The International Monetary Fund (IMF) Mission expects the Croatian economy to grow at a 2.8 percent rate in 2018, with growth slowing down towards 2 percent in the medium term, unless substantial structural reforms are implemented, the IMF said in a published statement on Wednesday, after a visit to Croatia.

Record-high tourist activity, solid export and strong domestic consumption continue to contribute to Croatia’s economic growth, said the preliminary report of the IMF Mission members who visited Zagreb on May 14-18.

“Although declining, unemployment rate is still high, at about 10 percent. This emphasises the need for structural reforms which would improve the business environment, boosting growth and creating new jobs,” the IMF Mission said.

Inflation is expected to stay within the 1.5 to 2 percent range in the medium term.

“The 0.8 budget surplus (in 2017) was a result of good revenue collection, spending limitations and moderate public investments, as well as all-encompassing reduction in current expenditures, not including wages. As a consequence, the public debt was reduced by almost 5 percent, to 78 percent at the end of 2017,” IMF said.

Wage increases in the public sector should be accompanied with public administration reforms which would improve its efficiency and services. The pension system should be reformed as well, to ensure its sustainability and support the attempts to increase workforce participation.

“The banking system is overall healthy, in spite of the Agrokor crisis. Deleveraging is slowing down, and lending is increasing. The banking sector needs to be watched closely, considering the expected tightening of the global financial conditions and the overall credit risk stemming from the potential leftover uncertainties linked to Agrokor,” the IMF said.

The report also said that structural reforms to speed up the convergence towards EU income levels, and support Croatia’s efforts to join the euro zone, should be revitalised.

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