January 16 (SeeNews) - The International Monetary Fund (IMF) said on Tuesday that Croatia must implement policy measures and expedite structural reforms to boost growth and reduce vulnerabilities.
"Near-term growth prospects are favourable, supported by strong tourism and private consumption, and a significantly improved fiscal position and external environment," the IMF said in a staff statement following the conclusion of 2017 Article IV consultations.
It, however, commented that the economy is operating close to potential, with growth expected to decelerate if enduring structural constraints are not addressed.
The IMF noted that the impact of the financial crisis in Croatia's ailing concern Agrokor has been contained thus far, but warned that it could pose a risk to growth in the long term.
Croatia's authorities must build on recent improvements in bankruptcy legislation to address remaining gaps in corporate governance, the IMF officials added.
In the medium term Croatia's growth could be impeded by public debt, elevated unemployment, and structural issues. In order to reduce these threats, Croatia must expedite structural reforms, they noted.
The IMF officials, however, commended Croatia's commitment to fiscal discipline, and noted its overperformance in recent years.
"The favourable cyclical position provides an opportunity for growth friendly consolidation and a faster reduction in public debt," they said, however adding that the structure of revenue and expenditure must be improved.
The IMF mission also encouraged the authorities to resist pressures to increase the wage bill and untargeted benefits.
The officials stressed the need for reforms to enhance the efficiency of public service, while also underscoring the importance of an ambitious reform of the pension and health care systems.
Touching on the country's ambition to adopt the euro, they stressed the importance of pressing ahead with reforms to maximize the benefits from joining the currency union while enhancing the ability of the economy to respond to adverse shocks.
The IMF mission concluded that Croatia should raise the efficiency of its state-owned enterprises and divest of underutilized state assets.
The IMF has projected Croatia's 2018 GDP growth at 2.8%, down from an estimated 3.1% last year.