This year's HUP Score, an index compiled by the Croatian Employer's Association (HUP) which measures progress of reforms in 12 key areas for doing business in Croatia, is 37 out of the maximum 100 points, or one point down from 38 in 2017, HUP said on Wednesday.

“The HUP Score shows that Croatia is still at the bottom of the European Union in terms of business environment. We are the bloc’s worst performing member,” head of HUP, Gordana Deranja, said.

What is particularly concerning is that Croatia’s 2018 score is lower than the score of EU countries which are still considered less developed than Croatia, like Bulgaria and Romania.

Deranja added that reforms needed to improve the business climate can only have a limited effect on the overall economy if they continue coming from the Finance Ministry alone.

“Although the score in the area of fiscal consolidation is much better now, a strong decline was observed in the score for investment and business barriers, and the chronic problems of Croatia’s economy in the form of tax burdens on the economy and the labour market have resulted in the overall score for 2018 dropping. In addition to fiscal consolidation, the productivity and competitiveness, as well as capital supply components also received positive scores,” HUP said.

Results show that the best progress has been made in fiscal consolidation (from 54 points in 2017 to 56 in 2018), productivity and competitiveness (from 34 to 45 points) and capital supply (from 36 to 42 points).

On the other hand, the largest drop was in the score for investment and business barriers, from 35 points in 2017 to 23 points in 2018.

HUP’s score for the nation’s education and the pension systems remained unchanged at 26, while the justice system scored 33 points. They added that the score for burden on the economy (19) and labour market (22) have shown to be at critical levels.

Deranja said that while Croatia is making slow progress or stagnating, other countries are changing and working faster to adapt their economies to volatile circumstances and conditions.

“The burden on the economy continues to be too high and we can’t be entirely satisfied with the latest wave of tax changes,” she said, adding that although employers see the latest package of tax relief bills as a step in the right direction, these are still insufficient to result in giving a significant boost to the economy.

Deranja said that the situation is especially difficult on the local labour market.

“There is a shortage of qualified labour, and the tax pressure on wages is high. The problem is that the current tax burden leaves little room for employers to significantly increase salaries without threatening the sustainability of their businesses,” Deranja said.

She said that the government continues to spend more than it earns, and that it was concerning that the recently presented 2019 budget showed no hints at any serious reforms.

HUP’s Director-General, Davor Majetic, estimated that without a stronger economic growth, emigration from the country would not be halted, which may lead to an acute shortage of the labour force which could undermine even the currently modest level of growth.

“That’s not a problem that employers alone can solve, it needs to be dealt with systematically and comprehensively,” he said.

As far as the education system is concerned, Majetic said that while both the numbers of children going to school and the quality of education is falling, the number of teachers working in the system has remained unchanged.

We won’t have a quality labour force unless we change the education system, he said.

“We are slow, and changes we need are not happening as deeply and as broadly enough to be even referred to as reforms. That is why their effects are limited, and when compared to other countries, we are lagging behind, leaving us trapped at the bottom of the EU,” Majetic said.

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