Croatia's central bank (HNB) governor, Boris Vujcic, took part in a meeting of central bank governors on Wednesday, as part of the annual meeting of the European Bank for Restructuring and Development (EBRD) held in Jordan on May 9-10.

Vujcic talked to N1 and commented on challenges to Croatia’s economy, announced reforms, interest rates, and the ongoing debt crisis at Agrokor.

What was discussed in the governors’ meeting?

We talked about results achieved so far, and our plans for the future. The EBRD is shifting its focus towards the east, towards the Middle East. EBRD is very important for us. Its total activity is around 3.6 billion, Croatia is one of the countries in which EBRD performed the most work, and it still has about a billion euros invested, about half of which is in the private sector.

One of the key points of the meeting is that governors need to create opportunities. How does one go about adapting to the new global labour market?

“I think everyone needs to think about how to make their economy more acceptable and attractive to investors, but also to introduce new technologies. The situation we are in now is that a large number of technologies which have been developed for more than 30 years, like artificial intelligence and process automation, are finally maturing.”

Are we falling behind in those areas?

“We are applying those technologies, but Croatia is not among the countries who are moving the limit of technological innovation. For us it is much more important to prepare for the adoption of these technologies, in both the labour market and the education system. We’ll see the changes that happen in the labour market, that’s currently the most important topic.”

What about interest rates? Can we expect interest rates to rise?

At the moment, we do not expect interest rates to rise this year. This year they will be at historically low levels. Companies get kuna-denominated loans with fixed interest rate set between 1.8 to 2.2 percent. Banks have 27 billion kuna (€3.64 billion) at the central bank, and this ensures low interest rates until the end of this year. We are much more affected by the European Central Bank (ECB), which decided to postpone the raising of interest rates for next year, than the American (Federal Reserve) which started raising interest rates.

How are things in Croatia?

We are seeing strong appreciation pressure on the kuna. HNB will not allow kuna to significantly gain ground, as we have done until now. In the last 12 months we had to buy a billion euros to ease the pressure.

Are the events around Agrokor a danger for Croatia’s economy?

We are following what’s going on. The effect of the outcome on the banking system is what’s important to us. In any case, even in the case of bankruptcy, with banks not getting anything (to cover loans issued to Agrokor) the banking system would remain stable. But that is not a scenario we expect. The effect of Agrokor on the economy at large is mildly negative, and the (crisis management) process has been successfully managed so far. In the next phase, when company’s ownership changes, we will see a comprehensive restructuring of the company, and then we will see what the consequences for the labour market would be.

Croatian economy is slowing down. What are your predictions?

We forecast that the GDP would grow by about 3 percent. That’s a result of growing exports, and the recovery of consumer spending, but also the insufficient rise in investments. What we need is a strong surge in investment, but whether this would happen depends on the investment and business climate in the country.

Do you see any structural reforms in the near future?

That’s what I have been saying for years. At the moment the reforms of the goods and services market are the priority, and it is good that the government has moved in that direction. But there are hundreds of things (that need to be done), not just one or two structural reforms. The first and largest obstacle to successfully doing business in Croatia is regulations, this is currently the most important thing in fixing the business climate.

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