February 2 (SeeNews) - Croatia advanced three spots to 92nd position on the 2018 global economic freedom chart with a spike in the fiscal health score and improvements in government spending and business freedom, The Heritage Foundation said on Friday.
Croatia is ranked 39th among 44 countries in the Europe region, and its overall score is below the regional and world averages, according to the 2018 Index of Economic Freedom report published by the U.S.-based think-tank.
"Although Croatia lags behind many of its neighbors in structural economic reform, the government has acted to improve the business climate by simplifying the tax code to stimulate growth from domestic consumption and foreign investment," according to the report.
It noted that significant remaining challenges include political volatility and a level of public-sector debt that makes government spending on health care and pensions fiscally unsustainable, while pervasive corruption undermines the rule of law.
The Heritage Foundation's index measures economic freedom in several areas - from property rights to entrepreneurship - in 186 countries worldwide through 12 quantitative and qualitative factors, grouped into four broad categories: Rule of law, Government size, Regulatory efficiency and Open markets.
Overall, Croatia received a score of 61.0, up 1.6 points compared to the score in the previous edition of the index.
In terms of the rule of law, property rights were on an increase in 2017, while government integrity and judicial effectiveness dropped.
"The law provides criminal penalties for corruption by officials, and the government implements these provisions effectively, but corruption nevertheless persists," The Heritage Foundation said.
In Croatia, the overall tax burden equals 37.4% of total domestic income and is on a decrease. Government spending, however, is growing and has amounted to 47.4% of total output (GDP) over the past three years, while budget deficits have averaged 3.4% of GDP. Public debt is equivalent to 84.4% of GDP.
Croatia’s large government bureaucracy and low regulatory transparency contribute to an unfriendly business climate, the think-tank said.
The unemployment rate is a high 13% overall and 40% for youths, despite an educated and highly skilled labour force.
In terms of open markets, the foundation estimated that government policies do not significantly interfere with foreign investment.
The Heritage Foundation also commended Croatia on financial-sector privatization.