The Croatia poverty rate, as measuredby the international line of moderate poverty at dollar 5 inpublic-private partnership (PPP) terms, is estimated at 2.8percent for 2012. The share of the population at risk ofpoverty, based on a higher national and relative povertyline, also declined substantially prior to the 2008 globalfinancial crisis, although has subsequently increasedmarkedly. The global financial crisis, with the loss ofcredit, has exposed Croatia's macroeconomicvulnerabilities. This report shows that without addressingmacroeconomic weaknesses, through sustained fiscaladjustment and institutional reforms, Croatia will not beable to reignite higher growth and benefit fully fromEuropean Union (EU) membership, and the quest for futureprosperity may prove elusive. Similarly, withoutaccelerating structural reforms, especially in the area oflabor market, investment climate, and public sectorefficiency, Croatia will face further stifledcompetitiveness and any prospects for recovery of growth andjobs. Focusing on the fiscal and public sector relateddeficiencies, this report systematically analyzes threeinterrelated issues to assist the Croatian government ininforming public policy, strengthening macroeconomicstability, and laying the foundation for a robust recovery:first, it analyzes Croatia's major fiscal weaknesses,risks, and alternative fiscal scenarios, and on that basis,calculates the required fiscal adjustment needed over themedium term. Second, it analyzes the institutionalweaknesses and requirements for the efficient use of EUfunds in the coming years. Third, the report analyzes thestructure of Croatia's public finances and provides ablueprint of the fiscal adjustment of around 5 percentagepoints of gross domestic product (GDP) over the medium term.
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