EUROPEAN COMMISSION Brussels, 8.7.2021 SWD(2021) 197 final COMMISSION STAFF WORKING DOCUMENT Analysis of the recovery and resilience plan of Croatia Accompanying the document Proposal for a COUNCIL IMPLEMENTING DECISION on the approval of the assessment of the recovery and resilience plan for Croatia {COM(2021) 401 final}



Table of contents 1. Executive summary 2. Recovery and resilience challenges: scene-setter 2.1. Macroeconomic outlook and developments since the 2020 country report 2.2. Challenges related to sustainable growth, cohesion, resilience and policies for the next generation 2.3. Challenges related to the green and digital transition Green dimension Digital dimension 3. Objectives, structure and governance of the plan 3.1. Overall strategy of the plan 3.2. Implementation aspects of the plan 4. Summary of the assessment of the plan 4.1. Comprehensive and adequately balanced response to the economic and social situation 4.2. Link with country-specific recommendations and the European Semester 4.3. Growth potential, job creation, economic, institutional and social resilience, European Pillar of Social Rights, mitigating the impact of the crisis, and social territorial cohesion and convergence 4.4. The principle of ‘do no significant harm’ 4.5. Green transition 4.6. Digital transition

4.7. Lasting impact of the plan 4.8. Milestones, targets, monitoring and implementation 4.9. Costing 4.10. Controls and audit 4.11. Coherence ANNEX: Climate and digital tracking table 1.Executive summary The COVID-19 pandemic has had a detrimental impact on the Croatian economy. Croatia’s economy contracted by 8% in 2020, the steepest drop on record and among Central and Eastern European countries. This was primarily due to major difficulties experienced by the tourism sector linked to restrictions on travel and providing contact-based services. The labour market has been impacted as well, albeit to a smaller extent. The unemployment rate increased by 0.9 percentage points to 7.5%. This relatively mild increase can be attributed to the rather brief and moderate nature of containment measures and to the government incentives to retain the workforce, that were largely financed using SURE and European Structural and Investment (ESI) Funds. After the sharp drop in economic activity, a swift recovery is predicted in the Commission 2021 Spring Forecast for the following years. Real GDP growth is forecast to be 5.0% in 2021 and 6.1% in 2022, with the unemployment rate falling to pre-crisis level by 2022. As a result of the contraction in economic activity and increased government expenses due to support measures, public finances have also been negatively affected. The government balance deteriorated to a deficit of 7.4% of GDP in 2020, ending the positive trend of three consecutive budget surpluses. The debt ratio is expected to have peaked in 2020 at 88.7% of GDP and should resume declining in 2021 and 2022. Structural weaknesses in the Croatian economy weigh on the economic recovery and hinder its long-term sustainable growth. Croatia’s business environment is burdensome, complex and restrictive and the public administration's efficiency in Croatia ranks below the EU average, partly due to territorial fragmentation. There is a need to strengthen the framework to prevent, detect and correct corruption. Research and development intensity remains relatively low and there is scope to significantly improve education outcomes. Employment and labour market activity rates are among the lowest in Europe, partly due to skills gaps and mismatches. Croatia’s recovery and resilience plan has an estimated total cost of EUR 6.4 billion and is structured around five priorities - i) economy, (ii) public administration, judiciary and state, (iii) education, science and research, (iv) labour market and social security, (v) health care - and one initiative for renovating buildings. It consists of 222 individual measures (76 reforms and 146 investments). The estimated total cost of the plan is above the non-repayable financial support available to Croatia under the RRF Regulation of EUR 6.3 billion. Croatia has not requested any loans under the RRF Regulation. Croatia’s plan represents to a large extent a comprehensive and adequately balanced response to the economic and social situation, therefore contributing appropriately to the six policy pillars referred to in Article 3 of the Regulation. The plan supports the green transition through several components by focusing on climate-related and environmental measures and on preserving biodiversity. Digital measures are included in most of the components of the Croatian plan reflecting the broad and cross-cutting nature of the envisaged digitisation efforts. Furthermore, numerous components contribute to smart, inclusive and sustainable growth, including through measures to improve the business environment, support SMEs and large enterprises, innovation and R&D. Moreover, social cohesion is strengthened mainly through active labour market policy measures and by providing support to appropriate skills development tailored for vulnerable groups. As one of the critical sectors for achieving crisis preparedness and resilience, the health sector is specifically supported by a dedicated component in the recovery and resilience plan. Measures to support the development of family and community-based services in the area of long-term care and to strengthen the public administration should contribute significantly to institutional resilience. Finally, investments in education, research and innovation target specifically children and the youth and are therefore essential to support the education and future of the next generation. Generally, the plan constitutes a comprehensive package of reforms and investments addressing all or a significant subset of the challenges and recommendations identified in the European Semester. The plan addresses the country-specific recommendations with reforms to reinforce the budgetary framework, active labour market policy measures and the implementation of the education reform by improving access to education and its quality and labour market relevance. The challenges faced by the Croatian healthcare system are addressed by measures to improve the efficiency, quality, accessibility, and financial sustainability, which was especially stricken by the COVID-19 pandemic. Furthermore, through advancing the decarbonisation of the energy sector, increasing overall energy efficiency, and focusing investments on sustainable transport and digital infrastructure and services, the plan addresses country-specific recommendations in those areas. Finally, the plan contains far-reaching measures to improve the efficiency of the public administration and justice system, to prevent, detect and correct corruption, to improve the business environment and to support investment in and policy relevance of research and innovation. The Croatian recovery and resilience plan envisages to address some of the social and economic challenges that have emerged or were exacerbated during the COVID-19 crisis and two major series of earthquakes in 2020. The plan includes various interventions in social policies, aimed at, among others, expanding access to early childhood education and care, developing digital solutions to exchange data on social benefits, introducing social mentoring services to promote employment and social inclusion and increasing long-term care capacity. In addition, funding under the RRF for building renovation will support the regions that were hit by earthquakes. The recovery and resilience plan contributes to climate objectives for 40.3% of Croatia’s allocation of EUR 6.3 billion, surpassing the climate target of 37%. Planned measures in the Croatian plan are aligned with the National Energy and Climate Plan and are thus expected to directly contribute to reaching EU’s 2030 climate targets, but also to support transition towards climate neutrality by 2050. The plan includes support of EUR 3.3 billion to the climate and environmental objectives, notably through significant reforms and investments promoting energy efficiency, renewable energy, and sustainable mobility. Significant energy savings in final and primary energy consumption are expected from energy efficiency measures in industrial processes and building renovation addressing earthquake consequences. Legislative reforms addressing administrative and regulatory obstacles to unlock the potential for renewable energy are accompanied by investments upgrading the electricity grid to enable additional uptake of renewable energy sources. Furthermore, the plan will support the development of infrastructure for low-carbon transportation modes, specifically by decarbonising public transport, road and coastal traffic, as well as the electrification and digitalisation of road and air transport. Investments in carbon capture and geological storage are expected to contribute to climate mitigation in the longer run. Climate change resilience is addressed with investments in flood risk mitigations. All measures in the Croatian plan have passed the ex-ante assessment of the ‘do no significant harm’ principle. The recovery and resilience plan contributes to the digital objective for 20.4% (close to EUR 1.3 billion) of Croatia’s allocation of EUR 6.3 billion, thus achieving the digital target of 20%. Specific support for the digital transition in most components of the recovery and resilience plan reflects the broad and cross-cutting nature of the envisaged digitalisation efforts that will be further embedded in a new strategic framework “Croatia’s 2030 Digital Strategy”. Tackling the urban-rural digital divide will be pursued by increasing the national broadband coverage with very high-capacity networks (VHCN) where commercial interest is insufficient. Citizens and businesses will benefit from the digital transition of the public administration, strengthening the interoperability of digital services, as well as by harmonising and centralising the helpdesk system of all public administrations’ online services and significant investments to expand the capacity of the State Cloud. Education will benefit from investments to support digital skills development with particular attention to the digital shift of higher education. Businesses in the cultural and creative sectors will also benefit from special support for digitalisation. The implementation of the investments and reforms envisaged in the plan is expected to bring a lasting impact, reinforce structural changes in several policies areas and will help strengthen institutional resilience. Investments in clean energy, modernising the transport system, and the digital and green transition will help foster greater sustainability of the economy. Given that the tourism sector is one of the main drivers of growth in Croatia, investments in inland tourism and extending the tourist season together with the transition to a greener tourism sector will strengthen its sustainability. Investments in the digitalisation and capacity of the public administration and measures improving design, implementation, coordination and management of public policies, enhancing corporate governance in strategic SOEs and reducing the administrative burden on citizens and businesses, are expected to lead to higher productivity and thus have a positive lasting impact. The measures aimed to improve the education system, introduce structural changes in the Croatian R&I ecosystem, and increase employability in youth and vulnerable groups will also positively affect potential growth in the long term. Overall, the plan addresses many of the country's core problems in the areas of labour market, productivity, business environment, and competitiveness challenges. The overall implementation of the plan will be monitored by the Croatian Ministry of Finance that will appoint relevant implementing bodies depending on the scope of the measures included under the specific component. At the same time, components containing measures with a broader scope will involve multiple ministries and agencies. The milestones and targets of the Croatian plan constitute an appropriate framework to allow the efficient monitoring of its implementation. The proposed qualitative and quantitative indicators used for the milestones and targets are sufficiently clear, realistic and comprehensive to ensure that their completion can be traced and verified. Where compliance with the Do No Significant Harm principle cannot be ascertained in advance, the milestones and targets associated with the measure layout adequate safeguards for compliance. The large number of milestones and targets appears commensurate to the size of the reform and investment package; however, the implementation of the plan will crucially hinge on the administrative and implementation capacity of the implementing bodies which will be reinforced and needs to be closely monitored to ensure such capacity is adequate to the challenge. Based on the assessment of a clear breakdown of costs for each investment and reform and related supporting documents, the estimated total cost of the plan appears reasonable and plausible. The plan provides adequate explanations on the methodology used for establishing the cost estimates for a clear majority of measures. Furthermore, by providing sufficient information and evidence that the estimated total costs of the recovery and resilience plan align with the nature and type of the envisaged investments, the plausibility of costs has been assured. The non-repayable financial contribution of the Recovery and Resilience Facility is planned to fully fund most of the measures contained in the plan, thus mitigating the risk of double funding. In addition, sufficient information has been provided to prevent such risk in cases of using other funding sources. In general, the estimated total cost of the plan corresponds to the expected national economic and social impact and is aligned with the principle of cost-efficiency. Nonetheless, the lack of clarity of information and evidence provided on the reasonability and plausibility a limited number of cost estimates precludes the highest rating of this assessment criterion. The Croatian plan adequately describes the system for the implementation of the audits and controls. The system presents a robust process and structure, where the roles and responsibilities are clearly defined. The relevant control functions are appropriately segregated in line with the applicable Union and national law. For the management and monitoring of the implementation of the plan, the Croatian authorities will use an upgraded IT system. The proposed measures give assurance that there is an adequate level of control to prevent, detect, and correct irregularities identified when using funds provided by the Facility.

The plan’s five components and the initiative represent a package of coherent reforms and investments, which are mutually reinforcing or complementary, since they aim to act in synergy while considering Croatia’s development potential and development challenges at regional, national, European and global levels. (1)

Balanced Response (2)



CSRs (3)

Growth, jobs… (4)

DNSH (5)



Green target (6)

Digital target (7)

Lasting impact (8)



M & T (9)

Costing (10)

Control Systems (11)

Coherence A A A A A A A A B A A 2.Recovery and resilience challenges: scene-setter 2.1.Macroeconomic outlook and developments since the 2020 country report The COVID-19 crisis had a particularly detrimental impact on the Croatian economy, while policy measures cushioned the impact on household incomes. Croatia’s economy contracted by 8% in 2020, the steepest drop on record and among peer countries. The drop in output was concentrated in the first half of 2020, followed by strong growth in the ensuing quarters. The impact was largely due to the particular difficulties of the tourism sector. Private consumption also took a strong hit, while household incomes remained relatively shielded. Emergency measures to protect incomes during the crisis, together with the pre-existing tax-benefit system, cushioned about 85% of the household market income losses in Croatia, with more than half of the effect due to monetary compensation schemes . According to the Commission 2021 Spring Forecast, real GDP growth is forecast to bounce back to 5.0% in 2021 and to 6.1% in 2022. The recovery is set to be rather quick and broad-based as tourism starts to recover, while private consumption is set to obtain a boost from demand and accumulated savings as constraints on the consumption of services ease. Investment is expected to be an important driver of growth in the coming period, driven by post-earthquake reconstruction and substantial ESIF and RRF funds. Inflation dropped to 0% in 2020 and is expected to remain moderate (1.3% in 2021 and 2022) despite the expected pick-up in economic activity. The labour market took a relatively mild hit given the size of the economic contraction and is expected to recover gradually. After several years of falling unemployment, the onset of the COVID-19 crisis reversed this trend and led to a decrease in employment of 1.2%. Job losses were recorded in the first three quarters of 2020, after which job creation resumed. The unemployment rate increased to 7.5%, which is still lower than the level in 2018. This relatively mild increase can be attributed to the relatively brief and mild nature of the COVID 19 containment measures and incentives by the government to retain the workforce. In the 2021 Commission Spring Forecast, an increase in employment of 0.6% and 1.4% is expected for 2021 and 2022 respectively, with the unemployment rate falling to pre-crisis values (6.6%) in 2022. The proportion of the population at-risk-of poverty or social exclusion declined pre-COVID-19, albeit remaining above the EU average (23.3% vs EU27 20.9% in 2019). After the third consecutive year of surplus in 2019, the general government balance deteriorated sharply in 2020 with the debt ratio increasing significantly. Driven by automatic stabilisers and measures on both the revenue and expenditure side of the budget, the general government balance deteriorated to a deficit of 7.4% of GDP in 2020. The sharp economic contraction impacted revenues, while measures aimed at preserving employment and businesses during the pandemic significantly increased expenditure. The general government deficit is expected at 4.6% in 2021 and 3.2% of GDP in 2022. After declining for five years, the debt ratio is set to spike in 2020 at 88.7% of GDP, but should resume declining in 2021 and 2022. Overall, the debt sustainability analysis on the basis of the Commission’s spring forecast indicates medium risks over the medium term. Croatia’s economy remains burdened by imbalances mainly related to high levels of private, public and external debt in the context of low potential growth. Private sector debt increased in 2020 due to the strong contraction in output. The positive contribution of net lending was smaller than in previous years as companies and households focused on refinancing existing loans and delayed investment and spending decisions. In 2021, private sector debt is expected to return to a downward trajectory, supported by the economic recovery. An increase in corporate insolvencies after the ending of government support measures might pose risks. Similarly, the public debt ratio reached its highest level on record (88.7% of GDP) in 2020, but it should return to a declining trend in 2021 as economic output recovers. The negative net international investment position (NIIP) worsened slightly to -52% of GDP in 2020, but should resume its pre-pandemic upward trajectory already in 2021, reaching the prudential benchmark in 2022. House prices continued their upward trend in 2020 rising by 7.4%, which continues to put pressure on housing affordability. Croatia’s external liabilities remain high but their increase was mitigated by a sizeable inflow from the capital account. Structural weaknesses in the Croatian economy weigh on its economic recovery and hinder its long-term sustainable growth. The Croatian banking sector remains well capitalised and profitable, although the decline in non-performing loans was halted by the pandemic. With a return on equity of 5.7% in 2020-Q2 (1.1% in the EU), profitability dropped from the previous year (11.3% in 2019-Q2). However, Croatian banks remain very well capitalised (with a CET1 ratio of 22.1% compared with 15.4% in the EU). The share of non-performing loans (NPLs) increased slightly to 5.4% in the third quarter of 2020, but is still much lower than in previous years (13.6% in 2014) and provisioning is high with a coverage ratio above 66%. The banking system improved its asset quality in recent years partly as a result of improved supervision. As of October 2020, the ECB exercises direct supervision over significant institutions in Croatia. The ECB’s comprehensive assessment, which was finalised in June 2020, resulted in no additional capital needs. Table 1. Comparison of macroeconomic developments and forecast 2019 2020 2021 2022 2023 2024 2025 2026 COM COM RRP COM RRP COM RRP RRP RRP RRP RRP Real GDP

(% change) 2.9 -8.0 -8.0 5.0 5.2 6.1 6.6 4.1 3.4 2.7 2.2 Employment

(% change) 3.1 -1.2 -1.2 0.6 2.3 1.4 1.6 1.6 1.4 1.1 Unemployment rate (%) 6.6 7.5 7.5 7.2 7.0 6.6 6.5 6.0 5.7 HICP inflation

(% change) 0.8 0.0 0.2 1.3 2.0 1.3 1.7 2.0 2.3 General government balance (% of GDP) 0.3 -7.4 -7.4 -4.6 -3.8 -3.2 -2.6 -1.9 -1.5 Gross debt ratio

(% of GDP) 72.8 88.7 88.7 85.6 86.6 82.9 82.5 79.5 76.8 Source: Commission Spring Forecast 2021 (COM); Recovery and resilience plan (RRP) The authorities’ scenario underpinning the RRP is based on plausible macroeconomic assumptions. Compared to the Commission’s spring forecast, the scenario in the recovery and resilience plan (which is the same as the scenario from the 2021 Convergence Programme) projects somewhat stronger growth in 2021, and particularly 2022. This is most notably a result of the authorities’ higher projections of household consumption and investment, while the Commission’s forecast is slightly more optimistic on the contribution of exports. Similarly, the reaction of the labour market is faster and stronger in the plan’s scenario. The authorities’ scenario also projects a stronger decrease in the general government deficit. The differences are most pronounced on the revenue side, which the plan projects to rebound very strongly. Overall, the differences between the recovery and resilience plan and the Commission scenarios are not extensive, particularly in a context where both the macroeconomic and fiscal outlook continue to be affected by high uncertainty related to the COVID-19 pandemic and its economic consequences. 2.2.Challenges related to sustainable growth, cohesion, resilience and policies for the next generation Structural weaknesses in the Croatian economy weigh on the economic recovery and hinder its long-term sustainable growth. Total factor productivity (TFP) lags behind that of Croatia’s peers and the EU average due to lower intrinsic productivity levels in Croatian firms (Bauer et al. 2020). Structural rigidities that reduce productivity, hamper growth and the pace of recovery include an inefficient public administration, a cumbersome business environment, a large presence of the state in the economy, an inefficient allocation of labour resources and skills shortages, and low investment in R&D and digital infrastructures, as well as alow number of high-growth enterprises (HGEs) that account for a low share of employment (Flachenecker et al, 2020). Croatia’s business environment is burdensome, complex and restrictive. Businesses are held back by large regulatory and administrative burdens, such as para-fiscal charges and heavy procedures to start a business. Despite the gradual removal of some restrictive regulations for products and the services markets over recent years, services and professions remain highly regulated, hampering firms’ competitiveness and productivity. Small firms recorded a more rapid catch-up in productivity and business dynamism due to increased exports after 2014 (Bauer et al. 2020). To ensure sufficient resilience capacity for companies, efforts to relieve costly administrative burdens on businesses need to be sped up. The efficiency of the public administration in Croatia ranks below the EU average. Low capacity to design, implement and evaluate policies and projects hampers effectiveness and speed. Initiatives to strengthen the public administration’s capacity to design and coordinate the implementation of policies at the central level, coupled with the reform of the civil service are key to ensure the absorption of EU Funds, including the Recovery and Resilience Facility.

High fragmentation of the public administration, including across the territory, leads to inconsistencies and an imbalance between responsibilities and resources at local level. The wage-setting framework lacks consistency and transparency across the public administration and the civil service. This affects equality of treatment and hinders central control over the public wage bill. Ongoing work on setting up a standardised wage-setting framework across the public administration and public services is essential. Efforts to strengthen the judiciary system and the framework to prevent, detect and correct corruption are key to achieving an efficient, accountable and transparent allocation and distribution of funds and resources, particularly at local level, and ensure available resources effectively support the recovery in the aftermath of the COVID-19 crisis. The need to enhance oversight mechanisms for local officials and appointees to local public companies remains, as does the need to ensure the prevention of conflicts of interest. There is scope for further strengthening Croatia's judiciary by further reducing delays in court decisions and by extending electronic communication. More intensive continuous training for judges in emerging areas of law should also result in greater court practice consistency. Initiatives to facilitate and ensure the use of out-of-court methods of dispute resolution also need to be followed through. Croatia’s research and development intensity remains low. Micro companies and SMEs continue to be weak innovators as government support programmes are heavily skewed towards large companies. Academia and business interaction is limited, while fragmented financing programmes fail to raise firms’ innovation capacity or adequately direct resources to micro-enterprises, spin-offs and start-ups, while equity markets for innovators are underdeveloped. Croatia would benefit from better consolidating its public science base, investing more in research and innovation (R&I) and embedding it in its business environment to fully leverage R&I as a key driver for growth. Unaddressed labour market challenges in Croatia have a negative effect on economic growth and resilience. Challenges include low labour market participation, pronounced labour shortages, high regional disparities in employment and social outcomes, and high incidence of undeclared work. Employment and activity rates in Croatia are among the lowest in the EU. A comprehensive strategy targeted at the inactive population could increase the labour contribution to growth. Despite high unemployment, labour shortages persist in some sectors of the economy (industry, construction, services). This is mainly because of skills gaps, but factors such as ageing, emigration and low job quality also play a role. A high incidence of undeclared work is caused by various factors (e.g. low quality of job offers, high share of precarious employment, etc.), which all need addressing if formal employment and economic growth are to be promoted. The acquisition of adequate skills, including digital skills, during initial education and training and later reskilling and upskilling, could raise productivity, close skills gaps and foster declared employment. The coverage and poverty-reduction capacity of social transfers, including minimum income schemes, is low. Croatia’s fragmented social protection system is ineffective in easing labour market and social disparities, resulting in levels of poverty above the EU average. Unemployment benefits do not provide an adequate safety net for dismissed workers, as both the coverage and adequacy are low. Participation of older workers (55-64) in the labour market is feeble, thus contributing to low pension adequacy and higher risk of poverty or social exclusion in old age. Long-term care is underdeveloped, and as a result requires a strategy to ensure quality service and reduce out-of-pocket costs. Organisation of care at the community level as an alternative to institutionally provided care is progressing, but very slowly. Negative demographic trends further amplify the existing challenges in the labour market and the social protection system. Croatia is facing challenges at all levels of education, which have been aggravated by COVID-19 and the earthquakes. Croatia’s early childhood education and care (ECEC) participation remains one of the lowest in the EU. Challenges to increasing the participation rate include a lack of places in ECEC and a shortage of ECEC teachers, decentralised governance, regional differences, and costs. The performance of pupils in basic skills as measured by PISA is below the EU average; the shares of underperformers in maths (31.2%; EU-27 22.9%) and science (25.4%; EU-27 22.3%) are among the highest in the EU. The COVID-19 crisis further aggravated the situation, mainly through the learning loss suffered by students, which can have long-term negative consequences on human capital, productivity growth, innovation and employment, as well as future earnings (Di Pietro et al, 2020). Measures are being taken to increase the quality of education through curricular reform and an e-Schools project, which has helped develop digital education. Nevertheless, educational outcomes are negatively affected by the low annual instruction time in primary and lower secondary education, short compulsory education and schools working in shifts due to infrastructure shortages (which have been exacerbated by the earthquakes in 2020). In addition, tertiary education attainment is one of the lowest in the EU (33.1%; EU-27 40.3%), below the national 2020 target of 35%, while the number of students is declining. Participation in adult education is also very low (3.5% vs EU average of 10.8% in 2019). The educational offer of advanced digital skills in universities is also very limited (Righi et al. 2020), with a large demand that remains unmet (Gomez Losada et al. 2020). Regional disparities (at county level) in Croatia are significant, and these differences are particularly pronounced between Zagreb and the rest of the country. Taking account of the large economic disparities (particularly at county level) when designing and implementing the plan’s measures is crucial to pursuing inclusive and uniform growth. Such disparities could be better addressed through more homogenous, transparent and effective public administrations across the country. Reducing the fragmentation of local administrations’ handling of resources and strengthening the framework on corruption prevention, detection and correction at local level would also help increase absorption capacity and ensure a more efficient and even use of EU funds. Accumulation of debts and geographical obstacles create challenges for the Croatian health system. A lack of coordination between the hospital managing authorities, particularly at county level, and at government level underlines the inefficiencies of the system. Challenges stemming from the outbreak of COVID-19, coupled with the devastation caused by earthquakes in March and December 2020, put an extraordinary strain on the health system. The uneven distribution of health resources exacerbates these challenges. 2.3.Challenges related to the green and digital transition Green dimension The recovery and resilience plan should contribute to the green transition and at least 37% of the invested amount needs to constitute climate related expenditure. The measures in the plan will contribute to achieving the 2030 energy and climate targets (as set out in the National Energy and Climate Plan) as well as to a climate-neutral economy of the Union by 2050. They should also contribute to meeting environmental targets for waste, water, pollution control, sustainable mobility, biodiversity protection and restoration, marine and water resources, and support the transition to sustainable food systems as well as to a circular economy, while ensuring that nobody is left behind. Climate and energy policies Croatia is among the EU Member States with the lowest greenhouse gas emissions (GHG) per capita, though GHG intensity remains higher than the EU average despite its improvement. Between 1990 and 2019, Croatia’s total GHG emissions fell by 22%, slightly less than the EU total, while the GDP per capita increased by 22%. Two NUT3 level regions stand out in terms of their GHG emissions: Istria County (coal power plant Plomin and cement industry) and Sisak – Moslavina County (oil refinery and fertiliser production). The latter is among the most deprived regions in Croatia and was struck by a devastating earthquake in December 2020. Croatia is on course to surpass the 2030 target for greenhouse gas reduction, if the policies set out in the National Energy and Climate Plan are implemented. Croatia’s binding 2030 target for greenhouse gas emissions not covered by the EU emissions trading system (i.e. non-ETS), is to achieve a 7% reduction compared to 2005 levels. Croatia has also set the indicative target to reduce the emissions in ETS sectors by at least 43% compared to 2005 levels. In June 2021, Croatia adopted its long-term strategy for decarbonisation, setting a goal of 80% emission reductions by 2050, compared to the 1990 baseline. Croatia’s National Energy and Climate Plan (NECP) estimates investment needs to around EUR 19 billion for 2021-2030 period, corresponding to 3.5% of GDP. The majority of investments are planned for energy efficiency in the building sector (construction and renovation), and electricity production. The updated NECP submitted in 2021 includes a higher target for the share of renewables in transport, which should positively contribute to the decarbonisation of the transport sector. The transport sector continues to be the largest contributor to GHG emissions, followed by energy supply. Transport emissions account for more than 25% of the Croatian emissions, and have been sharply increasing in recent years. The Croatian railway network is underdeveloped and substantial investments would be needed to make it a credible alternative to road transport, both for cargo and passenger transport. Deployment of infrastructure for alternative fuels on roads (as well as air, maritime and inland waterway transport), coupled with the promotion of zero-emission vehicles, could help reduce greenhouse gas emissions. Climate change is likely to pose major sustainability challenges to Croatia, particularly given its growing vulnerability to climate risks, especially floods and forest fires. Air quality in Croatia is giving cause for concern. In 2018, about 5,100 premature deaths were attributable to fine particulate matter concentrations, far above the EU average. Accelerating the reduction of particulate matter emissions and concentration is key, in particular in agglomerations Zagreb and Osijek, and the area of Industrijska zona (from Sisak to Slavonski Brod).

Renewables and energy efficiency Croatia has already exceeded its 2020 target for renewable energy, but there is untapped potential to exploit wind and solar power. In 2019, the share of renewable energy was 28.5%, notably thanks to Croatia's legacy of hydropower industry. Still, Croatia’s contribution to the EUs 2030 renewable energy target is set at 36.4%, well above the 32% recommended by the Commission. Croatia has untapped potential to further develop renewable energy sources, especially in its coastal and island regions. The current regulatory framework is constraining the development of renewable energy sources. The share of renewable energy sources in the transport sector (5.9 % in 2019) is one of the lowest among EU Member States and Croatia did not meet the 2020 target of 10 %. Table 2 gives an overview of Croatia’s objectives, targets and contributions under Regulation (EU) 2018/1999 of the European Parliament and of the Council of 11 December 2018 on the Governance of the Energy Union and Climate Action. In Croatia, the residential sector accounts for over a third of total energy consumption, well above the EU average. Croatia has great potential to increase its energy efficiency, in particular in the building sector, as well as in district heating and cooling. The national contribution to the energy efficiency target specified in Croatia’s NECP is low, at 8.23 Mtoe for primary energy and 6.85 Mtoe for final energy consumption. Croatia has significantly increased its plans for annual renovation rate, from 0.7% to 3% in 2030, aiming for energy renovation investments in multi-dwelling buildings, family homes and public buildings.



Table 2. Overview of Croatia’s objectives, targets and contributions under Reg. 2018/1999 National targets and contributions Latest available data 2020 2030 Assessment of 2030 ambition level Binding target for greenhouse gas emissions compared to 2005 under the Effort Sharing Regulation (%) -1% 11% -7% As in the Effort Sharing Regulation National target/contribution for renewable energy: Share of energy from renewable sources in gross final consumption of energy (%) 28.5% 20% 36.4% Sufficiently ambitious (32% is the result based on the Renewable Energy Sources formula in the Regulation (EU) 2018/1999) National contribution for energy efficiency: Primary energy consumption (Mtoe) 8.2 10.7 8.23 Low Final energy consumption (Mtoe) 6.9 7.0 6.85 Low Level of electricity interconnectivity (%) 30% N.A. 15% N.A. Further steps need to be taken to ensure a stable legislative framework for energy, as well as a functioning and competitive electricity market. Croatia is yet to fully implement EU legislation on electricity and gas markets, including certifying the transmission system operator (TSO) for gas. EU internal energy market rules require that TSOs are fully unbundled from generation/production and supply of electricity and gas, thus creating a level playing field for a competitive energy market. National regulatory authorities are required to certify that TSOs comply with these unbundling rules. However, the procedure for certifying the Croatian gas TSO, Plinacro, has been pending since 2013. The investment gap in waste and the circular economy remains significant. Only 25% of municipal waste was recycled in 2018, far below the EU average of 47%, while landfilling and treatment of waste before landfilling remains problematic. Investment and reforms are needed to modernise and upgrade the existing recycling and waste treatment infrastructure, to support systems of separate collection, composting and sorting plans, and to accelerate the transition to a more circular and resource-efficient economy. The water supply network is incomplete and faces a high leakage rate (44%), while the sewerage system is underdeveloped. Significant investment needs still exist in Croatia to accelerate compliance with the Water Framework Directive, the Urban Waste Water Directive and the Floods Directive. Water quality is also a matter of concern: diffuse pollution from agriculture is the most significant pressure on water bodies, especially in the continental part of the country lying in the Danube River Basin. Croatia is among the countries with the richest biodiversity in Europe. Further efforts are needed to maintain and restore the good condition of ecosystems in light of the increased ambition of the EU Biodiversity Strategy for 2030, and the fact that almost 50% of protected habitats and species in Croatia are in an unfavourable conservation status. Investment needs are estimated at EUR 1.25 billion for 2021-2027 to improve the management of Natura 2000 sites, protection of species, and restoration of habitats, including those important for climate change mitigation and adaptation. Digital dimension The recovery and resilience plan should contribute to the digital transition and at least 20% of the financial allocation needs to contribute to digital objectives. The measures in the plan should, inter alia, contribute to the digital transformation of the economic and social sector (including public administration, digital public services, and the justice and health systems). The objective of the measures in the plan should be to improve not only the competitiveness, but also the resilience, efficiency and security of companies and public actors, while ensuring inclusiveness. Croatia ranks 20th in the European Commission’s 2020 Digital Economy and Society Index (DESI). Despite continuous progress over the past few years, Croatia still lags in most digital areas compared with the EU average. Note: EU aggregate corresponds to EU28, based on 2020 DESI report. Croatia ranks 25th in connectivity, despite steady, albeit slow, progress in recent years. On fast next generation access (NGA) broadband coverage, Croatia, at 86%, is closing the gap with the EU average of 87%. Croatia also significantly improved very-high capacity network (VHCN) coverage from 23% in 2018 to 47% in 2020, thanks to both an increase in fibre to the premises (FTTP) coverage and a partial upgrade of its cable networks enabling gigabit speeds. Although the total coverage of FTTP increased to 36% (up from 28% in 2019), access to fibre in rural areas stood at only 7% in 2020. Deployment of fixed and mobile infrastructure is held back in some areas due to high fees in rights-of-way and difficult permit granting procedures, despite recent court rulings in favour of infrastructure deployment. Croatia lags behind in terms of overall up-take of fixed broadband. Broadband up-take currently stands at 73% of households against the EU average of 77%. Take-up of mobile broadband subscriptions remained stable at 71%, the same as the EU average. On 100 Mbps and above broadband take-up, Croatia continues to lag behind significantly, with only 9%, compared with an EU average of 34%. Croatia ranks 21st on the broadband price index, with prices slightly higher that the EU average prices. The Croatian national plan for broadband development for 2021-2027 went through public consultation with its adoption expected in 2021. Investment in 5G connectivity is lagging with no progress in terms of 5G readiness. Lack of progress in 5G prevents Croatia from taking full advantage of a digitalised economy and society, both for households and businesses. Croatia has not assigned any of the spectrum harmonised at EU level for 5G mobile networks, partly due to cross-border interference issues with Italy, and still lacks a dedicated comprehensive strategy for 5G deployment. However, the Croatian Regulatory Authority for Network Industries (HAKOM) has allowed the use of the existing 2100 MHz band under technical conditions that can also enable roll-out of 5G in that band. Such use has been notified in 231 locations across Croatia. Currently, 5G networks are available in areas of Zagreb, Rijeka, Split, Osijek, Samobor and Sveta Nedelja. The share of Croatian school students equipped with high-speed internet access above 100 Mbps is lower than the EU average. This is far from the EU 2025 objectives to have all schools connected to Gigabit connectivity by 2025.

Croatian businesses perform above EU average in terms of cloud uptake (29% in Croatia vs. 26% EU average). Continuously improved access and use of ultra-secure and energy-efficient industrial cloud and edge capacities has the potential to further support business competitiveness and contribute to the European strategy for data. Croatia has committed to investing in shaping the next generation of cloud infrastructure and services for businesses and public administration as well as in creating synergies among national cloud initiatives. The Croatian Shared Services Centre enables Croatia to benefit from government cloud solutions, with the potential for interconnection with other public entities’ clouds within the country, and with other EU Member States for the purposes of service enablement or efficiency gains. Croatia’s data centres display potential for upgrades in terms of environmental sustainability, energy efficiency and security. Levels of basic digital skills in Croatia remain low compared to the EU average, while 18% of Croatians have never used the internet. Only 53% of people between 16 and 74 years have at least basic digital skills. In contrast, Croatia has the highest share in Europe of individuals aged 16 to 24 with at least basic digital skills (97%). Nevertheless, the skills that students acquire often do not fully correspond to the labour market needs, and their employment rate is below the EU average. Furthermore, most businesses report difficulties filling vacancies for ICT specialists. In 2020, ICT specialists accounted for a lower percentage of the workforce in Croatia than the EU average (3.7% compared to 4.3% in the EU). Efforts are being made to increase the number of STEM students, while the number of ICT graduates and ICT specialists is increasing. Skills mismatches in the workforce are significant, with a lack of digital experts and ICT graduates. Conversely, Croatian enterprises invest in ICT trainings for their employees and, in 2020, 23% of enterprises offered specialised ICT training. Croatian firms are taking increasing advantage of the opportunities offered by online commerce, with 30% of SMEs selling online, 10% selling cross borders to other EU countries, 29% using cloud solutions and 21% using AI solutions. Every fifth (22%) enterprise actively uses social media, while one in four (26%) share information electronically. e-Invoices have become very popular in Croatia with a record increase of enterprises using e-invoices, from 12% in 2018 to 43% in 2020. The uptake of big data is also growing and it reached the EU average of 14% of enterprises. The shift to digital business models has proven to be an important survival mechanism across the economy during the COVID 19 restrictions. However, the digitalisation of SMEs and the uptake of advanced technologies are too low to enable businesses to expand their digital presence e.g. by participating in e-commerce platforms, reducing operating costs (e.g. through more efficient data processing) and enabling them to adopt and develop innovative digital solutions. Croatia’s level of digital public service provision is below the EU average, according the 2020 DESI and the 2020 e-Government Benchmark. The availability of e-government for business, while on the rise, is also below the EU average, with 52% of internet users using e-government services (compared to the EU average of 64%). In the indicator measuring the amount of data that is pre-filled in public service online forms, Croatia scores far below the EU average (43 compared to 63). On the availability of digital online services, Croatia scores below the EU average, both on digital services for citizens (score of 60 compared to EU average of 75) and for businesses (score of 73 compared to EU average of 84). In contrast, on open data, Croatia performs well. Online public service supply is lagging behind, as shown by available indicators measuring the user centricity, transparency and existence of key enablers for providing digital public services. The pandemic has demonstrated the importance of providing digital public services to citizens. This calls for boosting user-centricity of digital public services and digital skills to enable a greater take-up of digital public services by the general public. Croatia ranks 25th in the European Commission’s 2020 European Index of Digital Entrepreneurship Systems (EIDES), a composite measure that reflects the development of the digital entrepreneurial ecosystem. Croatia is part of the laggards group, with a 2020 EIDES score of 30.8 that stands well below the 48.4 average for EU27 and UK. Although the country’s EIDES score increased by 5,7 index points during 2018-2020, it was only enough to remain on the 25th position (Autio et al., 2020). Some steps have been taken to provide digital access to the public administration. During 2020, 24 new e-services were integrated in the e-Citizens system, which is currently used by over 1.25 million citizens. It was redesigned in April 2021 and offers a total of 89 e-services. During 2020-2021 the platform for electronic payment of fees and/or charges was established. The system also enables card payment of administrative fees or charges. It lays the ground for further development of more complex electronic services in both e-Citizens and e-Business systems. Croatia completed the notification of its eID scheme (National Identification and Authentication System) in 2018. The eID scheme, which meets the “high” level of assurance under eIDAS (the EU regulation on electronic identification and trust services for electronic transactions – No 910/2014), allows Croatian personal identity card (eOI) holders to access a wide range of cross-border public services. Digitalisation of social and health systems is being shaped. Croatia has also transposed the Web Accessibility Directive into law, which give people with disabilities better access to the websites and mobile apps of public services. The Croatian Ministry of Health co-developed together with the key stakeholders an eHealth Strategy and an Action plan. These set a direction for an eHealth Strategy through a common vision and outline the main action lines, timeline, responsible parties and resources required to implement the recommendations. The eHealth Strategy will be integrated into the future National Health Care Strategy and is expected to improve access to healthcare, including long-term care, in remote areas and islands at risk of exclusion. The launch of a national mobile application to schedule appointments and the consolidation of health information infrastructure with the creation of a one-stop shop, will help improve access to healthcare. Croatia is committed to promoting and investing in digital technologies through EU-coordinated programmes. It is a member of the EuroHPC Joint Undertaking and signed the Declaration on cooperation on Artificial Intelligence (AI) in 2018. In 2019, Croatia also joined the European Blockchain Partnership and it has signed the Declaration on advancing the digitisation of cultural heritage. In 2020, 62% of Croatian SMEs had at least a basic level of digital intensity, which is slightly above the EU average of 60%. As for the use of ICT for environmental sustainability, 75% of Croatian enterprises record medium/high intensity of green action through ICT, which is significantly higher than the EU average of 66%. Box 1: Progress towards the Sustainable Development Goals Sustainable Development Goals and the four dimensions underpinning the Annual Sustainable Growth Strategy The objectives of the Sustainable Development Goals are integrated in the European Semester since the 2020 cycle. This provides a strong commitment towards sustainability in coordination of economic and employment policies in the EU. This section outlines Croatia’s performance with respect to the SDGs with particular relevance for the four dimensions underpinning the 2021 Annual Sustainable Growth Strategy and of relevance to the recovery and resilience plans (green transition, fairness, digital transition and productivity, and macroeconomic stability), indicating possible areas where investments and reforms in line with the objectives of the Facility could further accelerate the progress on the SDGs. Green Transition Croatia’s performance in terms of the SDGs related to the green transition is mixed. For instance, it ranks below the EU average on greenhouse gas emissions (SDG 13) in 2018 with an index of 75.2 compared to the EU average of 79.3. The share of renewable energy in gross final energy consumption (SDG 7) is 28.5% in 2019, well above the EU average of 18.9%. Efforts are still needed to reduce air pollution (SDG 11) exposure by particulate matter (19µg/m3 in 2017, compared to an average of 14.9 in the EU). Investment to further promote the circular economy (SDG 12) would help raise Croatia’s circular material use rate, which stands at 5.1% and remains far below the EU average (11.2%). Fairness Overall, Croatia performs well and is progressing in terms of the SDGs related to fairness. It is reducing the gap with the EU average across several indicators relating to the goal of no poverty (SDG 1), for example concerning the percentage of population at risk of poverty or social exclusion, at risk of income poverty after social transfers, severely materially deprived, and population aged less than 60 living in households with very low work intensity. However, Croatia is better than the EU average regarding the percentage of population aged 18 or over in work at-risk-of-poverty rate (5.1% vs. 9.0% at EU level in 2019) and living in households with poor housing conditions (10.2% vs. 12.7 % at the EU level in 2019). On quality education (SDG 4) Croatia ranks best in the EU concerning the percentage of early leavers from education and training in population aged 18 to 24 (2.2% vs. 9.9% at EU level in 2020) and is progressing regarding tertiary educational attainment in population aged 25 to 34, but falls behind the EU average on the participation in early childhood education of children aged 3 to age of compulsory education, on achievements in mathematics and science of 15 year olds, on the participation of adults in learning and adults (16 to 74 years old) having at least basic digital skills. On gender equality (SDG 5) challenges remain for some indicators such as inactive population due to caring responsibilities and positions held by women in senior management positions, however, significant advances have been made in the last years concerning the seats held by women in national parliaments (from 19.9% in 2019 to 31.1% in 2020 vs 32.7% at the EU level in 2020). Croatia is above the EU average regarding the gender pay gap, and slightly above the EU average on the employment gap, but the latter is mainly related to lower employment rates of both man and women. On inequalities within the country (SDG 10), although the risk of poverty or social exclusion between urban and rural areas has been reduced in the last years, the risk is still significantly higher in rural areas compared to EU average. Digital transition and productivity As regards SDG 9 - Industry, innovation, and infrastructure, Croatia is ranked very low in terms of gross domestic expenditures on R&D, with 0.97% in 2018 compared to the 2.2% EU average. In 2018, 0.7% of the active working population worked in R&D compared to the EU average of 1.4%. Croatia performs well in terms of number of mobile broadband subscriptions, however, challenges remain regarding the percentage of the population using the internet. Macroeconomic stability

Croatia faces challenges in addressing SDG 16 – Peace, justice and strong institutions. The proportion of people who perceive their justice system to be very or fairly independent has been decreasing in recent years and is the lowest in the EU. Croatia also performs poorly in the corruption perceptions index.



3.Objectives, structure and governance of the plan 3.1.Overall strategy of the plan The Croatian recovery and resilience plan aims to support Croatia’s socio-economic recovery and long-term development after the standstill caused by the COVID-19 pandemic and two series of devastating earthquakes that hit Zagreb and its surroundings in March 2020 and Banovina region in December 2020. It also aims to address the long-standing challenges facing the economy identified in the National Development Strategy until 2030. These challenges are reflected in the structure of the plan, which is organised around five components - (i) Economy, (ii) Public administration, judiciary and state assets, (iii) Education, science and research, (iv) Labour market and social protection and (v) Health - and one initiative Renovation of buildings. In total, the plan contains 76 reforms and 146 investments. The component Economy fosters inclusive and sustainable development by boosting private investment and the transition towards the green and digital economy. It includes reforms and large-scale investments aiming to improve the competitiveness of the economy and to foster innovation, strengthen agriculture, transport, energy and environmental protection, as well as to develop sustainable tourism. The green transition entails decarbonising the energy sector, with further investments in renewables, developing new technologies and increasing the energy efficiency in all sectors, and in particular in energy, transport and ICT industry. In order to develop a competitive, energy-sustainable and efficient transport system, investments will continue in the modernisation of transport infrastructure and in safety, environmental sustainability, efficiency and competitiveness of all transport modes. The component Public administration, judiciary and state assets includes measures to increase the institutional efficiency and resilience. It aims to improve the efficiency of public administration in order to better design, implement and evaluate policies and projects, including those financed by EU funds. It also aims to increase the efficiency of the judiciary by improving the handling of court proceedings and strengthening electronic communication in courts, as well as by improving the system of preventing and combating corruption and creating the preconditions for optimising the system of local and regional self-government units through actual or functional mergers of business processes and digitisation. Measures are included to strengthen the fiscal and anti-money laundering framework, increase the efficiency of the public procurement and improve the management of state assets. The component Education, science and research aims to strengthen the education and research system, as well as lifelong learning. The reforms and measures under this component are expected to improve access to and improve quality of education, while fostering scientific excellence and strengthening Croatia’s research and innovation capacities, thereby contributing to competitiveness and the sustainable development of the economy, especially in the aftermath of the pandemic. Reforms and investments in the education system aim notably to increase access to early childhood education and care, introduce a full-day teaching model in primary schools, increase the percentage of pupils in general secondary education, which could lead to improved tertiary education attainment, modernise higher education, and increase the labour market relevance of curricula for vocational secondary education and higher education, and improve adult learning. Reforms and investments in the Croatian research and innovation system notably seek to consolidate the public science base, revamp the institutional funding system of universities and public research organisations so as to incentivise high quality research, strengthen the attractiveness of research careers and improve the efficiency of R&I support programmes. The component Labour market and social protection includes measures aimed at boosting employment and ensuring adequate social protection, including by improving pensions adequacy. It aims to increase the employment rate and strengthen social cohesion. Measures aim to help ensuring the conditions for creating new jobs, especially for young people and the self-employed. Reforms and investments within the component are expected to contribute to strengthening employment measures and the labour market institutions, while improving access to re-skilling and up-skilling. In order to protect the most vulnerable groups in the society, the measures are expected to contribute to streamlining, targeting and increasing social benefits as well as broadening their coverage hence improving their impact on reducing the risk of poverty and social exclusion. The component Health focuses on the accessibility and sustainability of the health system to help achieve longer life expectancy, better quality of life and reduction of health inequalities. It aims to contribute to the delivery of quality health services, while strengthening governance in the health system. Reforms and investments under this component aim to contribute to the fight against the pandemic and to ensuring a public health system which is accessible, well-functioning, efficient and financially sustainable in the long-term, and that will provide quality health services at all levels of healthcare throughout Croatia. Measures are planned to increase the prevention and early detection of diseases and to foster the development of telemedicine and medical robotics. The initiative Renovation of buildings aims to foster decarbonisation of the sector and support the post-earthquake renovation of buildings. It aims to support the comprehensive renovation of multi-dwelling and public buildings, including health and educational facilities, as well as buildings with the status of a cultural good. The energy renovation programme in the housing sector is expected to help reduce energy poverty and increase energy efficiency. The initiative aims to speed up the renovation rate by addressing some of the challenges such as the shortage of skilled workers and experts in energy and post-earthquake renovation as well as the heavy administrative burden in the renovation process. Measures under this initiative also aim to modernize the seismic data monitoring system, to help develop green infrastructure and circular management of building and spaces, and the model for systematic monitoring of energy consumption for private buildings, on which a new energy-efficiency financing model could be based. Table 3. Components and associated costs Component Costs

(EUR million) Component 1: Economy 3 411.5 C.1.1 Resilient, green and digital economy 738.7 C1.2 Energy transition for a sustainable economy 658.3 C1.3 Improving water and waste management 862.7 C1.4 Development of a competitive, energy sustainable and efficient transport system 728.7 C1.5 Improving the use of natural resources and strengthening the food supply chain 131.1 C1.6 Developing sustainable, innovative and resilient tourism 292.0 Component 2: Public administration, judiciary and state assets 581.1 C2.1 Strengthening capacity to design and implement public policies and projects 22.8 C2.2 Further improving the efficiency of public administration 68.2 C2.3 Digital transition of society and public administration 380.8 C2.4 Improving the management of state assets 1.9 C2.5 Modern justice fit for future challenges 100.6 C2.6 Preventing and combating corruption 6.0 C2.9 Strengthening the fiscal framework 0.8 Component 3: Education, science and research 995.4 C3.1 Reform of the education system 676.9 C3.2 Boosting research and innovation capacity 318.5 Component 4: Labour market and social protection 276.5 C4.1 Improving employment measures and the legal framework for the modern labour market and the economy of the future 190.5 C4.2 Improving the pension system through increased pension adequacy 3.0 C4.3 Improving welfare systems 83.0 Component 5: Health 340.3 C5.1 Strengthening the resilience of the health system 340.3 Initiative: Renovation of buildings 789.0 TOTAL 6 393.8

3.2.Implementation aspects of the plan Consistency with other programmes The Croatian recovery and resilience plan provides detailed justification for its alignment to the goals, priorities and policy and reform recommendations of other national broad plans. The recovery and resilience plan is consistent with the key strategic documents, such as: ·the Croatian Government’s 2020 Programme, ·the National Reform Programme (2019-2024),

·the Country-specific recommendations (CSR) under the European Semester (2019 and 2020), ·the Action Plan for Croatia’s participation in the Exchange Rate Mechanism (ERM II) and ·the National Development Strategy of the Republic of Croatia until 2030, which is the basic strategic development document for this decade. The recovery and resilience plan is consistent with the latest National Energy and Climate Plan. Notably, both the “economy” component and the building renovation initiative include reforms and investments that should help reach the climate and energy targets for 2030 and also contribute to transition towards climate neutrality. The energy transition part of the “economy” component focuses on increasing the share of renewable energy sources in energy consumption, decarbonisation of the energy sector, and investments in advanced biofuels production and carbon capture and storage. The building renovation initiative seeks to improve the energy efficiency of the domestic building stock (residential and non-residential, public and private). Finally, the component focusing on the development of a competitive and sustainable transport system is also relevant, by focusing on supporting electro-mobility and zero-emission fleets in the road, rail and maritime sectors. The recovery and resilience plan is consistent with the National Transport Strategic Plan (2017-2030), as it aims to support the development of a modern, sustainable, accessible and climate change resilient transport infrastructures, in particular investments in modernising and upgrading the railway infrastructure. It acknowledges the enhancement of resilience against threats and risks of any kind as a crucial element of economic and societal development and progress. The recovery and resilience plan aims to be aligned with the Just Transition Mechanism and other funds and programmes under the Common Provision Regulation as well as with the Innovation and Modernisation Funds under the EU Emissions Trading System. While the Partnership Agreement, Programmes and Territorial Just Transition Plans under the Common Provisions Regulation for the period 2021-2027 are still at a preparatory stage, the plan draws from and builds on the outcomes and the experience from implementing the Partnership Agreement for the previous period (2014 – 2020). Also, the Economy component of the plan, and specifically sub-component 1.2 on the energy transition, includes investments, which should help reduce greenhouse gas emissions and alleviate the negative consequences of the green transition in the Sisak –Moslavina region, one of the two regions eligible for the Just Transition Fund in Croatia. Throughout the implementation, it will be important to ensure appropriate coordination between the recovery and resilience plan and the programmes co-financed by the Cohesion and Regional funds as well as the Innovation and Modernisation Funds under the EU Emissions Trading System, exploit synergies and avoid overlaps to maximize impact of the investments and safeguard efficiency. National arrangements for the implementation of the plan A dedicated central coordinating body under the Croatian Ministry of Finance will coordinate and carry out the implementation of the recovery and resilience plan. One specific reform included in the recovery and resilience plan defines the competent authorities and their respective responsibilities for carrying out the tasks for the implementation of the plan. It establishes a central coordinating body under the Ministry of Finance for the implementation and monitoring of the national recovery and resilience plan, and mandates the Implementation Committee, which will ensure consistency and coherence in the use of the EU funds. The Croatian plan foresees the strengthening of the management and control system of the Agency for the Audit of European Union Programmes Implementation System (ARPA), which will also be responsible for the recovery and resilience plan. This aims at meeting the increased obligations under the recovery and resilience plan and to enable its efficient and effective implementation. The financial support of specific activities, such as the close monitoring of projects’ progress, audits and on-the-spot inspections, certifications, provision of information and publicity actions, is considered essential for the achievement of the recovery and resilience plan’s purposes. The IT system used for European structural and investment funds will also be upgraded to allow for the collection, storage and monitoring of data on the milestones and targets, including at the level of final recipients. Gender equality and equal opportunities for all The recovery and resilience plan includes measures that could help increase female labour market participation. The reform of labour legislation is expected to help improve female labour market participation by facilitating work-life balance, and to contribute indirectly to the reduction of the gender pay gap and the currently high gender pension gap. The plan includes a reform of education system which aims to ensure equal opportunities for all children, mainly by increasing the participation in early childhood education and care and the mandatory instruction hours in primary school. Croatia will develop social mentoring services that support hard-to-reach groups of beneficiaries such as persons with disabilities, victims of violence, homeless people, migrants, Roma and young people leaving the social welfare system to assist them with employment. The plan foresees several investments to address specific needs of persons with disabilities, such as measures to ensure physical accessibility to buildings and housing environment, as well as measures to provide adequate mobility services, promote hybrid access to a workplace and ensure access to digital public services. Consultation process According to the recovery and resilience plan, Croatia carried out a consultation process before submitting its plan. Croatia carried out a stakeholder public consultation after the submission of a first draft plan to the Commission in December 2020. Between January and May 2021, the authorities held more than 15 thematic meetings with different stakeholders where they presented the recovery and resilience plan opportunities for Croatia in specific areas, its structure, criteria, process and complementarities with other EU funds. During the consultation process, private sector representatives pointed to the general financing needs during the Covid 19 crisis and urged the authorities to direct special support to the SMEs and start-ups. The summary of the plan was published and presented to the media ahead of its adoption by government on 1 April 2021. After adoption by government, the summary of the plan was posted on the government’s website and discussed in parliament on 14 April 2021. Croatia’s recovery and resilience plan does not outline the authorities’ plans on how to include the stakeholders in the implementation of the plan. To ensure ownership by the relevant actors, it is crucial to involve all local authorities and stakeholders concerned, including social partners, throughout the implementation of the investments and reforms included in the plan. Technical Support Croatia has included in its recovery and resilience plan the estimated cost for additional technical support, under the Technical Support Instrument, for the implementation of innovative public procurement, in accordance with Article 7(2) of the RRF Regulation. The additional technical support shall contribute to enhanced use of public procurement of innovative goods and services to stimulate their development and commercialisation. It will do so by providing recommendations on strengthening the innovation-specific public procurement framework in Croatia, supporting the establishment of a monitoring and evaluation system for innovation procurement, drafting a guide for procuring entities to conduct innovation-related procurement procedures, establishing a continuous training system to strengthen the capacity of Croatian procurers in innovation-related procurement procedures and by raising the awareness of interested private sector stakeholders. In addition, the Technical Support Instrument provides expertise in building capacities to implement the plan in a number of areas it covers, such as insolvency reform, interoperability and coordination of public policies’ digitalisation, management of State property, macroeconomic modelling, anti-money laundering framework, and telemedicine, digital transformation of higher education and implementation of regulatory impact assessments. A number of ongoing technical support projects funded by the Structural Reform Support Programme contribute to the implementation of the plan in the following areas: support for business environment reform, support for developing just transition plans, professional services reforms, costing and assessing the performance of public polices, management of state-owned enterprises, e-judiciary, budget planning, curricular reform, improving social welfare system, and health-system performance assessment. Sectoral support under the Horizon Policy Support Facility for the design and implementation of some of the research and innovation policy reforms foreseen as part of component 3.2 is also envisaged. Cross-border and multi-country projects The plan includes cross-border and multi-country projects in three areas. First, there are measures related to the interoperability of the information systems under the Digital transition component, which includes the establishment, upgrading, interconnection of the core registers and the establishment of a Central Interoperability System in line with the European Interoperability Framework (EIF). Second, under the Education component, the digital transformation of higher education is expected to stimulate and accelerate the stronger involvement of higher education institutions in cross-border and multinational projects, in particular projects for which digital maturity is a necessary condition for participation. Third, under the Water and waste management component, the Public Water Supply Development Programme and the Programme for the Development of Public Sewerage have a positive impact on the environment by reducing pollution the environment and water resources, contributing to the conservation of water bodies, and in this sense their impact is cross-border and global. Communication strategy

The plan broadly outlines Croatia’s communication plans. The objectives of the communication strategy are in line with the RRF Regulation and aim to raise awareness about the RRP’s contribution to the Croatian and European recovery and to the twin transition. The described communication strategy will publicise the objectives pursued by the Government through the implementation of the Croatian RRP as well as the opportunities for funding, programmes and projects. The plan foresees three strategic communication goals. These include familiarising the general public with the content of the RRP, strengthening public trust in the implementation process through transparent approach and raising awareness of the usefulness of EU membership linking it to the opportunities provided by RRP. Croatia plans to target three main groups with tailored messages: the general public, beneficiaries and multipliers with focus on media. The communication channels used will range from press briefings, conferences, regular thematic announcements, thematic broadcasts, public events and promotional videos. Dedicated web page will be set up and an information campaign on government social media organised. A series of coordinated communication activities with the European Commission is planned, including joint press releases, conferences, events with European Commission representatives and cooperation in an informal campaign on the social media. Projects with particular relevance for Croatia and size will be highlighted. The activities will be either budget neutral or be included in a separate cost statements of individual projects. The government plans to monitor the impact of the communication measures in terms of transparency, awareness of RRP opportunities and the role of the EU. Security self-assessment Croatia provided a preliminary security self-assessment for investments in digital capacities and connectivity. It describes how the national regulator (HAKOM) prepared a draft ordinance on the manner and timing of implementing measures to safeguard the security and integrity of networks and services, which incorporates the technical measures referred to in the ‘5G security toolbox’. These rules are scheduled to enter into force by the end of summer 2021. Regarding public governmental cloud, further information is expected during the implementation phase. Strategic measures mentioned in the security self-assessment would need to be closely monitored during the implementation of the plan. State aid State aid and competition rules fully apply to the measures funded by the Recovery and Resilience Facility. Union funds channelled through the authorities of Member States, like the RRF funds, become State resources and can constitute State aid if all the other criteria of Article 107(1) TFEU are met. When this is the case and State aid is present, these measures must be notified and approved by the Commission before Member States can grant the aid, unless those measures are covered by an existing aid scheme or comply with the applicable conditions of a block exemption regulation, in particular the General Block Exemption Regulation (GBER) declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 TFEU3. When State aid is present and it requires notification, it is the duty of the Member State to notify State aid measures to the Commission before granting them, in compliance with Article 108(3) TFEU. In this respect, the State aid analysis carried out by Croatia in the recovery and resilience plan cannot be deemed a State aid notification. In as far as Croatia considers that a specific measure contained in the recovery and resilience plan entails de minimis aid or aid exempted from the notification requirement, it is the responsibility of Croatia to ensure full compliance with the applicable rules. Measures in the plan should also be compatible with the EU’s international obligations, in particular under World Trade Organization rules. 4.Summary of the assessment of the plan 4.1.Comprehensive and adequately balanced response to the economic and social situation The Croatian recovery and resilience plan amounts to EUR 6.4 billion in non-repayable support and represents a comprehensive and fairly balanced package consisting of 222 individual measures (76 reforms and 146 investments). Croatia’s recovery and resilience plan contributes to the general objective of the Facility to promote the Union’s economic, social and territorial cohesion by referring in a comprehensive manner to the six pillars structuring the scope of application of the Recovery and Resilience Facility (Article 3): (i) Green transition, (ii) Digital transformation, (iii) Smart, sustainable and inclusive growth, (iv) Social and territorial cohesion, (v) Health and economic, social and institutional resilience, and (vi) Policies for the next generation. Table 4.1 below summarises the coverage of each of the components in the Croatian plan to one or more of the six pillars. Overall, the plan includes an appropriate balance of reforms and investments addressing the six pillars, reflecting the overall financial allocation and the country's challenges. Allocations to the Green and Digital transitions meet the requirements of the Recovery and Resilience Facility Regulation, and the plan, therefore, contributes to these two pillars substantially. The Health, economic, social and institutional resilience pillar benefits most prominently from different components; at the same time, a significant number of components also contribute to the Green and Digital transitions, the Smart, sustainable and inclusive growth, and Social and territorial cohesion pillars. Finally, the two components for education, and research and innovation provide an important contribution to the pillar on Policies for the next generation.



Table 4.1. Coverage of the six pillars of the Facility by the Croatian recovery and resilience plan components Green transition Digital transition Smart, sustainable & inclusive growth Social and territorial cohesion Health, and economic, social and institutional resilience Policies for the next generation 1.1 Resilient, green and digital economy ● ○ ● ○ 1.2. Energy transition for a sustainable economy ● ○ ○ ○ ○ 1.3 Improving water management and waste management ● ● ○ 1.4. Development of a competitive, energy sustainable and efficient transport system ● ● ○ ○ 1.5. Improving the use of natural resources and strengthening the food supply chain ○ ● ○ ○ 1.6. Developing sustainable, innovative and resilient tourism ○ ○ ● ○ 2.1 Strengthening the capacity to design and implement public policies and projects ● ○ ● ○ ● 2.2. Further improving the efficiency of the public administration ● ○ ○ ● 2.3. Digital transformation of society and public administration ● ○ 2.4. Improving the management of state property ○ ○ ● 2.5. Modern justice fit for future challenges ○ ○ ● 2.6. Preventing and combating corruption ○ ○ ● 2.7. Strengthening the fiscal framework ● 2.8 Strengthening the anti-money laundering framework ● 2.9. Strengthening the public procurement framework ● ○ 3.1 Reform of the education system ○ ○ ● 3.2. Boosting research and innovation capacity ○ ○ ● ○ ● 4.1 Improving employment measures and the legal framework for the modern labour market and the economy of the future ○ ○ ● ○ ○ 4.2 Improving the pension system through increased pension adequacy ● ○ 4.3. Improving welfare systems ○ ● ● 5.1 Strengthening the resilience of the health system ● ○ ● 6.1 Renovation of buildings Initiative: Renovation of buildings ● ○ ○ ○ Total number of components that significantly contribute to pillar 6 5 5 4 9 2 Key: “●” investments and reforms of the component significantly contribute to the pillar; “○” the component partially contributes to the pillar Green transition Croatia’s recovery and resilience plan supports the green transition through several components. Significant contributions to the green transition are provided by six components that focus on climate-related and environmental measures, and on preserving biodiversity, while other five components include individual measures with noticeable contributions to the green transition. The largest contribution stands at EUR 789 million dedicated to building renovation (C6.1), representing an important effort in the reconstruction after the 2020 earthquakes. An additional EUR 658 million are committed to investments into energy and energy efficiency (C1.2), while EUR 649 million is earmarked to sustainable and innovative mobility (C1.4). EUR 501 million is dedicated to water management, circular economy, biodiversity and ecosystems (C1.3), while several measures provide support to green transition in a form of financial instruments amounting to EUR 604 million under the economy (C1.1) and tourism (C1.6) components. Finally, EUR 597 million are dedicated to improving green jobs transition, R&D and innovation, energy efficiency in justice infrastructure and agri-food system (C1.5, C2.5, C2.6, C3, C4). Digital transformation

Digital measures are included in the majority of the components of the Croatian plan reflecting the broad and crosscutting nature of the envisaged digitalisation efforts. Five components can be identified as contributing significantly to the digital transition, while eleven have a partial impact. The most significant allocation to the digital transition is in the component on sustainable and innovative mobility (C1.4) that earmarks EUR 692 million. The various measures throughout the plan, amounting to EUR 575 million in total, represent a significant effort to the digitalisation of public administration and raising digital administrative capacity, notably in the justice system, both for the purpose of internal efficiency and improving public services for citizens. In particular, one component (C2.3) focuses explicitly on the digital transformation of Croatia’s economy and society, with various measures to support the digitalisation of public administration and the provision of digital public services. Investments in digital connectivity are also included for digital infrastructures in remote rural areas, which are lagging behind in terms of digital inclusion. Investments under the energy component (C1.2), amounting to EUR 433 million, and projects worth EUR 402 million in the education (C3.1), R&D and innovation (C3.2) areas will also contribute the digital transition. The healthcare component (C5.1) dedicates a majority of measures to health services digital shift amounting to EUR 44.1 million. Finally, many components dedicate investments to digitalisation that improve competitiveness, productivity, job skills and employability through contributions totalling EUR 791 million (C1.1, C1.3, C1.5, C1.6 and C4). Smart, sustainable and inclusive growth Numerous components include measures to improve the business environment, supporting SMEs and large enterprises, along with incentivising innovation and R&D. Ensuing negative effects of the COVID-19 pandemic, several measures in the economy (C1.1) and tourism component (C1.6) are tailored to enhance the productivity and competitiveness of SMEs and the tourism sector through a combination of measures, grants and financial instruments aimed at supporting investments and employment, with a particular focus on the green and digital transitions. At the same time, measures in the components on strengthening policy making (C2.1) and public procurement (C2.9) will support the better use and higher absorption of EU funds, thereby contributing to the economic cohesion within Croatia. Through the revamping of the framework for funding research, and attracting and retaining talents, the component on research and innovation (C3.2) will contribute to increasing innovation, productivity and competitiveness of Croatian businesses. The Economy component 1.1 includes investments and several regulatory and administrative changes, which are expected to boost the productivity and competitiveness of Croatian businesses. The component includes around EUR 740 million worth of measures, representing 11.5% of Croatia’s total allocation. It envisages more than 100 measures to reduce the administrative and parafiscal burden of businesses by at least EUR 400 million and to continue the liberalisation of regulated professions to further improve the business environment in Croatia. The digitalisation of public services to businesses will also continue. Substantial resources within the economy component (EUR 560 million) are devoted to increasing businesses’ access to capital to boost their competitiveness, increase their productivity, adapt their business processes to the green and digital transition and, specifically, to increase their investments in green technology. This component pays specific attention to supporting the cultural and creative sectors, which were hit particularly hard by the pandemic, in digitalising their services and digitising archives, and thereby adopt a more sustainable business model. Finally, this component envisages amending the legal framework and improving the efficiency of innovation support schemes, while providing tailored support to innovative start-ups and SMEs with a view to substantially increase the innovation capacity of Croatian businesses and stimulate private R&D investment. The plan seeks to put the tourism sector of Croatia on a more sustainable footing by focusing attention on the less developed regions and tourism products. Component 1.6 (EUR 290 million) is dedicated to help the recovery and increase the resilience of the tourism sector, which is one of the main drivers of the growth of the Croatian economy but has been particularly affected by the restrictions adopted to fight the pandemic. The plan focuses on developing tourism and increasing the uptake of digital technology of the sector, notably by updating infrastructure to increase its energy efficiency and the use of renewable energy sources, while promoting the adoption of new business plans in line with the principles of the circular economy. A further objective of this component is to increase the attractiveness of less developed inland tourist destinations, raising their quality and enabling extended seasons, fostering sustainable forms of tourism and developing tourism infrastructure. Social and territorial cohesion The plan aims at enhancing social cohesion mainly through labour market policy measures and appropriate skills development, also targeting vulnerable groups, and through re-designing social policies to improve their poverty-reduction capacity. To achieve the latter, both the reforms and investments of component 4.1 are tailored to address the current and future demand of the labour market, mainly focusing on skills necessary for the green and digital transition of the economy. The overall envelope of the labour market component (4.1) amounts to EUR 179 million, with the majority of the allocation geared towards creating the adult education voucher system focused on reskilling, upskilling or uptake of new skills related to green and digital transition. Furthermore, in order to tackle low labour activity as one of the key challenges of the Croatian labour market, the active labour market policies (AMLP) will focus on raising the competitiveness and employability of vulnerable groups, long-term unemployed, inactive and young NEETs. Moreover, poverty-reducing measures in the pension (C4.2) and social policies (C4.3) components have the potential to substantially enhance social cohesion. The plan is expected to support the territorial cohesion of Croatia through various measures. These include expanding and upgrading network infrastructures to connect regions better, introducing new electronic services and improving the regulatory framework. In particular, the component on water and waste management (C1.3) envisages investments amounting to EUR 700 million aimed at renovating and rehabilitating 775 km of public sewerage networks and 226 km of water supply networks and improve flood protection in risk areas. In addition, EUR 386 million in the transport component (C1.4) will be dedicated to improve both the management and the physical infrastructure of road, rail and maritime transport, thereby improving the accessibility and connectedness of less densely populated areas. The plan is expected to further reduce territorial fragmentation by giving priority to less developed regions when providing financial support to businesses under the economy component (C1.1) and the tourism component (C1.6) and by ensuring a high -quality and efficient system of local and regional self-government through incentivising both the functional and actual integration of local government units. Health, and economic, social and institutional resilience, with the aim of, inter alia, increasing crisis preparedness and crisis reaction capacity In the exceptional circumstances caused by COVID-19 pandemic, the Croatian recovery and resilience plan recognises health (C5.1) as one of the critical sectors for achieving crisis preparedness and resilience. An allocation of EUR 340 million is entirely dedicated to improving the healthcare system, in terms of necessary structural reform changes as well as infrastructure and medical equipment requirements. The reform effort is focused on supporting the sector's long-term financial sustainability, by assuring joint procurement purchasing for national health facilities. Through the restructuring and reorganisation of essential health services, the long-term sustainability of services and the efficient use of existing human resources can be addressed. The plan will support investments to develop harmonised standards, foster the uptake of modern medical treatment practices, and provide specialised medical staff training. Measures have also been included to promote full territorial coverage of primary healthcare and medicine availability, thus improving the resilience and preparedness of the system while at the same time increasing the quality of life in rural, remote and islands areas. In addition, digitalisation is used to enable remote teleservices and better use of limited resources and capacity. Long-term care (LTC) investments amount to EUR 82 million and are aimed at supporting the development of family and community-based services, while securing access to institutional care for individuals whose well-being depends on it. Reforms included in the component on social policies (4.3) aim to support the transition to deinstitutionalised long-term care, especially for older adults. Furthermore, creating harmonised quality standards in specific services and further developing the social mentoring service will enable a shift towards more community-based services. The components on strengthening policy making (C2.1) and on public administration (C2.2) are specifically dedicated to strengthening the public administration, and other parts of the plan also contribute significantly to institutional resilience. Component 2.1 includes measures to strengthen mechanisms for the coordination and management of public policies, and component 2.2 will revamp procedures in the civil service to recruit, retain and remunerate civil servants with a view to improving the quality of public services at all levels of government. The justice component (C2.5) and the component on anti-corruption (C2.6) include reforms and investments, for a combined total of EUR 100 million, which is expected to significantly improve the efficiency of the justice and anti-corruption systems, shorten the length of court proceedings and reduce the backlog of court cases. Legislative changes in the fiscal component (C2.7), reforms foreseen as regards the anti-money laundering frameworks (C2.8), as well as the development of better forecasting tools will contribute to risk mitigation and crisis preparedness. Measures in the component on public procurement (C2.9) will strengthen the public procurement framework, leading to better absorption of EU funds and improve the efficiency of public expenditure. Finally, implementing the OECD recommendations on the governance of state-owned enterprises and further reducing the portfolio of state assets will lead to better management of state assets and increased economic resilience of the public sector. Policies for the next generation, children and the youth, such as education and skills The plan includes important measures targeted to children and youth, to support education and the future of the next generation. These are most significantly addressed in the two components education (C3.1) and on research and innovation (C3.2). The plan includes measures to support the reform of the education system, based on infrastructure investments to increase participation in early childhood education and care and enable an increase in mandatory education time at primary and lower secondary education levels. These measures, together with the reform of curricula, are expected to visibly improve education outcomes and the modernisation of higher education should improve its labour market relevance. Furthermore, measures aiming at strengthening the attractiveness of research careers, such as fellowships for students in Science, technology, engineering, and mathematics (STEM) and Information and communications technology (ICT) areas, are expected to foster skills development and enhance employability. Taking into consideration all reforms and investments envisaged by Croatia, its recovery and resilience plan represents to a large extent a comprehensive and adequately balanced response to the economic and social situation, thereby contributing appropriately to all six pillars referred to in Article 3 of the RRF Regulation, taking the specific challenges and the financial allocation of Croatia into account. This would warrant a rating of A under the assessment criterion 2.1 in Annex V to the RRF Regulation. 4.2.Link with country-specific recommendations and the European Semester According to the Regulation, the recovery and resilience plan is expected to contribute to effectively addressing a significant subset of challenges addressed to Croatia identified in the relevant country-specific recommendations, including fiscal aspects thereof and recommendations made pursuant to Article 6 of Regulation (EU) No 1176/2011 where appropriate, or challenges identified in other relevant documents officially adopted by the Commission in the context of the European Semester. Assessment by challenges Table 4.2 presents the mapping of the selected challenges, the associated country-specific recommendations (CSRs) and the six components of the Croatian recovery and resilience plan. Public finances

The Croatian recovery and resilience plan contains two reforms under components 2.7 and 2.2 that reinforce the budgetary framework and the monitoring of contingent liabilities at central and local level (CSR 2019.1.1). Component 2.7 aims at further strengthening the fiscal framework and fiscal discipline through amending the Budget Law to improve budgetary processes, improve financial reporting and develop a macroeconomic projection model. Reinforcing the fiscal framework is one of the basic elements of improving the sustainability of public finances, which in turn contributes to macroeconomic stability and creates the preconditions for increasing potential growth rates, as well as economic recovery and resilience. This component also partially addresses CSR 2020.1.1 on pursuing fiscal policies aimed at achieving prudent medium-term fiscal positions. Component 2.2 contributes to addressing the CSR with measures aimed at achieving a more functional and sustainable local government through further optimisation of local government units. Labour market, education and social policies Reforms and investments under component 4.1 address recommendations related to labour market measures and institutions (CSR 2019.2.3 and 2020.2.1). The plan envisages the adoption of active labour market policies (ALMP) to boost employment and self-employment linked to the green and digital transitions. The planned interventions aim at facilitating the inclusion of vulnerable groups in the labour market and monitoring of labour market outcomes through improvements of the Public Employment Service processes. Investments under this component include the funding of vouchers for accredited adult education, training and upskilling programmes to acq