The Croatian Parliament enacted theFiscal Responsibility Law (FRL) in November 2010. The law isdesigned to ensure long-term fiscal sustainability, fiscaldiscipline, and transparency, which have so far not beensuccessfully enforced in previous legislation. The purposeof this note is to (i) review efforts to enhance fiscalmanagement and stability in Croatia; (ii) present relevantinternational experience; and (iii) make recommendations forimproving the FRL. The key recommendations stemming from thereview of the law are the following: a) the temporary fiscalrule that the authorities plan first is appropriate. Itcalls for expenditure-based consolidation with clear annualspending reduction targets because revenue generation cannotbe counted on to balance the budget over the medium term.The rule should be in place until the general governmentbalance is reached because it would help reduce thedebt-to-GDP ratio; b) setting up a legally and effectivelyindependent authority to transparently monitor compliancewith all elements of the fiscal responsibility framework,especially the fiscal rule, the three-year budget plan, andfiscal forecasts, is highly recommended; c) if the fiscalrule is to be effective, it should be supported bymeaningful and enforceable sanctions; and d) also, the FRLshould bind not only the current government and parliamentbut also future ones. Thus, as some other countries havedone, the authorities could have considered enacting the FRLas an organic law with a two-thirds majority.
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