September 13 (SeeNews) - The International Monetary Fund (IMF) said it expects Croatia's economy to expand by 5.4% in this year and grow by 5.8% in 2022 on the back of a recovery in tourism services and investments.
“A robust bounce back is projected for 2021 and 2022, of 5.4 and 5.8% growth, respectively, driven by a rebound in the services sector, assuming two-thirds and nearly full recovery of tourist arrivals in 2021, and 2022 respectively, and investment which will be bolstered by large European Union investment grants over the medium-term,” the fund said in a statement late on on Friday.
The projection is in line with the fund's June forecast that Croatia's economy will expand between 5% and 6% this year. Last year, Croatia's economy contracted 8.4% hit by the pandemic, which caused a drop of some 60% in tourism receipts, and two devastating earthquakes.
Over the medium term, the country's economic growth is projected to ease closer to 3%, IMF added.
Medium-term growth would be substantially lower if the pace of recovery in EU trading partners is lower than expected, if EU funds are not effectively absorbed and/or if promised complementary reforms remain challenging to deliver, the IMF explained.
The fund's directors hailed the authorities’ efforts to balance the pandemic recovery with fiscal prudence while remaining vigilant to support the nascent recovery and stressed that it will be important to avoid further tax cuts to conserve fiscal resources and to firmly place public debt levels on a downward trajectory over the medium term.
They called for an accelerated implementation of structural reforms and the need to increase the capacity to absorb EU structural funds, in particular in the area of public investment management.
Noting the benefits of euro adoption, the directors welcomed the authorities’ strong commitment to observe the convergence criteria and stressed the need for vigilance to financial and banking sector risks with the expiration of the regulatory easing introduced in line with the European Banking Authority guidelines to mitigate the impact of the pandemic.
They welcomed the decision to facilitate write-offs of non-performing loans and efforts to strengthen the insolvency framework and urged the authorities to remain particularly vigilant over credit developments in the real estate market and stand ready to absorb excess liquidity and impose adequate macroprudential measures if needed.