reforms for joining ERM II - EBRD Photo: Croatian government

ZAGREB (Croatia), November 19 (SeeNews) -  Croatia's government should step up reforms in order to join ERM II and the banking union, the European Bank for Reconstruction and Development (EBRD) said on Tuesday.

"While Croatia has improved its macroeconomic conditions to become part of ERM II, the authorities should speed up key structural reforms, focusing in particular on improving public-sector governance", the EBRD said in its 2019-2020 Transition Report.

Croatia sent a letter of intent to join the ERM II to the European Commission in July. It represents the first formal step towards joining ERM II, intended for 2020, which would be one stage ahead of joining the eurozone.

The Croatian authorities have committed to reforms in six areas: further strengthening the supervision of the banking system by establishing close cooperation between the Croatian National Bank and the European Central Bank; strengthening the framework for implementing macroprudential policies; strengthening the framework for the prevention of money laundering; improving the system for collecting, processing and publishing statistical data; improving public-sector governance; and reducing the administrative and financial burden on the economy.

The Adriatic country needs to give a more sustainable solution for the acute shortages in skilled labour, as some sectors, especially tourism, have been experiencing a lack of qualified staff, the EBRD also said.

"Increased quotas for foreign workers are helping to provide a short-term fix, but a longer-term solution is needed, including a further reduction in labour market rigidities." 

Additionally, Croatia should prioritise business environment efforts, as bureaucratic processes remain an obstacle to doing business. 

"State-owned enterprises remain dominant in some sectors, and privatisation of these enterprises, including through initial public offerings, would attract investors and increase the competitiveness of the economy", the EBRD also said. 

The EBRD expects Croatia's GDP to stay in line with the first-half growth of 3% in 2019, slightly moderating to 2.5% in 2020.