Croatia should continue the reform process next year in order to boost growth and prepare itself for European Union membership, the European Bank for Reconstruction and Development (EBRD) said in its Transition Report on Wednesday.
"The completion of EU accession negotiations is a key milestone for Croatia", the EBRD said, stressing the need for Croatia to strengthen its institutional capacity to absorb EU funds.
The country also needs to enhance competitiveness by "overhauling some of the restrictive practices that make the labour market inflexible and hinder the smooth setting-up and running of businesses" and to improve payment discipline in public sector companies.
The next priority for 2013 is further development of regional connections in the energy sector. "There is scope to further develop the power transmission and distribution network in order to adapt to increased wind power generation", the report said.
The EBRD noted "successful privatisations in the financial sector" saying that they could send "an important signal about the willingness to reduce the size of the state". It recalled that the government was hoping to raise 2 billion kuna by selling the postal bank HPB and the Croatia Osiguranje insurance company.
In addition to the completion of EU accession negotiations in 2011, the highlights of the past year also included progress in the reform of the transport sector. "Road sector reform has advanced significantly over the years, a concession for Zagreb airport has been awarded and restructuring of the railways is under way".
The EBRD, however, warned that economic performance remained exceptionally weak. "Economic output remained constant in 2011 after two years of negative growth, but is falling again in 2012, largely due to adverse external developments. However, efforts are being made to shore up the fiscal position and reduce the government deficit", it said.
"The prospects for recovery are bleak. The outlook is very uncertain given the protracted crisis in the Eurozone and the risks on the downside are high," the report said.
According to recently published projections by the EBRD, the Croatian economy is expected to shrink by 1.9% in 2012 and recover at a rate of 1.2% in 2013.
"Over the medium term, however, there are hopes that the country will be boosted by EU accession and perhaps by the introduction of long-awaited reforms to public administration and the labour market, as well as the restructuring of publicly owned infrastructure companies", the report concluded.
