The International Monetary Fund (IMF) has released a concluding statement following its 2025 Article IV mission to Croatia. According to the IMF staff, Croatia's economy has continued to grow at one of the fastest rates in the euro area, with improvements in living standards supported by strong use of the European Union's Recovery and Resilience Fund. However, the report highlights emerging economic imbalances that require attention.
The IMF notes that recent fiscal stimulus during a period of robust economic growth has led to rising fiscal deficits and increased domestic demand pressures, which have contributed to higher inflation and a widening current account deficit. Rapid credit growth and significant increases in housing prices are also noted as concerns.
The statement outlines that Croatia faces ongoing challenges including subdued productivity, labor shortages, skill mismatches, and the need for green and digital transitions. The IMF staff stresses the importance of early action: “In the current global environment characterized by elevated uncertainty and structural shifts, it is crucial for Croatia to address the emerging imbalances early on and safeguard macroeconomic and financial stability, build resilience and buffers, and enhance productivity. We see a stronger and front-loaded fiscal consolidation as key to achieving these objectives.”
Looking ahead, the IMF projects real GDP growth will slow from nearly 4 percent in 2024 to 3.1 percent in 2025, before easing further to 2.7 percent in 2026. The report expects inflation to gradually move closer to the European Central Bank’s target by late 2026 or early 2027.
Risks are identified as both internal and external. The IMF states that downside risks stem from potential weakness in external demand—especially tourism—and global shocks affecting energy or food prices. Domestically, there is concern about overheating if fiscal policy remains too loose or if wage and credit growth outpace expectations.
The report recommends measures for reducing Croatia’s general government deficit: “We call for stronger and front-loaded reduction in the fiscal deficit, aiming to reach a structural primary balance by 2030.” Specific steps include restraining public salary growth, limiting increases in social expenditures, improving value-added tax compliance, ending remaining cost-of-living support measures, and strengthening local government fiscal discipline.
On pension reform, the IMF suggests narrowing early retirement options, raising retirement age linked with life expectancy, increasing minimum contribution years, and ensuring policies maintain long-term financial sustainability alongside improved adequacy.
The statement also welcomes recent reforms aimed at improving governance of state-owned enterprises (SOEs) but urges timely adoption of implementing regulations as well as enhanced assessment of SOE-related fiscal risks.
Financial sector vulnerabilities are another focus area. While banks remain profitable with strong capital positions and liquidity levels despite declining profits, rapid credit expansion—particularly for housing—and lenient lending criteria have raised cyclical systemic risks. The Croatian National Bank’s tightening of macroprudential policies is viewed positively: “We welcome the introduction of explicit borrower-based measures (BBMs) aimed at reducing excessive household borrowing and helping ease inflationary pressures.” Additional recommendations include monitoring BBM effectiveness over time; considering recalibration if needed; coordinating housing supply policies; boosting counter-cyclical capital buffers; developing corporate stress tests; and continuing efforts around intercompany loans analysis.
To improve long-term productivity growth potential amid demographic challenges such as an aging population, investment in human capital through healthcare reform—targeting efficiency gains—and education reform focused on better matching skills with labor market needs are emphasized priorities. Immigration is recognized as helping offset labor shortages but requires improved integration strategies so newcomers’ skills are better matched within Croatia’s workforce.
The mission concludes by thanking Croatian authorities for their cooperation throughout discussions leading up to this preliminary assessment. A final report will be prepared based on these findings for consideration by the IMF Executive Board.