The Croatian government has adopted a new five-year Country Partnership Framework (CPF) with the World Bank Group, aiming to address key economic and social challenges. The framework focuses on increasing investment, creating more productive jobs, and protecting Croatia’s natural assets by strengthening environmental resilience and sustainability.
Jehan Arulpragasam, World Bank Country Manager for Croatia, highlighted recent reforms under the National Recovery and Resilience Plan that have supported robust economic performance and improved living standards. "Over the past decade, Croatia has been pursuing a strong reform agenda, embedded more recently in the National Recovery and Resilience Plan. These reforms have supported robust economic performance and improved living standards for Croatia’s citizens. For example, several rounds of tax reform reduced the tax burden for entrepreneurs and citizens. Stronger taxation of property and income generated by renting out property to tourists improve fairness and equity of the tax system, and further efforts for digitalization continue to improve the efficiency of public administration and the justice system. While there are still significant gaps compared to the best performers in the EU, these actions create a more friendly environment for local businesses. There have also been some advances on the social agenda. For example, the roll-out of the Whole Day School experimental program, which the World Bank is supporting, and an increase in the generosity of the social protection system should improve equity in society. Such reforms support economic developments that many would characterize as exceptional. In a decade, Croatia’s GDP per capita in purchasing power parity (PPP) terms increased from 60.7 percent of the average EU27 level in 2015 to 76.8 percent in 2024. Over the last three years, Croatia’s average GDP growth reached 4.8 percent, consistently outdoing average growth in the EU and the euro area."
Arulpragasam added that while progress has been made on various fronts—including education programs like Whole Day School—significant gaps remain compared to other EU countries.
On accelerating reforms following recent elections at all levels of government, Arulpragasam stated: "The Croatian government has a great opportunity and the potential to accelerate the reform momentum and continue to support growth that is sustainable and beneficial to society. The administration has laid out an ambitious reform agenda and has the external financing resources to undertake it. This will require persistent and consistent attention to implementation. However, we need to be aware that many reforms that are yet to be successfully implemented -- like the reforms of the health and pensions systems, or further interventions in the justice sector to improve its efficiency -- take years to design, cost, pilot and finally implement throughout the country. It is therefore of utmost importance to keep the public well informed of all steps... The World Bank Group remains ready to support..."
Low productivity continues as a challenge for Croatia's economy despite improvements over two decades; labor productivity lags behind EU peers due partly to low private sector investment in research & development (R&D) as well as innovation initiatives.
Magdalena Soljakova from IFC explained: "Although Croatia has made progress over... labor productivity remains among lowest compared with its EU peers... Low firm productivity... reflects subdued private sector investment... especially R&D/innovation... Our research shows continued stable/high growth requires increased domestic productivity—which needs higher capital per worker ratio... achieved through significant investments in plants/equipment focused on innovation/technology adoption..." She noted better integration into value chains could also boost productivity.
Soljakova said regulatory simplification along with improving judicial efficiency could help attract investors while de-risking investments via innovative financial products would encourage private sector activity.
IFC plans up to $1 billion investment into Croatian companies by 2030 focusing on sectors such as renewable energy; efficient transport; digital transformation; sustainable tourism; SME finance; municipal infrastructure; waste management; energy; transport sectors—with funding accessible directly or via intermediaries using loans or bonds.
"Indeed," Soljakova said,"the IFC is committed..." She detailed IFC's approach including risk-sharing instruments like green/blue/sustainable-linked bonds.
Since 1991 IFC invested over $2 billion supporting private sector development across multiple industries such as transport infrastructure (including Zagreb airport terminal), food processing/manufacturing/banking sectors—and provided critical early-stage equity post-war.
Croatia now relies increasingly on foreign labor—mainly from Asia—to compensate for emigration-driven workforce shortages accounting for about ten percent of total employment nationally.
Arulpragasam commented: "Indeed…Croatia has been undergoing shift…from being primarily country of emigration…to depending on foreign labor…" He cited governance improvements but stressed need for comprehensive migration strategy covering selection/integration/licensing/monitoring agencies/labor law compliance/enhanced information systems/services access—referencing findings from a recent World Bank report.
Addressing pension sustainability concerns amid demographic changes—including proposals raising retirement age incrementally—Arulpragasam explained: "At request…World Bank analyzed pension system…and suggested ways…Recently…made changes…World Bank recommended measures sustain increased adequacy by encouraging people work longer before retiring…" He outlined options involving gradual retirement age increases or higher contribution rates by workers as necessary trade-offs.
On housing affordability issues—and introduction of property tax replacing holiday house tax—Arulpragasam said: "A property tax that recently replaced holiday house tax is step right direction because it should bring some currently empty apartments back onto market…" He called this an important first step toward modernizing taxation structures while noting success depends on sequencing/comprehensive policy package implementation involving both public/private actors.