COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Croatia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Croatia and delivering a Council opinion on the 2022 Convergence Programme of Croatia
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Croatia, economic policy, economic recovery, economic reform, energy policy, public finance, renewable energy, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  SWD(2022) 613 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Croatia Accompanying the document Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Croatia and delivering a Council opinion on the 2022 Convergence Programme of Croatia {COM(2022) 613 final} - {SWD(2022) 640 final}  
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

national recovery and resilience plan (RRP). On 
the  external  side,  more  muted  demand  from 
Croatia’s  main  trading  partners  suggests  that 
export  growth  of  goods  will  weaken,  but 
remain  stable,  while  exports  of  services  are 
expected to reach their pre-pandemic level this 
year,  supported  in  large  part  by  tourism.  In 
2023,  real  GDP  growth  is  forecast  to  be 
around 3% (see Annex 19). 

is 

still 
Stronger  potential  growth 
hampered  by 
low  productivity.  Low 
allocative  efficiency,  a  cumbersome  business 
environment  and  an  inefficient  public  sector 
continue  to  have  a  major  impact  on  total 
factor  productivity  (see  Annex  9  and  Annex 
low, 
11).  Labour  productivity  growth 
especially for a converging economy. Medium-
term productivity  could be boosted  by  several 
measures included in the RRP, as explained in 
Chapter 2. 

is 

ninth 

published 

In  November  2021, 
its 

Macroeconomic  imbalances  have  receded 
the 
considerably. 
Alert 
Commission 
Mechanism  Report  (AMR  2022)  under  the 
Macroeconomic Imbalance Procedure (MIP see 
also  Annex  17),  which  concluded  that  an  In-
Depth  Review  (IDR)  was  still  warranted  for 
Croatia.  In  the  updated  scoreboard  including 
figures  until  2020,  the  net 
international 
investment  position  (NIIP),  unit  labour  cost 
(ULC) growth, house price growth and general 
government  gross  debt  indicators  were  above 
their indicative thresholds. However, the 2022 
in-depth review noted a fast resumption of the 
unwinding of imbalances after the crisis.  

Croatian economy recovered from 
the COVID-19 shock and despite 
rising uncertainties economic 
growth should remain solid  

and 

public 

Prior  to  the  COVID-19  crisis,  Croatia’s 
economy  showed  positive  trends.    Growth 
was  steady,  while  public  finances  improved 
substantially 
private 
indebtedness  declined. Growing  export market 
shares showed  that Croatia’s companies were 
gaining  in  competitiveness.  Both  employment 
and 
increased,  helping 
levels 
Croatia’s  economy  to  converge  towards  EU 
standards.  

investment 

and 

Croatia’s economy was heavily hit by the 
crisis, but it has been recovering strongly. 
In  2020  Croatia  took  a  major  hit  from  the 
COVID-19  crisis,  as  well  as  from  the  two 
devastating  earthquakes,  causing  real  Gross 
Domestic Product (GDP) to fall by 8.1%. In line 
with 
the  European  Commission’s  Winter 
Interim  Forecast,  Croatia’s  real  GDP  expanded 
by 10.2% in 2021, completing a full V-shaped 
recovery.  Growth  was  mostly  supported  by  a 
better-than-expected  performance  of 
the 
tourism sector and robust consumer spending. 

Growth  is  expected  to  remain  robust  in 
the  medium  term.  In  2022  GDP  growth  is 
forecast  at  3.4%,  supported  mostly  by 
domestic  demand,  while  net  exports  should 
play more neutral role. Rising inflation is set to 
affect  consumer  spending,  but  stable  labour 
market  developments,  trends  in  consumer 
lending  and  expected  solid  tourism  season 
suggest  that  consumption  will  keep  a  solid 
contribution 
Investment 
to  GDP  growth. 
activity  should  be  supported  by  the  expected 
acceleration of post-earthquake reconstruction 
in the Banovina region and Zagreb, favourable 
financing  conditions  and  the  implementation 
of  the  reforms  and  investments  from  the 

2 

 
 
 
Graph 1.1: GDP level 2014=100, HR vs EU and 
CEE 

Source: Eurostat 

has 

significant 

Croatia 
regional 
disparities. There are large differences in 
GDP  levels  among  Croatian  counties,  in 
particular  between  the  capital  and  the 
rest  of  the  country.  In  2018  the  City  of 
Zagreb  accounted  for  34%  of  national  GDP, 
while  making  up  only  19.4%  of  the  total 
population, according to the latest census. GDP 
per  capita  data  shows  that  most  of  the 
population (67%) lives in areas with a GDP per 
capita below 60% of the EU average. In 2020 
GDP per capita in Zagreb was 118% of the EU 
average,  while  in  in  the  counties  in  eastern 
Croatia,  it  was  only  36%  of  the  EU  average. 
These  disparities  reflect  very  diverse  labour 
market  outcomes.  There  has  also  been  a 
significant  decrease  in  the  overall  population, 
with  poorer  regions,  especially  in  eastern 
Croatia, having experienced much higher rates 
of decline due to outmigration and ageing (see 
Annex 15). 

Labour-market and social 
conditions are improving 

recent  progress, 

the  Social 
Despite 
Scoreboard,  supporting  the  European 
Pillar  of  Social  Rights,  has  identified 
in 
employment  and  social  challenges 
Croatia.  Croatia’s  economic  recovery  before 
the pandemic showed a steady increase in the 

employment  rate  (persons  aged  20  to  64). 
Unscathed  during  the  crisis,  in  2021,  the 
employment  rate  increased  to  68.2%,  but 
remained well below the EU average of 73.1% 
in  the  20-64  age  group..  Job  preservation 
schemes,  supported  by  EU  programmes (1), 
helped  cushion  the  impact  on  employment 
levels.  However, 
the  COVID-19  pandemic 
strongly  affected  youth  employment,  which 
suffers  from  particularly  high 
levels  of 
involuntary  temporary  employment  (25%  in 
2020, compared to the EU  average of 12.2.% 
in the 15-29 age group). The not in education, 
employment  and  training  (NEET)  rate    is  still 
above  the  EU  average  (14.9%  against  12.3% 
in the EU in 2021 in the 15-29 age group), as 
is  the  disability  employment  gap  (32.9% 
against  24.5%  in  the  EU  in  2020;see  Annex 
12. In 2021, the unemployment rate increased 
marginally  to 7.6%, 1 percentage point above 
the  all-time  low  reached  in  2019  and  above 
the EU average of 7%. 

Employment  rates  vary  widely  across 
educational  attainment  groups.  In  2021, 
the  employment  rates  of  low-qualified  and 
medium-skilled  workers  (respectively  421% 
and  67.1%  against  54.9%  and  72.8%  in  the 
EU)  considerably  lagged  behind  that  of  high-
qualified  workers  (84.1%  against  85%  in  the 
EU),  and  all  are  clearly  lower  than  the  EU 
average.  This  drives  home  the  importance  of 
strengthening 
reskilling 
measures,  to  help  reduce  skills  mismatches 
and  the  resulting  severe  labour  shortages. 
There are also significant regional  differences 
in  employment  levels  and  security,  as  well  as 
in  education,  with  differing  participation  rates 
in  early  childhood  education  and  care,  and 
in  general 
lower  percentages  of  pupils 
secondary schools (see Annex 13).  

upskilling 

and 

Poverty  levels  in  Croatia  are  falling,  but 
challenges in the social protection system 
remain.  In  2020,  the  at-risk-of-poverty  or 
social 
further 
decreased. It is currently slightly below the EU 
average  (at  20.5%  against  21.9%  in  the  EU). 
The poverty gap and the persistent at-risk-of-

exclusion 

(AROPE) 

rate 

(1)  European Instrument for temporary support to mitigate 
unemployment risks in an emergency, European Social 
Fund, Recovery assistance for cohesion and the 
territories of Europe 

3 

90951001051101151201251301352014201520162017201820192020202120222023EUEAHRCEEIT-PT-ES-CY-ML 
  
 
                                                 
poverty  rate  in  2020  (28.0%  and  12.9% 
respectively)  remained  well  above  the  EU 
average.  

Public finances are on the 
adjustment path 

According  to  the  2022  Spring  Economic 
Forecast,  the  general  government  deficit 
is set to narrow to 2.9% of GDP in 2021 
from  7.4%  in  2020,  thanks 
largely  to 
Croatia’s  strong  economic  recovery  and  the 
gradual phasing out of support measures, such 
as  tax  exemptions  and  deferrals,  liquidity  and 
job support measures. For the next period, the 
general  government  deficit  is  expected  to 
remain below the 3% threshold, reaching 1.8% 
in 2023. 

The  general  government  debt  to  GDP 
ratio  is  expected  to  decrease  in  the 
coming  years.  It  is  projected  to  decrease 
from 79.8% in 2021 to around 73% in 2023. 
The projected fall in the debt ratio is driven by 
the  denominator effect  of  Croatia’s  solid GDP 
growth,  the  phasing  out  of  COVID-19-related 
measures,  falling  interest  rate  expenditures 
and  some  other  debt-reducing  stock  flow 
adjustments. 

With  the  COVID-19  measures  being 
phased  out,  the  implementation  of  the 
reforms  and  investments  in  the  RRP  will 
also  help  weather 
the  pandemic’s 
budgetary  impact.  In  2020  and  2021  the 
government took several measures to support 
job  preservation  and  ensure 
liquidity  for 
companies.  Immediate  support  for  economic 
activity is  no  longer  needed,  so  the  focus  has 
long-term  economic 
shifted 
growth  by 
implementing  the  RRP,  whose 
investment  will  be  funded  through  EU  grants 
amounting to 11.6% of GDP (see Chapter 2). 

to  boosting 

aimed 

package 

The  government  adopted  an  ambitious 
fiscal 
taming 
inflationary  pressures.  Against  background 
of an increase on April 1st  administered prices 
of  gas  and  electricity  for  households,  the 
various 
Croatian 

government 

adopted 

at 

measures  to  address  the  impact  of  rising 
energy  prices  on  vulnerable  households  and 
companies.  The  package  (amounting  to  0.6% 
of GDP) comprises various measures including 
a reduction of the VAT rate on gas and various 
other  energy  products,  direct  subsidies  to 
households  and  small  and  medium-sized 
enterprises 
to 
(with  special  one-off 
vulnerable  groups 
measures for pensioners with income below a 
certain  threshold),  as  well  as  a  limitation  of 
the  charges  incorporated  in  the  electricity 
farmers  and 
prices  and  subsidies 
fishermen. 

transfers 

(SMEs), 

social 

for 

Croatia is improving its position on  
the SDG scoreboard 

indicators 

Croatia  performs  well  or  is  improving  on 
most of the UN Sustainable Development 
Goals  (SDGs).    Croatia’s  performance  is 
for 
improving  on  most  SDG 
sustainability, 
environmental 
fairness  of 
economy  and 
society,  productivity  and 
macroeconomic  stability.  However,  significant 
challenges  remain  in  a  few  areas,  such  as 
gender  equality  (SDG  5)  and  good  health  and 
well-being  (SDG  3).  Annex  1  contains  more 
detailed information. 

Economic spill-overs of Russia’s  
invasion of Ukraine 

Direct  effects  of  the  war  in  Ukraine  on 
the  Croatian  economy  are  limited  due  to 
its  relatively  weak  exposure.  In  2021, 
goods  exports 
to  Ukraine  and  Russia 
accounted for 0.4% and 1.2% of total exports 
respectively,  while  input-output  data  shows 
that  both  the  value-added  generated 
in 
Croatia  to  meet  final  demand  in  Russia  and 
the  value-added  generated  in  Russia  to  meet 
final demand in Croatia are among the lowest 
in  the  EU.  Financial  flows  data  shows  that 
Russian assets in Croatia in 2020 stood at 1% 
of  GDP,  while  Croatian  assets  in  Russia  stood 
at  only  0.1%  of  GDP.  The  resolution  of  the 
Croatian  subsidiary  of  Sberbank,  which  was 

4 

 
 
financial 

the  Croatian 

sold to Hrvatska Poštanska Banka has further 
reduced 
sector’s 
exposure  to  shocks.  There  are  some  large 
Croatian  companies  exporting  or  operating 
factories  in  Russia,  but  none  of  them  are  so 
exposed  to  this  market  to  lead  to  severe 
liquidity  problems.    Russian  and  Ukrainian 
tourists  accounted  for  around  2%  of  foreign 
tourists  in  Croatia  in  2021.  Croatia’s  energy 
supply sources are relatively diversified and it 
does  not  depend  heavily  on  Russian  oil  and 
gas  (see  Chapter  3).  As  Croatia  has  its  own 
less 
it 
fertilizer  production 
exposed  to  potential  bottlenecks  than  some 
other  EU  countries.  However,    some  upward 
pressures on food prices are expected.  

is  somewhat 

The  Croatian  authorities 
implemented 
various  measures  to  tame  the  pressures 
on  inflation  coming  from  surging  energy 
prices. In March 2022, the HICP inflation rate 
in  Croatia  accelerated  to  7.3%  (compared  to 
7.8% in the EU and 7.4% in euro area, with the 
strongest  contribution  coming  from  energy 
prices.  Similar  developments  are  expected  in 
the  upcoming  months.  The  government 
reacted  to  mitigate  the  inflationary  impact  of 
increased  energy  prices  by  first  temporarily 
limiting the price of petrol and diesel, followed 
by  a  temporary  cut  in  the  excise  duties  on 
these products and at beginning of March with 
the  fiscal  package  detailed  in  the  previous 
section.  

5 

 
 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

The  Croatian  RRP  is  an  ambitious  one 
(11.6%  of  GDP),  aimed  at  accelerating 
the  green  and  digital  transitions  and 
reinforcing Croatia’s economic and social 
resilience.  It  also  addresses  long-standing 
challenges  identified  in  the  2019  and  2020 
country-specific  recommendations  and  the 
2030  National  Development  Strategy. 
It 
includes a total of 202 measures, 146 crucial 
investments and 76 reform measures planned 
to be implemented by the end of 2026, to help 
Croatia  emerge  stronger  from  the  COVID-19 
pandemic  and  the  two  major  earthquake 
events  that  hit  the  regions  of  Zagreb  and 
Banovina in 2020. 

Key  challenges  for  the  green  transition 
include  the  reduction  of  the  number  of 
regulatory and administrative barriers to 
higher  uptake  of 
renewable  energy 
sources  and  to  swiftly make  the building 
stock  more  energy-efficient.  Reforms  and 
investments aim to promote energy efficiency 
and  renewable  energy,  including  hydrogen, 
sustainable  mobility, 
economy, 
protection of biodiversity and ecosystems and 
efficient  water  management.  The 
largest 
contributions  are  allocated  to  the  energy-
efficient  renovation  of  buildings,  including 
those  damaged  in  the  2020  earthquakes,  as 
well as to sustainable and innovative mobility. 
Other  important  investments  target  projects 
implemented  by  companies  to  improve  their 
performance as regards energy and resource- 
efficiency,  as  well  as  to  contribute  to  the 
development of the green economy.  

circular 

The  digital  transition  will  be  accelerated 
by developing digital processes and skills 
in  public  administration,  education  and 
business,  as  well  as  by  reducing  remote 
rural  areas’  digital  divide.  Flagship 
the  digitalisation  of 
investments  concern 
businesses 
business 
competitiveness  and  productivity,  and  to  the 
development  of  workers’  digital  skills  to 

contributing 

to 

their 

employability. 

increase 
Digital 
investments  in  the  public  sector  target  the 
setting up of online procedures and e-services, 
the  digitalisation  and  improvement  of  the 
efficiency  of  public  administrations, 
in 
particular  in  the  areas  of  health  and  justice. 
Other  important  actions  are  planned  for  the 
education,  transport  and  energy  sectors,  as 
well  as  for  research  and  innovation  (R&I). 
in 
Digital  connectivity  and 
remote rural areas will be increased to reduce 
the urban-rural digital divide.  

infrastructure 

by 

lifting 

regulatory 

leveraging 

constraints 

Economic  growth  and  resilience  will  be 
private 
boosted 
and 
investment, 
and 
administrative 
accelerating  the  development  of  the 
green  and  digital  economies.  On  top  of 
financial  support  for  micro,  small  and  large 
companies,  mostly  through  revolving  funds, 
priority  is  being  given  to  the  development  of 
an  innovation  framework,  as  well  as  to  the 
development  and  sustainability  of  various 
sectors  such  as  tourism,  agriculture  and 
transport. New business plans will be designed 
and  infrastructure  built to  deliver  on  Croatia’s 
circular  economy  and  energy  efficiency 
objectives.  

future 

Policy  measures  and  the  development  of 
appropriate  skills  are  meant  to  match 
current  and 
labour  market 
demand,  with  priority  being  given  to  the 
development  of  skills  necessary  for  the 
green  and  digital  transitions.  A  system  of 
vouchers  for  re/upskilling  and  the  uptake  of 
new skills for the green and digital transitions 
will  be  developed.  Active 
labour  market 
policies  will  make  vulnerable  groups  more 
competitive and employable, which is a priority 
in Croatia.  

The  conditions  and  attractiveness  of  R&I 
will  be  improved.  Reforms  and  investments 
seek  to  consolidate  the  public  science  base, 

6 

 
 
 
attract 

careers 

incentivise  high-quality  research  and  improve 
the  efficiency  of  R&I  programmes,  support 
research 
foreign 
and 
researchers,  as  well  as  helping  students 
develop the necessary skills and making them 
employable.  The  plan  includes  measures  for 
creating  closer  links  between  relevant  R&I 
actors and the business sector. Even so, there 
is still room for improvement. 

Structural  improvements  are  planned  to 
make  public  administration,  the  judiciary 
and  state  assets  more  efficient  and 
resilient.  Civil  service  procedures  will  be 
revamped  to  recruit,  retain  and  remunerate 
civil servants, as well as to improve the quality 
of  public  services  at  all levels  of government. 
Reforms will be implemented to better design, 
implement  and  evaluate  policies  and  projects, 
improve  the  prevention  of  and  fight  against 
corruption  and  conflict  of  interest,  and  put  in 
place  reliable  management  and  control  of  EU 
funds.  Other  measures  are  aimed  at 
the  fiscal  and  anti-money 
strengthening 
the 
laundering 
efficiency 
and 
improving the management of state assets. In 
the area of the judiciary, the handling of court 
proceedings  will  be  reformed  and  improved, 
and electronic communication in courts further 
developed.  Reforms  will  be  implemented  to 
optimise  the  system  of  local  and  regional 
government  units,  through  functional  mergers 
of  business  processes  and  digitalisation  and 
physical mergers. 

increasing 
procurement 

framework, 
public 

of 

The  efficiency,  quality,  accessibility  and 
financial  sustainability  of  the  Croatian 
healthcare  system  will  be  strengthened. 
Key  measures  include  the  restructuring  and 
reorganisation  of  essential  health  services, 
further 
procurement, 
standardisation  of  services  and  education  of 
specialised  medical  staff.  Access  to  primary 
healthcare  and  tele-medicine  in  rural,  remote 
and island areas will be further developed. 

joint 

use 

of 

The  reduction  of  poverty  and  integration 
of  vulnerable  groups  is  being  tackled  by 
developing  family  and  community-based 
services.  Policies  aimed  specifically  at 
integrating  and  activating  vulnerable  groups 
will be improved by enhancing the capacity of 

transition 

the  Public  Employment  Service.  Reforms  aim 
to support the process of deinstitutionalization 
for  vulnerable  groups  and 
to 
community-based long-term care, the creation 
of  harmonised  quality  standards  in  specific 
services,  and  the  strengthening  of  social 
mentoring  services.  In  parallel,  investment  in 
infrastructure,  equipment  and  capacities  will 
ensure a better access to institutional care for 
the persons whose well-being depends on it. 

those 

Reforms  are  planned  to  develop  early 
childhood  education,  extend  mandatory 
instruction 
time,  and  better  align 
secondary,  tertiary  and  adult  education 
with  market  needs.  Reforms  will  be 
implemented  to  ensure  that  all  children 
between  age  4  and  primary  school  age, 
especially 
from  socio-economically 
disadvantaged  groups,  are  able  to  participate 
in  early  childhood  education  and  care,  with  a 
positive impact on the activity rate and work-
life  balance  of  parents,  primarily  mothers. 
Mandatory instruction time will be increased at 
primary and lower secondary education levels. 
Reforms  are  also  planned  to  improve  the 
quality  and 
relevance  of 
labour  market 
secondary  vocational,  higher  and  adult 
education. 

the 

regulatory 

Planned  measures 

Territorial  fragmentation  will  be  tackled 
by  strengthening  territorial  and  social 
include 
cohesion. 
expanding  and  upgrading 
the  network 
infrastructures connecting Croatia’s regions, as 
well as developing new electronic services and 
improving 
framework. 
Significant  investment  is  planned  to  renovate 
and rehabilitate public sewerage networks and 
water  supply  networks,  and  improve  flood 
protection in risk areas. The management and 
physical 
rail  and 
maritime  transport  will  be  improved  to  make 
less  densely  populated  areas  more  accessible 
and  better  connected.  The  power  grids  of  six 
islands  will  be  connected  to  the  mainland. 
the  overall 
Priority  will  be  given 
implementation  of  the  plan  to  investment  in 
less developed regions. 

infrastructure  of 

road, 

in 

Box  1  lists  key  reforms  and  investments 
expected  to  be  completed  by  the  end  of 
2022.  The  list  is  not  exhaustive  and  further 

7 

 
quantitative  information  on  the  RRP  and  its 
implementation is presented in Annex 2. 

Box 1: 

Key deliverables expected under the RRP in 2022 

  Increasing  the  uptake  of  renewable  energy  sources  and  introducing  a  premium-

based support system, including adopting the Hydrogen Development Strategy 

  Improving the legal framework for the water sector 
  Adopting the Waste Management Plan for the period 2023-2028 
  Adopting  the  National  Plan  for  the  Development  of  Railway  Infrastructure  and  the 

National Management Plan for Railway Infrastructure and Service Facilities 

  Adopting a new Agricultural Land Consolidation Act 
  Adopting the Strategy for the Development of Sustainable Tourism by 2030 
  Amending the centralised system of selection for state administration 
  Providing  incentives  for  voluntary  functional  and  physical  mergers  of  local 

government units 

  Adopting the Digital Croatia Strategy 2030 
  Adopting amendments to the Act on the Protection of People Reporting Irregularities 
  Adopting the model for the financing of early childhood education and care 
  Adopting a new Science and Higher Education Act 
  Adopting the Law on Tackling Undeclared Work and the new Labour Law 
  Adopting the new Social Welfare Act 
  Amending the HealthCare Act and Compulsory Health Insurance Act 
  Adopting the Programme for the Energy Renovation of Public Sector Buildings 2021-

2030 

  Getting the contracts signed for the energy renovation of public and multi-dwelling 

buildings 

8 

 
 
 
FURTHER PRIORITIES AHEAD 
FURTHER PRIORITIES AHEAD 

The  RRP  addresses  important  national 
challenges,  through  the  adoption  and 
implementation of structural reforms and 
key investments, as outlined in Section 2. 
However,  in  line  with  the  economic  snapshot 
presented in Section 1 and the annexes to this 
report,  as  well  as  in  the  context  of  recent 
international  developments,  Croatia  faces  a 
set  of  additional  challenges,  presented  below. 
Complementary  structural  measures  will  be 
needed to address these.  

Stepping-up decarbonisation and 
the green transition  

Croatia’s  economy  is  decarbonising,  with 
varying  speed  across  sectors.    Croatia  is 
one  of  the  EU  countries  with  the  lowest 
greenhouse  gas  emissions  (GHG)  per  capita. 
However,  its  GHG  intensity  continues  to  be 
significantly  higher than  the  EU  average  (513 
against  271  g  CO2-eq/EUR2015  in  the  EU  in 
2020).  Croatia  has  set  itself  an  indicative 
2030  target  of  reducing  its  GHG  emissions  in 
the EU Emission Trading System sectors by at 
least 43% by 2030 compared to 2005 levels. 
This is in line with the current target for the EU 
as a whole. If all additional measures are to be 
implemented, 
to 
overachieve  its  binding  2030  GHG  emissions 
reduction  target  for  sectors  not  currently 
covered  by  the  EU  ETS 
(buildings,  road 
transport, small industry, waste, agriculture, to 
name  a  few).  However,  given  the  share  of 
these  emissions  is  higher  than  in  the  EU-27 
(68% against 61% in 2019), there is room for 
further reductions. 

expected 

Croatia 

is 

The  Croatian 
long-term  strategy  for 
decarbonisation  adopted  in  June  2021 
does  not  contain  a  commitment  to 
climate neutrality by 2050. Instead, it sets 
a goal of reducing GHG emissions by between 

9 

57%  and  73%  (excluding 
land  use  and 
forestry)  compared  to  the  1990  baseline. 
Given  the  increased  EU-level  ambition  set  in 
the  Climate  Law  and  the  objective  of  climate 
neutrality  by  2050,  Croatia  will  probably  face 
a much steeper reduction curve after 2030. 

to 

investments 

Croatia has exceeded its 2020 target for 
renewable energy, bur the uptake of wind 
and solar power remains slow. With a 31% 
share  of  energy  from  renewable  sources  in 
gross  final  consumption  of  energy  in  2020, 
Croatia  has  outperformed  the  20%  EU  target. 
Removing  bottlenecks 
in 
renewable  energy,  and  further  investments  in 
electricity  grid  and  storage,  are  key  for 
reducing  fossil  fuel  dependency  and  the 
exposure  to  energy  price  shocks.   This  would 
also  help  decrease  dependency  on  imported 
energy,  including  Russian  gas.  In  addition, 
Croatia has committed to a phase-out of coal 
for  electricity  production  by  2033.  The 
deployment  of  small-scale  renewables 
in 
particular  can  help  diversify  supply  while 
providing  attractive  returns  on  investment  for 
households and local communities. However, a 
stronger 
by 
administrative, 
technical 
lengthy  procedures  for 
barriers, 
administrative  authorization  and  permitting, 
insufficient  or  unattractive  access  to  the  grid, 
complex  and  uncoordinated  procedures  not 
systematically  aligned  with  Croatia’s  energy 
development  strategy.  The  development  of 
the 
“one-stop 
improve 
shops”  would 
transparency  and  understanding  of 
the 
procedures  for  the  households.  Association 
with energy communities is hindered by a rigid 
framework, inter alia among other things from 
the  point  of  view  of  limits  to  energy  sharing 
and  the  requirement  to  stay  within  the 
administrative  bounds  of  fragmented  local 
government  units.  On  a  larger  scale,  the 
regulations  for  ground-mounted  photovoltaic 
restrictive,  hindering 
systems  are  overly 
for 
the  scope 
efficiency  and 

regulatory,  and 

hampered 

including 

reducing 

roll-out 

is 

 
 
 
 
investments.  Permitting-granting  procedures 
are  rigid,  particularly  for  changes  to  the 
projects. 

Croatia has a diversified structure of gas 
and  oil  supply  and  depends  less  than 
other EU countries on imports of Russian 
hydrocarbons.  In  2021,  the  imports  from 
Russia via Hungary, accounted for 22% of the 
country’s  total  natural  gas  supply,  whereas 
imported  from  other 
57%  of  gas  was 
countries  through  the 
liquid  natural  gas 
terminal  (operating  since  the  beginning  of 
2021)  and 21% was produced domestically. .. 
The  dependence  on  Russian  oil  is  also  not 
pronounced:  9%  of  total  oil  imports  comes 
from Russia, while the majority of oil supply is 
covered  by  imports  from  Azerbaijan  (37%), 
Italy (14%) and Slovenia (11%) (2) (3). 

its 
efficiency, 
in  the  building  sector. 

Croatia  has  significant  potential  to 
in 
increase 
energy 
particular 
Its 
building  renovation  rate  is  currently  low,  with 
0.7%  in  2020.  However,  it  has  stepped-up  its 
investment  plans  for  energy  renovation  in 
private and public buildings, aiming to reach a 
renovation  rate  of  3%  by  2030 (4).  While 
achieving  the  latter  is  a  necessary  step  to 
achieve  the  objectives  of  decarbonisation  of 
the  building  stock (5),  a  further  acceleration 
seems  warranted  by  the  new  geopolitical 
developments. Current investments to improve 
the energy efficiency in the building sector rely 
heavily  on  grants  and  subsidies (6);  the  pace 
of renovation would be accelerated by the use 

(2)  Eurostat sources 

(3)  An important share of HR’s total oil imports is refinery 
feedstock. HR is highly dependent on Russian imports 
for these, with 72% of total refinery feedstock imports 
coming from Russia.’ 

(4)  This is a significant improvement compared to past and 
current trends: see Castellazzi, L., Zangheri, P., Paci, D., 
Economidou, M., Labanca, N., Ribeiro Serrenho, T., 
Zancanella, P. and Broc, J., Assessment of second long-
term renovation strategies under the Energy Efficiency 
Directive, 2019, JRC114200.  

(5)  See Zangheri, P., Armani, R., Kakoulaki, G., Bavetta, M., 
Martirano, G., Pignatelli, F. and Baranzelli, C., Building 
energy renovation for decarbonisation and Covid-19 
recovery, 2020, JRC122143. 

(6)  2021 JRC report on Progress of the Member States in 
implementing the Energy Performance of Buildings 
Directive. 

of  other  financial  and  fiscal  instruments  such 
as favourable loans and public guarantees, tax 
exemptions  and  tax  reductions  or  mixed 
schemes with support from the private sector. 
ineffective 
In  part  due  to  the  relatively 
incentive  scheme,  much  of  the  renovation 
efforts  result  in  only  minor  energy  efficiency 
improvements (below the threshold of what is 
renovation). 
energy-efficient 
considered 
Meanwhile,  Croatia  is  faring  relatively  well  in 
terms  of  light  and  medium  renovation.  As  a 
whole,  energy  efficiency  measures  reduce 
energy  consumption,  and  therefore  can  help 
reduce dependence on Russian fossil fuels. 

The  transport  sector  continues  to  be  the 
largest  contributor  to  GHG  emissions, 
accounting  for  more  than  27%  of  total 
emissions in 2019 (22% in the EU).  There 
has been a sharp increase in the emissions in 
recent  years  and  they  are  projected  to 
continue  to  rise.  The  share  of  renewable 
energy  sources  in  the  transport  sector  (5.9  % 
in  2019)  is  also  one  of  the  lowest  in  the  EU, 
and  well  below  the  2020  target  of  10%.  The 
transport  sector  is,  along  with  agriculture  and 
industry,  a  major  contributor  to  air  pollution, 
which  continues  to  be  a  concern  in  spite  of 
improvements  in  recent  years  (see  Annex  5). 
Stepping-up  investments  and  incentives  to 
promote  sustainable  public  transport  would 
help  reduce  greenhouse  gas  emissions.  In 
particular,  the  share  of  rail  passenger  use  is 
less than half of the average level in Western 
European countries.  

The  uptake  of  electric  vehicles  is  still 
very  slow  because  purchasing  incentives, 
subsidies  and  car  scrapping  schemes  are 
limited. The share of newly registered electric 
cars  (battery  electric  vehicles  (BEV)  and  plug-
in hybrid electric vehicles (PHEV) is one of the 
lowest  in  the  EU,  with  1.47%  for  BEV  and 
0.62%  for  PHEV  in  2020 (7)  Stimulating  the 
purchase  of  zero-emission  vehicles  coupled 
with  the  further  roll-out  of  adequate  and 
refuelling 
matching 
infrastructure  would  support  a  faster  uptake. 
Discouraging  the  use  of  older  vehicles  in 

recharging 

and 

(7)  EEA, 2020,  https://www.eea.europa.eu/data-and-
maps/figures/new-electric-vehicles-by-country 

10 

 
                                                 
                                                 
business  and  corporate  fleets  could  also 
contribute to reducing GHG emissions. 

is 

crucial 

Progress  on  the  circular  economy  and 
for 
waste  management 
Croatia’s  green  transition.  The  circular 
(secondary)  use  of  materials  in  Croatia  was 
4.8% in 2014 and 5.1% in 2020, compared to 
the EU average of 12.8%. Croatia has started 
implementing 
economy-related 
reforms such as the adoption of a new Waste 
Management Act in July 2021 and the update 
of  the  National  Waste  Management  Plan 
2017-2022.  However, 
still  has  no 
comprehensive circular economy strategy.  

circular 

it 

Croatia has improved its waste and water 
management  practices  in  recent  years, 
but  significant  challenges  remain.  The 
municipal recycling rate has improved strongly 
in recent years. However, it was still well below 
the EU average in 2020 (34.3% against 47.8% 
in  the  EU),  and  the  2020  target  of  50%. 
Irregular and substandard landfills continue to 
operate, including ones where municipal waste 
is  landfilled  without  any  treatment.  Targeted 
investments  and  reforms  to  upgrade  the 
treatment 
recycling  and  waste 
existing 
infrastructure,  would  help  accelerate 
the 
transition  to  a  more  circular  and  resource-
efficient  economy.  Water  pollution  also 
remains  a  challenge,  mainly  due  to  the 
inadequate  practices  in the  agricultural  sector 
and discharges not connected to the sewerage 
network.  

in  Croatia’s  tax  mix, 

Targeted  taxation  policies  could  improve 
environmental 
sustainability. 
Environmental taxes already play an important 
including,  for 
role 
example,  landfill  taxes  in  the  revised  waste 
management  plan  2017-2022.  Extending  tax 
policies  to  the  water  sector  or  introducing 
emissions-based 
could  accelerate 
taxes 
climate and energy transitions.  

Croatia  is  among the most biodiverse  EU 
countries,  but  is  struggling  to  maintain 
its  ecosystems  in  good  condition  and  to 
restore  good  conditions  in  them.  The 
largely 
territorial  protection  network 
complete,  with  36.7%  of  the  national  land 
area  of  Croatia  covered  by  Natura  2000  in 

is 

2021 (against an average of 18.1% in the EU). 
However,  in  2018,  only  39.2%  of  habitat 
assessments  and  only  7.1%  of  Croatia’s 
protected  species  showed  good  conservation 
status. Investment needs are estimated at EUR 
1.25  billion  for  2021-2027  to  improve  the 
management  of  Natura  2000  sites,  better 
protect  species and restore habitats, including 
those  that  are  important  for  climate  change 
mitigation and adaptation. 

Croatia is one of the Member States more 
vulnerable  to  climate  risks.  A  swift 
implementation of the newly adopted Strategy 
on  Climate  Change  Adaptation  is  of  utmost 
importance  when  it  comes  to  the  capacity  to 
adapt to droughts and floods, the reduction of 
water  levels,  forest  fires  and  heatwaves.  In 
this  context,  Croatia’s  extensive  reliance  on 
hydropower  as  a  source  of  renewable  energy 
may  pose  a  long-term  risk  with  regard  to 
electricity  generation.  Within  the  Multi-annual 
Financial  Framework  2021-2027,  funds  will 
allow  Croatia  to  enhance  climate  change 
adaptation, 
risk  prevention  and  disaster 
resilience. Amongst other things, the goal is to 
improve fire protection and strengthen the risk 
management  system  in  order  to  increase 
resilience  to  natural  and  man-made  disasters 
through the strengthening of all civil protection 
components. 

Addressing the demographic and  
labour-market challenges 

to 

related 

is 
the 

labour  market 

facing 
Croatia’s 
strong 
challenges 
population  decline.  According  to  the  first 
results  of 
the  2021  census,  Croatia’s 
population  has  dropped  to  3.89  million,  well 
below  the  projected  levels  due  to  emigration, 
and  low  birth  rates  resulting  in  an  ageing 
population.  Croatia’s  population  decline  since 
joining the EU has been steeper than other EU 
recent 
countries’  population  decline.  The 
deceleration  of  net  outward  migration  from 
Croatia  can  be  attributed  in  part  to  greater 
immigration (see Graph 3.1). 

Negative  population  trends  can  have 
major impacts on key economic variables. 

11 

 
include  potential  growth,  the 
These 
sustainability  of  pension  and  healthcare 
systems,  and  labour  productivity.  The 
impacts’ relevance depends mainly on the age 
and education level of those who migrate.  

Addressing  the  brain  drain  could  help 
alleviate  Croatia’s  negative  demographic 
trends  and  boost  economic  growth.  In 
2020,  the  share  of  20-64  year-old  citizens 
born  in  Croatia,  but  living  in  a  different  EU 
country,  was  the  third  highest  in  the  EU  (117 
per  1000  population)  for  all  education  levels 
and  the  fifth  highest  for  those  with  tertiary 
education  (20  per  1000  population).  Both 
groups’  increases  over  the  last  decade  are 
among  the  highest  in  the  EU (8).  This  has 
resulted  in  labour  shortages,  particularly  in 
small  and  medium-sized  enterprises,  while 
employment  in  research  and  development 
remains  low. (9).  Total  R&D  expenditure  as  % 
of  GDP  at  national  level  was  one  percentage 
point  less  than  the  EU27  average  in  2020 
(1.3%  against  2.3%),  while  being  unequally 
distributed  across  regions.  The  share  of 
doctoral  graduates  remained  below  the  EU 
average  in  2021  (48.1%),  with  a  worrying 
decline between 2014 and 2021 (10). In 2021, 
ICT  specialists  accounted 
lower 
percentage  of  the  workforce  in  Croatia  than 
the  EU  average  (3,6%  against  4.5%)  (see 
Annex 8) (11). Dedicated measures to address 
this problem would help reduce the brain drain 
and  contribute  to  economic  growth  and 
contributing  to  achieve  the  2030  EU  headline 
target on employment. 

for  a 

(8)  Knowledge Centre on Migration and Demography 

(KCMD) Data Portal 

(9)  World bank (2020): National Development Strategy 
Croatia 2030 Croatia 2030: Roadmap for a Better 
Future 

(10)  European Innovation scoreboard, 2021 

(11)  Digital Economy and Society Index, 2022 

Graph 3.1: Population trends post-EU 
accession: HR and CEE10 

Source: Eurostat, CBS, Commission estimate 

Tackling late payments  

Late  payments  have  been  a  major  issue 
in  Croatia’s  economy.  Only  35%  of 
business-to-business payments were made on 
time in Croatia in the fourth quarter of 2020; 
45%  of  Croatian  SMEs  consider  payment 
delays  to  be  one  of  their  three  biggest 
problems (compared to 35% in the EU (12). It 
took  SMEs  on  average  66  days to  get  paid in 
2021, compared to 54.6 for the EU. Such long 
payment  delays  tend  to  spread  across  the 
economy: when businesses are paid late, they 
delay  payments  to  their  own  suppliers.  This 
has a knock-on effect  on  other supply  chains. 
Late  payments  due  to  debtors’ 
liquidity 
challenges  (5%  above  the  EU  average)  are 
expected by 53% of Croatian businesses,  with 
57%  saying 
longer 
payment terms than they are comfortable with 
(compared 
the 
EU) (13).   

to  49%  on  average 

they  have  accepted 

in 

are 

payments 

Late 
particularly 
problematic  in  the  public  sector.  The 
average number of days it took for payments 
from  the  public  sector-to-business  was  59 

(12)  Flash Eurobarometer of February-April 2020 

(13)  Intrum (2021), European Payment Report 2021: 
https://www.intrum.com/publications/european-
payment-report/european-payment-report-2021/ 

12 

80859095100105EU-1EU entryEU+1EU+2EU+3EU+4EU+5EU+6EU+7EU+8EU+9EU+10EU+11EU+12EU+13EU+14EU+15EU+16EU+17CZEELVLTHUPLSISKROBGHR 
                                                 
   
                                                 
compared to 50 days for business-to-business 
payments  and  29  days  in  consumers-to-
business  transactions.  This 
indicates  that 
actual  payments  in  the  public  sector  are  29 
days  above  the  30-day  limit  in  the  Late 
the  RRP 
Payments  Directive.  Although 
deficiencies 
addresses 
some 
through  more 
procurement 
procedures, there is a need to closely monitor 
developments  in  the  healthcare  sector  where 
the  issue  is  particularly  problematic,  not  only 
for  liquidity in  the  economy  but  also  for mid-
term fiscal sustainability. 

structural 
efficient 

13 

 
KEY FINDINGS 
KEY FINDINGS 

Croatia's  Recovery  and  Resilience  Plan 
(RRP)  includes  measures  to  address  a 
series  of 
its  structural  challenges, 
through: 

  Supporting  to  the  green  transition  through 
the  promotion  of  energy  efficiency  and 
renewable energy, sustainable mobility, the 
the  protection  of 
circular  economy, 
biodiversity and ecosystems, efficient water 
management, 
in  building 
investments 
renovations,  and  the  decarbonisation  of 
businesses 

  Accelerating  of 

the  digital 

transition 
the  development  of  digital 
through 
public 
processes 
administration, education and business, the 
reduction  of  the  digital  divide  between 
urban and remote rural areas 

skills 

and 

in 

  Boosting 

private 

investment, 

the  economic 

recovery  by 
leveraging 
lifting 
regulatory  and  administrative  constraints, 
accelerating  the  development  of  the  green 
and  digital  economies,  as  well  as 
incentivising 
innovation 
research  and 
(R&D&I) 

  Implementing  labour  market  policies  and 
developing  appropriate  skills  to  match 
current  and 
labour  market  demand, 
the  development  of  skills 
prioritising 
necessary 
the  green  and  digital 
for 
transitions 

  Further 

improving 

the  efficiency  and 
resilience  of  public  administration,  the 
judiciary  and  the  management  of  state 
assets 

  Strengthening 

the  quality, 

efficiency, 
accessibility,  and  financial  sustainability  of 
the healthcare system  

  Developing  family  and  community-based 
the 

reduce  poverty  and 

services 
integration of vulnerable groups  

to 

  Increasing  the  share  of  children  in  early 
childhood  education  and  care,  of  pupils 
going  to  one-shift  schools 
in  primary 
school,  and  to  general  secondary  school. 
Improving  the  quality  of  education  and 
increasing its labour market relevance. 

  Tackling 

strengthen 
cohesion. 

territorial 
the 

fragmentation 

territorial  and 

to 
social 

Beyond  the  reforms  and  investments  in 
the  RRP,  Croatia  would  benefit  from  the 
following: 

investment 

  Reinforcing  and  complementing  reforms 
the 
and 
economy,  contain  energy  consumption, 
enhance  energy-efficiency  and  step-up  the 
green transition 

to  decarbonise 

  Fostering investments in renewable energy, 
including  at  small-scale  and  from  sources 
such  as  wind,  solar  and  geothermal,  to 
reduce fossil fuel dependency and exposure 
to energy price shocks 

  Taking  action  to  reverse  the  demographic 
decline  and  brain-drain,  while  meeting  its 
labour market needs 

  Tackling late payments to businesses, since 
these are detrimental to economic recovery 
growth.
and 

14 

 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience Plan — implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Resource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic stability 

Annex 16: Key financial sector developments 

Annex 17: Macroeconomic Imbalance Procedure assessment matrix 

Annex 18: Taxation 

Annex 19: Key economic and financial indicators 

Annex 20: Debt sustainability analysis 

19 

19 

21 

22 

24 

27 

27 

31 

33 

33 

35 

37 

39 

41 

44 

44 

46 

48 

50 

52 

52 

53 

55 

57 

58 

17 

 
 
 
LIST OF TABLES 

Table A2.1: 
Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 
Table A9.1: 
Table A10.1: 
Table A11.1: 
Table A12.1: 
Table A13.1: 
Table A14.1: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A20.1: 
Table A20.2: 

Key elements of the Croatian RRP 
Summary of 2019, 2021 and 2022 CSRs 
Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 
Selected resource efficiency indicators 
Key Digital Economy and Society Index Indicators 
Key research, development and innovation indicators 
Key Single Market and Industry indicators 
Key public administration indicators 
Social scoreboard for Croatia 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
Croatia, selected indicators at regional level 
Financial soundness indicators 
Assessment of Macroeconomic Imbalances matrix 
Indicators on taxation 
Key economic and financial indicators 
Debt sustainability analysis for Croatia 
Heat map of fiscal sustainability risks for Croatia 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Croatia in the last five years 

Graph A2.1: 

Share of RRF funds contributing to each policy pillar 

Graph A3.1: 

ESIF 2014-2020 Total budget by fund (EUR billion, %) 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Croatia's progress on the 2019-2022 CSRs (European Semester cycle) 

Graph A5.1: 

Fiscal aspects of the green transition: taxation and government expenditure on environmental protection 

Graph A5.2: 

Thematic – Energy: Share in energy mix (solids, oil, gas, nuclear, renewables) 

Graph A5.3: 

Thematic – Biodiversity: Terrestrial protected areas and organic farming 

Graph A5.4: 

Thematic – Mobility: Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A7.1: 

Economic importance and expansion of the circular economy: employment and value added in the Circular Economy 

sectors 

Graph A11.1: 

E-government benchmark scores (lhs) and e-government users (rhs) 

Graph A11.2: 

Scope Index of Independent Fiscal Institutions (SIFI, rhs) and medium term budgetary framework (MTBF, rhs) indices 

Graph A13.1: 

Pedagogical standard limit and average real number of enrolled children by age 

Graph A14.1: 

Life expectancy at birth, years 

Graph A14.2: 

Projected increase in public expenditure on health care over 2019-2070 (reference scenario) 

Graph A15.1: 

GDP per head (2010) and GDP growth (2010-2019) in Croatia 

Graph A15.2: 

Territories most affected by the climate transition in Croatia 

Graph A15.3: 

CO2 emissions from fossil fuels per head, 2018 

Graph A15.4: 

Innovation performance in Croatia 

Graph A15.5: 

Decline in employment 

Graph A18.1: 

Tax wedge 

21 
25 
30 
34 
36 
38 
40 
43 
44 
46 
49 
50 
52 
54 
55 
57 
58 
59 

20 

21 

22 

23 

24 

27 

27 

28 

28 

32 

32 

33 

41 

42 

47 

48 

48 

50 

50 

51 

51 

51 

56 

18 

 
 
 
 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

This  annex  assesses  Croatia's  progress  on 
the  Sustainable  Development  Goals  (SDGs) 
along  the  four  dimensions  of  competitive 
sustainability.  The  17  Sustainable  Development 
Goals (SDGs) and their related indicators provide a 
policy framework under the UN’s 2030 Agenda for 
Sustainable  Development.  The  aim  is  to  end  all 
forms of poverty, fighting inequalities and tackling 
climate change, while ensuring that no one is left 
behind.  The  EU  and  its  Member  States  are 
committed  to  this  historic  global  framework 
agreement  and  to  playing  an  active  role  in 
maximising  progress  on  the  SDGs.  The  graph 
below is based on the EU SDG indicator set which 
was developed to monitor progress on SDGs in an 
EU context. 

SDG 

related 

Croatia performs very well or is improving on 
to 
indicators 
most 
environmental  sustainability  (SDG  2,  6,  7,  9, 
11, 12, 13, 15). The ‘Share of renewable energy 
in gross final energy consumption’ improved from 
29 % in 2015 to 31 % in 2020, significantly above 
the  EU  average  (22.1  %).  However,  there  was  no 
improvement 
final  energy 
in  primary  or 
consumption  per  head.  On  ‘Sustainable  cities  and 
communities’  (SDG  11),  Croatia  has  made  some 
progress with regards to the share of recycling of 
municipal waste, from 18 % in 2015 to 34,3 % in 
2020, but is still well below the EU average on this 
indicator  (47.8%  in  2020).  RRP  measures  to 
improve waste management practices further aim 
to increase performance in this area.  

in 

early 

participation 

Croatia performs very well or is improving on 
most SDG indicators related to fairness (SDG 
1,  2,  4,  8,  10),  but  needs  to  catch  up  on 
others (SDG 3, 5). On “Quality education”, Croatia 
increased 
childhood 
education and care (from 3 years until the start of 
primary school) to 78,8% in 2020, up from 69,5% 
in  2015.  Its  tertiary  education  rate  has  increased 
from  32.8%  in  2016  to  35,7%  in  2021,  but 
remains  below  the  EU  average  of  41.2%.  It  has 
also  improved  on  several  employment  indicators, 
such as the ‘long-term unemployment rate’ (6,6% 
in 2016, 2.1 % in 2021) or the ‘Number of young 
people not in employment or education’ (19.9 % in 
2016,  14.9%  in  2021),  notwithstanding  a  recent 
deterioration  in  both  indicators  (see  Annex  12  for 
further  explanations).  Component  4.1  of  the  RPP 
includes  measures 
tackle 
unemployment, notably by implementing of active 

further 

to 

labour  market 
boost 
employment  and  self-employment  linked  to  the 
green and digital transitions. 

policies 

(ALMP) 

to 

is 

Croatia 
indicators 
improving  on  SDG 
related to productivity (SDG 4, 8, 9). However, 
research and development and innovation (R&D&I) 
remain  a  challenge.  Croatia  is  steadily  increasing 
its  share  of  gross  development  product  allocated 
to R&D activities (from 0.83% in 2015 to 1.25% in 
2020), but it remains among poor R&D performers 
compared to the EU average of 2.32%. Croatia has 
made  significant  progress  on  the  indicator  ‘Share 
of  households  with  very  high  capacity  network 
(VHCN) coverage’, increasing from 10.1% in 2015 
to  51,7%  in  2021.  The  number  of  people  with  at 
least  basic  digital  skills  is  above  the  EU  average 
(63%  compared  to  54%  in  2021).  Investments 
under  component  2.3  of  the  RRP  will  further 
improve  Croatia’s  digital 
infrastructure,  while 
dedicated  measures  under  component  3.2  will 
enhance R&D&I. 

Croatia is improving on some SDG indicators 
related  to  macroeconomic  stability  (SDG  8, 
16). It has improved on most indicators related to 
‘economic  growth’  and  ‘employment’  (SDG  8).  For 
example,  it  has  increased  its  investment  share  of 
GDP  from  19.3%  in  2015  to  22.3%  in  2020, 
reaching the EU average. Components 2.6 and 2.9 
of the RRP include measures to better prevent and 
penalise 
locally. 
Strengthening  the  fiscal  framework  further  is 
to  further  enhance  macroeconomic 
expected 
stability. 

corruption, 

particular 

in 

19 

 
 
 
 
Graph A1.1: Progress towards SDGs in Croatia in the last five years 

(1) For detailed datasets on the various SDGs see the annual ESTAT report ‘Sustainable development in the European Union’, 
https://ec.europa.eu/eurostat/product?code=KS-09-22-019; Extensive country specific data on the short-term progress of Member 
States can be found here: Key findings - Sustainable development indicators - Eurostat (europa.eu). 
Source: Eurostat, latest update of 28 April 2022. Data mainly refer to 2015-2020 and 2016-2021. 

20 

 
 
 
 
 
 
ANNEX 2: RECOVERY AND RESILIENCE PLAN — IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN — IMPLEMENTATION 

the 

twin 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece of  the EU  efforts  to  support 
its  recovery  from  the  COVID-19  pandemic, 
fast  forward 
transition  and 
strengthen  resilience  against  future  shocks. 
Croatia  submitted  its  recovery  and  resilience  plan 
(RRP) on 14 May 2021. The Commission’s positive 
assessment  on  8  July  and  Council’s  approval  on 
28 July paved the way for disbursing € 6.3 billion 
in  grants  under  the  Recovery  and  Resilience 
Facility over the period 2021-2026. The financing 
agreement  and  operational  arrangement  were 
signed  on  22  September  2021  and  9  February 
2022  respectively.  Croatia  submitted  its  first 
payment request in March 2022. The key elements 
of the Croatian RRP are set out in Table A2.1. 

has  made 

progress  Croatia 

The 
in 
implementing  its  plan  is  published  in  the 
Recovery 
The 
Scoreboard  also  gives  a  clear  overview  of  the 
progress  made  in  implementing  the  RRF  as  a 
whole, in a transparent manner. 

Scoreboard. 

Resilience 

and 

Table A2.1: Key elements of the Croatian RRP 

(1) See Pfeiffer P., Varga J. and in ’t Veld J. (2021), 
“Quantifying Spillovers of NGEU investment”, European 
Economy Discussion Papers, No. 144 and Afman et al. (2021), 
“An overview of the economics of the Recovery and Resilience 
Facility”, Quarterly Report on the Euro Area (QREA), Vol. 20, 
No. 3 pp. 7-16.   
Source: European Commission 

Graph A2.1: Share of RRF funds contributing to each policy pillar 

(1) Each measure contributes towards two policy areas of the six pillars, therefore the total contribution to all pillars displayed on 
this chart amounts to 200% of the estimated cost of the Croatian RRP. The bottom part represents the amount of the primary 
pillar, the top part the amount of the secondary pillar. https://ec.europa.eu/economy_finance/recovery-and-resilience-
scoreboard/country_overview.html  
Source: European Commission 

21 

Total allocation EUR 6.3 billion in grants (11.6% of 2019 GDP)Investments and Reforms 146 investments and 76 reforms Total number of Milestones and Targets372Estimated macroeconomic impact (1) Raise GDP by 1.9%-2.9% by 2026 (0.6% in spillover effects)Pre-financing disbursed EUR 818 million (September 2021)First instalment Croatia submitted its first payment request in March 20220%10%20%30%40%50%60%70%80%Green transitionDigitaltransformationSmart,sustainable andinclusive growthSocial andterritorialcohesionHealth, andeconomic, socialand institutionalresiliencePolicies for thenext generation 
 
 
 
 
 
      
 
 
 
        
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The EU’s budget of more than EUR 1.2 trillion 
for  2021-2027  is  the  investment  lever  to 
help  implement  EU  priorities.  Underpinned  by 
an  additional  amount  of  about  EUR  800  billion 
largest 
through  NextGenerationEU  and 
instrument, the Recovery and Resilience Facility, it 
represents  significant  firepower  to  support  the 
recovery and sustainable growth. 

its 

support 

long-term 

In  2021-2027,  EU  cohesion  policy  funds (14) 
will 
development 
objectives  in  Croatia  by  investing  EUR  9.26 
billion (15). This includes EUR 185.9 million from 
the Just Transition Fund directed at alleviating the 
socio-economic  impacts  of  the  green  transition  in 
the  most  vulnerable  regions.  The  2021-2027 
cohesion  policy  funds  partnership  agreement  and 
programmes  take  into  account  the  2019-2020 
country-specific recommendations and investment 
guidance  provided  as  part  of  the  European 
Semester.  In  addition,  Croatia  will  benefit  from 
EUR  3.4  billion  support  for  the  2023-27  period 
from  the  Common  Agricultural  Policy,  which 
supports  social,  environmental,  and  economic 
sustainability  and  innovation  in  agriculture  and 
rural  areas,  contributing  to  the  European  Green 
Deal, and ensuring long-term food security. 

of 

public 

investment (17). 

billion (16)  from  the  EU  budget  to  Croatia, 
with another EUR 14.10 billion from national 
financing  (Graph  3.1).  This  represents  around 
4.07%  of  GDP  for  2014-2020  annually  and 
By 
91.07% 
31 December 2021, 122% of the total ESIF budget 
was  allocated  to  specific  projects  and  59%  was 
reported  as  spent,  leaving  EUR  5.84  billion  to  be 
spent  by  the  end  of  2023 (18).  Among  the  11 
objectives,  the  most  relevant  ones  for  cohesion 
policy  funding  in  Croatia  are  improving  capacity 
for  R&D&I, 
the  competitiveness  of  SMEs, 
environmental  protection  and  resource  efficiency, 
network infrastructure in transport and energy and 
sustainable  and  quality  employment,  social 
inclusion,  education  and  vocational  training  (EUR 
4.1  billion  in  total).  By the  end  of  2020,  cohesion 
policy  investments  supported  over  12 000  firms, 
created over 12 000 new direct jobs, and reduced 
the  energy  consumption  of  public  buildings  by 
more than 81 million kWh/year. 

are 

funds 

policy 

Cohesion 
already 
substantially contributing to the Sustainable 
Development Goals (SDGs). In Croatia, Cohesion 
policy  funds  are  supporting  11  of  the  17  SDGs 
with up to 95% of the expenditure contributing to 
the attainment of the goals.  

Graph A3.1: ESIF 2014-2020 Total budget by fund 
(EUR billion, %) 

REACT-EU 

instrument 

The 
(Recovery 
Assistance  for  Cohesion  and  the  Territories 
of Europe) under NextGenerationEU provided 
EUR  561.5  million  of  additional  funding  to 
2014-2020  cohesion  policy  allocations  for 
Croatia  to  ensure  a  balanced  recovery,  boost 
convergence  and  provide  vital  support  to  regions 
following  the  impact  of  the  coronavirus  outbreak. 
REACT-EU  support  in  Croatia  focuses  on  the 
purchase  of  vaccines,  making  a  contribution  to 
short-term  work  schemes, 
improving  primary 
healthcare,  strengthen  education,  training  and 
skills  development,  promote  energy  efficiency, 

Source: European Commission 

(16)  ESIF includes cohesion policy funds (ERDF, ESF+, CF, Interreg), 

In  2014-2020,  the  European  Structural  and 
Investment Funds (ESIF) allocated EUR 12.09 

the European Agricultural Fund for Rural Development 
(EAFRD) and the European Maritime and Fisheries Fund 
(EMFF). According to the ‘N+3 rule’, the funds committed for 
the years 2014-2020 must be spent by 2023 at the latest 
(by 2025 for EAFRD). Data source: Cohesion Open Data, cut-
off date 31.12.2021 for ERDF, ESF+, CF, Interreg; Cut-off 
date 31.12.2020 for EAFRD and EMFF. 

(14)  European Regional Development Fund (ERDF), European 

(17)  Public investment is gross fixed capital formation plus 

Social Fund+ (ESF+), Cohesion Fund (CF), Just Transition Fund 
(JTF), Interreg. 

(15) Current prices, source: Cohesion Open Data.  

capital transfers, general government. 

(18)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/HR 

22 

 
 
 
                                                 
                                                 
 
Graph A3.2: Cohesion policy contribution to the SDGs (EUR billion) 

Source: European Commission 

support  business  competitiveness  and  reduce 
material deprivation with direct food deliveries. 

on  interest  payments  as  a  result  of  SURE’s  lower 
interest rates. 

provides 

Commission 

The 
tailor-made 
expertise  through  the  Technical  Support 
Instrument  (TSI)  to  help  Croatia  design  and 
implement  growth-enhancing  reforms,  including 
those  needed  for  it  to  implement  its  RRP.  Since 
2016,  Croatia  has  received  assistance  through 
103  technical  support  projects.  Projects  delivered 
in  2021  aimed  for  example  to  raise  awareness 
and  standards  of  fighting  bribery  in  international 
business  transactions,  improving  the  governance 
and  management  of  state  properties,  or  building 
capacity  to  carry  out  expenditure  reviews.  The 
Commission also assisted Croatia in implementing 
specific  reforms  in  the  RRP  reforms,  such  as  the 
implementation  of  reconstruction  of  buildings 
damaged  by  earthquakes.  In  2022,  new  projects 
will  start  to  support,  among  others,  the  fiscal 
sustainability  of  the  healthcare  system.  The 
country  will  also  benefit  from  additional  support 
for implementing the RRP, for which it will transfer 
resources  in  accordance  with  Article  7  of  the  TSI 
Regulation, 
innovation 
strengthen 
procurement capacities, optimise and digitalise its 
administrative  processes  and  promote  foreign 
direct investments.  

its 

to 

It 

provided 

Investment 
The  Coronavirus  Response 
Initiative (19) 
EU 
first 
the 
emergency  support  to  Croatia  in  relation  to 
introduced 
the  COVID-19  pandemic. 
extraordinary  flexibility  enabling  Croatia  to  re-
allocate  resources  to  meet 
immediate  public 
health  needs 
(EUR  47  million)  and  support 
enterprises (EUR 388 million). For instance, Croatia 
shifted 
protective 
to 
equipment  and  healthcare  material,  reinforce 
healthcare  staff,  support  working  capital  and 
provide  small 
loans  for  Small  and  Medium 
Enterprises  (SMEs).  Croatia  also  benefited  from 
the  temporary  100%  EU  financing  of  incurred 
cohesion policy measures, with approximately EUR 
199 million in 2021 from 100% co-financing. 

resources 

purchase 

for 

risks 

temporary 

unemployment 

support 
in 

Croatia received support under the European 
to 
instrument 
mitigate 
an 
emergency  (SURE)  to  finance  short-time 
work  schemes  and  similar  measures.  The 
Council granted financial assistance under SURE to 
Croatia in September 2020 for a maximum of EUR 
1.02  billion,  which  was  disbursed  by  16  March 
2021.  SURE  is  estimated  to  have  supported 
approximately  40%  of  workers  and  35%  of  firms 
for  at  least  one  month  in  2020  and  15%  of 
workers  and  20%  of  firms  in  2021,  primarily  in 
accommodation and food services, manufacturing, 
and  wholesale  and 
is 
estimated to have saved a total of EUR 0.16 billion 

trade.  Croatia 

retail 

(19)  Re-allocating ESIF resources according to Regulation (EU) 

2020/460 of the European Parliament and of the Council of 
30 March 2020, and Regulation (EU) 2020/558 of the 
European Parliament and of the Council of 23 April 2020. 

23 

 
                                                 
 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 
RECOMMENDATIONS 

Graph A4.1: Croatia's progress on the 2019-2022 
CSRs (European Semester cycle) 

The  Commission  assessed  the  2019-2021 
recommendations 
country-specific 
(CSRs) (20)  addressed  to  Croatia 
in  the 
context  of  the  European  Semester.  The 
assessment  takes  into  account  the  policy  action 
taken  by  Croatia  to  date (21),  as  well  as  the 
commitments  in the  Recovery  and  Resilience  Plan 
(RRP) (22).  At  this  early  stage  of  the  RRP 
implementation, overall 29% of the CSRs focusing 
on  structural  issues  in  2019  and  2020  have 
recorded  at  least  “some  progress”,  while  71% 
recorded  “limited”  (see  Graph  A4.1).  Considerable 
additional  progress  in  addressing  structural  CSRs 
is  expected  in  the  years  to  come  with  the  further 
implementation of the RRP. 

Source: European Commission 

(20)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32021H0729%2811%29&qi
d=1627675454457 2020 CSRs: EUR-Lex - 
32020H0826(11) - EN - EUR-Lex (europa.eu) 

2019 CSRs: EUR-Lex - 32019H0905(11) - EN - EUR-Lex 

(europa.eu) 

(21)  Incl. policy action reported in the National Reform 

Programme, as well as in the RRF reporting (bi-annual 
reporting on the progress with implementation of milestones 
and targets and resulting from the payment request 
assessment). 

(22)  Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here takes into 
account the degree of implementation of the measures 
included in the RRP and of those done outside of the RRP at 
the time of assessment.  Measures foreseen in the annex of 
the adopted Council Implementing Decision on the approval 
of the assessment of the RRP which are not yet adopted nor 
implemented but considered as credibly announced, in line 
with the CSR assessment methodology, warrant “limited 
progress”. Once implemented, these measures can lead to 
“some/substantial progress” or “full implementation”, 
depending on their relevance. 

24 

Limited Progress71%Some Progress26%Full Implementation3% 
 
                                                 
          
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Table A4.1: Summary of 2019, 2021 and 2022 CSRs 

(Continued on the next page) 

25 

CroatiaAssessment in May 2022*RRP coverage of CSRs until 20262019 CSR1Limited ProgressReinforcethebudgetaryframeworkandmonitoringofcontingentliabilities at central and local level. Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025Reducetheterritorialfragmentationofthepublicadministrationandstreamline the functional distribution of competencies.Limited ProgressRelevant RRP measures planned as of 2022, 2023 and 20252019 CSR 2Limited ProgressDeliverontheeducationreformandimprovebothaccesstoeducationandtrainingatalllevelsandtheirqualityandlabourmarket relevance. Some ProgressRelevant RRP measures planned as of 2021, 2022, 2025 and 2026Consolidatesocialbenefitsandimprovetheircapacitytoreducepoverty. Limited ProgressRelevant RRP measures planned as of 2021, 2023, 2024 and 2025Strengthenlabourmarketmeasuresandinstitutionsandtheircoordination with social services. Limited ProgressRelevant RRP measures planned as of 2022, 2023, 2024, 2025 and 2026Inconsultationwiththesocialpartners,introduceharmonisedwage-settingframeworksacrossthepublicadministrationandpublicservices.Limited ProgressRelevant RRP measures planned as of 2023 and 20242019 CSR 3Limited ProgressFocusinvestment-relatedeconomicpolicyonresearchandinnovation, Limited ProgressRelevant RRP measures planned as of 2022, 2024, 2025 and 2026sustainable urban and railway transport, Limited ProgressRelevant RRP measures planned as of 2022, 2024, 2025 and 2026energyefficiency,renewablesandenvironmentalinfrastructure,taking into account regional disparities.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024, 2025 and 2026Increasetheadministration'scapacitytodesignandimplementpublic projects and policies.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 20252019 CSR4Limited ProgressImprovecorporategovernanceinState-ownedenterprisesandintensify the sale of such enterprises and non-productive assets.Limited ProgressRelevant RRP measures planned as of 2021, 2024 and 2026Enhancethepreventionandsanctioningofcorruption,inparticularat the local level. Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2024, 2025 and 2026Reducethedurationofcourtproceedingsandimproveelectroniccommunication in courts. Limited ProgressRelevant RRP measures planned as of 2022, 2023, 2024 and 2026Reduce the most burdensome parafiscal chargesSome ProgressRelevant RRP measures planned as of 2022, 2023 and 2024 and excessive product and services market regulation.Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2024 2020 CSR1Limited ProgressInlinewiththegeneralescapeclause,takeallnecessarymeasurestoeffectivelyaddressthepandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuringdebtsustainability,whileenhancinginvestment.Not relevant anymoreNot applicableEnhancetheresilienceofthehealthsystem.Promotebalancedgeographicaldistributionofhealthworkersandfacilities,closercooperationbetweenalllevelsofadministrationandinvestmentsine-health.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024, 2025 and 2026 
 
 
  
 
Table (continued) 

* See footnote 22  
Source: European Commission 

26 

2020 CSR2Some ProgressStrengthen labour market measures and institutionsLimited ProgressRelevant RRP measures planned as of 2022, 2023, 2024, 2025 and 2026and improve the adequacy of unemployment benefits and minimum income schemes.Limited ProgressRelevant RRP measures planned as of 2021, 2023, 2024 and 2025Increase access to digital infrastructure and services.Limited ProgressRelevant RRP measures planned as of 2022, 2023, 2024, 2025 and 2026Promote the acquisition of skills.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 20262020 CSR 3Some ProgressMaintain measures to provide liquidity to small and medium-sized enterprises and the self-employed.Full ImplementationRelevant RRP measures planned as of 2022, 2025 and 2026Further reduce parafiscal charges andSome ProgressRelevant RRP measures planned as of 2022, 2023 and 2024 restrictions in goods and services market regulation.Some ProgressRelevant RRP measures planned as of 2022, 2023 and 2024 Front-load mature public investment projectsLimited ProgressRelevant RRP measures planned as of 2021 and 2022and promote private investment to foster the economic recovery.Limited ProgressRelevant RRP measures planned as of 2022, 2024, 2025 and 2026Focusinvestmentonthegreenanddigitaltransition,inparticularonenvironmental infrastructure, Limited ProgressRelevant RRP measures being planned as of 2021, 2022, 2023, 2024, 2025 and 2026sustainable urban and rail transport,Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2024, 2025 and 2026clean and efficient production and use of energyLimited ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024, 2025 and 2026and highspeed broadband.Some ProgressRelevant RRP measures planned as of 2023 and 20262020 CSR 4Limited ProgressReinforcethecapacityandefficiencyofthepublicadministrationtodesignandimplementpublicprojectsandpoliciesatcentralandlocal levels.Limited ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025Improve the efficiency of the judicial system.Limited ProgressRelevant RRP measures planned as of 2022, 2023, 2024 and 20262021 CSR1Some ProgressIn2022,maintainasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationallyfinancedinvestment.Keepthegrowthofnationallyfinanced current expenditure under control.Some ProgressNot applicableWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Substantial ProgressNot applicableAt the same time, enhance investment to boost growth potential(cid:13)Payparticularattentiontothecompositionofpublicfinances,bothontherevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasures,toensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,notably supporting the green and digital transition.Some ProgressNot applicableGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,includingbystrengtheningthecoverage,adequacy,andsustainabilityofhealthandsocialprotection systems for all.Limited ProgressNot applicable 
 
  
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

intends 

The  European  Green  Deal 
to 
transform the  EU  into a  fair and prosperous 
society,  with  a  modern,  resource-efficient 
and competitive economy where there are no 
net  emissions  of  greenhouse  gases  in  2050 
and  where  economic  growth  is  decoupled 
from resource use. This Annex offers a snapshot 
of  the  most  significant  and  economically  relevant 
developments in Croatia in the respective building 
blocks  of 
is 
complemented by Annex 6 on the employment and 
social impact of the green transition and Annex 7 
on the circular economy aspects of the Green Deal. 

the  European  Green  Deal. 

It 

Graph A5.1: Fiscal aspects of the green transition: 
taxation and government expenditure on 
environmental protection 

Source: Eurostat 

intensity 

continues 

Croatia has met its European greenhouse gas 
(GHG) reduction target for 2020 and is set to 
achieve the current 2030 target for non-ETS 
sectors.  By  2020  the  country’s  total  GHG 
emissions  had  decreased  considerably  compared 
to 1990, although less than in the EU as a whole. 
to  be 
However,  GHG 
significantly  higher  than  the  EU  average.  Croatia 
reached  its  the  2020  target  for  sectors  not 
covered by the EU emissions trading system (such 
as  buildings,  road  transport,  agriculture,  small 
industry and waste). If all additional measures are 
implemented, Croatia is set to achieve the current 
2030 targets and to just about reach the proposed 
target  under  the  Fit  for  55  package  for  non-ETS 
sectors.  However,  its  transport  sector  emissions, 
especially 
emissions,  have 
transport 
increased sharply in recent years and are projected 

road 

to  continue  to  increase,  which  poses  a  risk  for 
meeting the latter target. In its long-term strategy 
for decarbonisation strategy, Croatia has set itself 
the  goal  of  reducing  GHG  emissions  by  between 
57%  and  73%  by  2050  (excluding  land  use  and 
forestry) but faster decarbonisation will be needed 
for Croatia to be climate-neutral by 2050. Croatia 
its  RRP  to  climate 
has  allocated  40.3%  of 
objectives.  The  plan  also  features  crucial  reforms 
and  investments  to  step-up  the  transition  to  a 
more sustainable, low-carbon and climate-resilient 
economy (23). 

Graph A5.2: Thematic – Energy: Share in energy 
mix (solids, oil, gas, nuclear, renewables) 

(1) The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste.. 
Source: Eurostat 

to  GDP.  Of 
compared 
taxation  categories,  only 

Croatia  is  recording  high  revenues  from 
environmental taxation, both as a share of total 
the 
taxation  and 
environmental 
tax 
collections  on  resources  and  pollution  are  smaller 
than  in  the  EU  on  average (24).  Government 
expenditure  on  environmental  protection  is  a 
smaller  share  of  total  government  expenditure  in 
Croatia  than  in  the  EU  on  average.  Croatia  is 
exposed  to  climate  related  risks  such  as  floods, 
that  affect  primarily 
wildfires  or  droughts 
agricultural, water and energy sectors. Due to the 

(23)  The share of financial allocation contributing to climate 

objectives has been calculated using Annex VI of the RRF 
Regulation. 

(24)  For more information on taxation see Annex 18. 

27 

0.01.02.03.04.05.06.07.08.09.010.0Environmentaltaxes (% of GDP)Environmentaltaxes (% of totaltaxation)Governmentexpenditure onenvironmentalprotection (% oftotal expenditure)HR (2020)EU27 (2020)0102030405060708090100200520102015201820192020RenewablesNuclearGasOilSolid fossil fuels, peat and oil shale 
 
 
   
   
                                                 
 
 
pronounced  insurance  gaps,  public  finances  are 
also exposed to such risks. 

Croatia’s  energy  mix  has  improved  in  recent 
years,  but  remains  heavily  reliant  on  fossil 
fuels.  The  fossil  component  represents  67%  of 
the  mix  (32%  which  is  gas  and  35%  oil  and 
petroleum  products).  In  2020,  Croatia  brought  its 
share of energy from renewable sources to 28% in 
gross 
inland  energy  consumption.  However, 
because  of  administrative  barriers  to  permit-
granting  procedures  for  their  deployment,  wind 
and  solar  energy  account  for  only  2.1%  of  the 
energy mix (13% and 1% respectively of the total 
installed  electricity  generation  capacity),  while 
solid  biofuels  represent  17%  of  the  total  energy 
mix.  Lately,  roughly  two  thirds  of  Croatia’s 
electricity  has  been  coming  from  renewables, 
predominantly  hydropower  (between  40%  and 
60% depending on whether it is a dry/moist year). 
In 2020 Croatia also relied on natural gas for 71% 
of its heat and on primary solid biofuels for up to 
24%. 

Graph A5.3: Thematic – Biodiversity: Terrestrial 
protected areas and organic farming 

Source: For terrestrial protected areas data for 2018, and 
data for the EU average (2016, 2017) is lacking EEA 
(terrestrial protected areas) and Eurostat (organic farming). 

In  terms  of  biodiversity  and  ecosystem 
health,  Croatia  has  a  rich  natural  heritage, 
with  an  abundance  of  water,  a  remarkable 
coast,  natural parks  and  diverse  marine  and 
terrestrial  ecosystems.  By  2021,  38.1%  of  the 
national  land  area  of  Croatia  was  covered  by 
Natura  2000  (against  an EU  average  of  25.74%). 
There are still gaps in the marine environment, but 
largely 
the 

land  network  can  be  considered 

28 

complete. Nevertheless, data from 2018 show that 
only 39.2% of habitat assessments and only 7.1% 
of  Croatia’s  protected  species  have  a  good 
conservation  status.  Croatian  forests  and  wooded 
land cover 58% of its territory, more than 25% of 
the  assessments  of  forests  reveal  bad  to  poor 
status.  

Graph A5.4: Thematic – Mobility: Share of zero 
emission vehicles (% of new registrations) 

(1) Zero emission vehicles (passenger cars) include battery 
and fuel cell electric vehicles (BEV, FCEV). 
Source: European Alternative Fuels Observatory 

In terms of pollution, the emissions of key air 
pollutants  have  decreased  significantly  in 
Croatia over the last few years, but Croatian 
air  quality  continues  to  give  cause  for 
concern.  The  latest  available  annual  estimates 
from  the  European  Environment  Agency  point  to 
about  1,064  years  of  life  lost  per  100,000 
inhabitants  due  to  air  pollution  by  PM2.5  fine 
particulate  matter  concentrations,  and  42  years 
due to pollution by nitrogen dioxide concentrations.  

Regarding  the  greening  of  mobility,  there  is 
room  for  improvement.  There  is  still  a  lot  of 
potential  to  increase  the  share  of  zero-emission 
passenger  cars  in  new  registrations  in  Croatia. 
Action should also be taken to further increase the 
speed of fleet renewal through scrapping schemes 
where support for the purchase of a zero-emission 
vehicle  as  a  replacement  of  an  old  vehicle,  with 
incentives  also  for  the  retrofitting  of  old  vehicles, 
or  measures  to  disincentivise  the  use  of  older 
vehicles in business and corporate fleets. There is 
a  need  to  accelerate  a  shift  towards  more 
sustainable  transport  modes  by  increasing  the 
number  of  passengers  travelling  by  rail  and 

05101520253035402016201720192020Terrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0.01.02.03.04.05.06.07.08.09.010.0201620172018201920202021% of new registrationsHREU27 
   
   
commuting  by  public  transport  and  active  modes, 
including  by  improving  the  quality  of  energy-
efficiency  of  the  fleet  and  of  the  services.  Rail’s 
modal share in passenger land transport is around 
2.5%,  well  below  the  EU  average  (of  8%),  while 
rail’s modal share in freight land transport is 21%, 
slightly higher than the EU average of 19%. More 
must be done to complete the construction of the 
Trans-European  Transport  Network  (TEN-T)  core 
network  by  2030,  in  particular  the  rail  network, 
which  is  lagging  behind  in  terms  of  modern 
connections and TEN-T compliance. 

29 

 
Table A5.1: Indicators underpinning the progress on EU Green Deal from macroeconomic perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The F55 targets are based on the COM proposal to 
increase EU's climate ambition by 2030. Renewables and Energy Efficiency targets and national contributions under the 
Governance Regulation (Regulation (EU) 2018/1999). (2) Distance to target is the gap between Member States’ 2030 target under 
the Effort Sharing Regulation and projected emissions, with existing measures (WEM) and with additional measures (WAM) 
respectively, as a percentage of 2005 base year emissions. (3)  Percentage of total revenues from taxes and social contributions 
(excluding imputed social contributions). Revenues from the ETS are included in environmental tax revenues (in 2017 they 
amounted to 1.5% of total environmental tax revenues at the EU level). (4) Covers expenditure on gross fixed capital formation to 
be used for the production of environmental protection services (i.e. abatement and prevention of pollution) covering all sectors, 
i.e. government, industry and specialised providers. (5) The climate protection gap indicator is part of the European adaptation 
strategy (February 2021), and is defined as the share of non-insured economic losses caused by climate-related disasters. 
(6) Sulphur oxides (SO2 equivalent), Ammonia, Particulates < 10µm, Nitrogen oxides in total economy (divided by GDP). 
(7) Transportation and storage (NACE Section H). (8) Zero emission vehicles include battery electric vehicles (BEV) and fuel cell 
electric vehicles (FCEV). (9) European Commission Report (2019) “Benchmarking smart metering deployment in the EU-28”. 
(10) European Commission (2021). Each year the DESI is re-calculated for all countries for previous years to reflect any possible 
change in the choice of indicators and corrections to the underlying data. Country scores and rankings may thus differ compared 
with previous publications.. 
Source: Eurostat, JRC, European Commission, EEA, EAFO. 

30 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (1a)18.1-8%-9%-7%511-17%-51200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%24%28%27%28%28%31%36%Energy efficiency: primary energy consumption (1)Mtoe9.18.08.38.28.27.88.2Energy efficiency: final energy consumption (1)Mtoe7.26.66.96.96.96.56.9201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP3.33.43.53.53.53.32.42.42.2Environmental taxes (% of total taxation)% of taxation (3)9.19.39.49.49.28.96.05.95.6Government expenditure on environmental protection% of total exp.1.361.411.371.451.441.521.661.701.61Investment in environmental protection% of GDP (4) 0.500.520.490.47--0.420.380.41Fossil fuel subsidiesEUR2020bn0.110.140.160.150.16-56.8755.70-Climate protection gap (5)score 1-4Net GHG emissions1990 = 100757679767675797669GHG emissions intensity of the economykg/EUR'100.530.520.510.480.460.490.320.310.30Energy intensity of the economykgoe/EUR'100.190.180.180.170.170.170.120.110.11Final energy consumption (FEC)2015=100100.0100.8105.1104.0104.998.3103.5102.994.6FEC in residential building sector2015=100100.099.198.594.692.193.7101.9101.3101.3FEC in services building sector2015=100100.0102.3107.1109.1109.599.2102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)1.851.741.721.651.58-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.11101219121613371064-863762-Years of life lost due to air pollution by NO2per 100.000 inh.10560772342-12099-Nitrate in ground watermg NO3/litre------21.720.7-Terrestrial protected areas% of total-37.537.8-38.038.0-25.725.7Marine protected areas% of total-9.1--9.5--10.7-Organic farming% of total utilised agricultural area4.96.16.56.97.27.28.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'100.720.690.750.730.810.920.890.870.83Share of zero emission vehicles (8)% in new registrations0.20.10.00.20.41.51.01.95.42322258812Share of electrified railways%37.337.237.237.237.1-55.656.0-26.023.723.724.023.1-28.928.8-YearHREUShare of smart meters in total metering points (9) - electricity% of total20182.335.8Share of smart meters in total metering points (9) - gas% of total20180.013.1ICT used for environmental sustainability (10)%202174.965.9Number of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver)DistanceDistance2000-20062006-20122012-201816.58.07.0DigitalFiscal and financialindicatorsClimateEnergyPollutionBiodiversityMobilityProgress to policy targetsNational contribution to 2030 EU target2.4 out of 4 (slight increase from historical level of 2.3). This is a low/medium risk category (4 being a high risk).CROATIAEU 
 
  
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social  dimension.  While  measures  in  this  regard 
include the opportunity for sustainable growth and 
job creation. It must also be ensured that no one is 
left  behind  and  all groups  in  society  benefit  from 
the  transition.  Croatia’s  green  transition  can 
benefit  from  recent  policy  measures  and  has  the 
potential  to  support  quality  job  creation;  at  the 
same time, lower-income groups are likely to face 
the biggest challenges.  

is 

to 

expected 

Croatia’s Recovery and Resilience Plan (RRP) 
outlines  important  reforms  and  investments 
to  support  a  fair  green  transition.  The 
adoption  of  new  active  labour  market  policy 
(ALMP)  measures 
boost 
employment  and  self-employment  linked  to  the 
green  and  digital  transitions,  and  increase  the 
competitiveness  and  employability  of  the  labour 
force  in  line  with  labour  market  needs.  Such 
measures will be implemented in combination with 
a  newly  established  voucher  system,  which  aims 
to support lifelong learning and the acquisition of 
new  skills,  in  particular  green  and  digital  skills.  In 
both  cases,  the  focus  will  be  on  the  activation  of 
vulnerable groups in the labour market. As part of 
the initiative related to the renovation of buildings, 
the  RRP  envisages  the  publication  of  a  National 
Skills Development Plan. This plan will promote the 
acquisition  of  green  skills  in  the  context  of 
Croatia’s  energy  and  post-earthquake  renovation, 
on the basis of a review and by adapting existing 
educational  programmes.  ESF+ (25)  and  Just 
Transition  Fund  programmes  will  provide  further 
green 
integrated 
national  energy  and  climate  plan  (NECP)  of 
December  2019  only  partially  addresses  the 
impact  of  transition  on  the  economy,  the  labour 
market and socio-economic conditions. It points to 
the  development  of  a  programme  for 
the 
elimination  of  energy  poverty,  including:  (i)  the 
provision  of  consulting  services  for  energy-poor 
citizens,  (ii)  monitoring  energy  poverty  and  (iii) 
increasing  energy  efficiency.  However, 
the 
programme does not report on the specific number 
of households affected.  

transition  support.  Croatia’s 

its  carbon 
Croatia  has  slightly  reduced 
industries 
footprint.  Key  energy-intensive 
remain below the EU average, but the size of 

(25)  European Social Fund + 

31 

the  green  economy  is  slightly  above  the  EU 
average  and  has  further  potential  to  create 
quality job. The greenhouse gas (GHG) emissions 
intensity  of  the  Croatian  economy  decreased 
slightly  between  2015  and  2020  (in  terms  of 
gross  value  added),  but  is  78%  above  the  EU 
average.  The  average  carbon  footprint per  worker 
in  Croatia  amounts  to  10.44  tons  of  GHG 
emissions (against 13.61 in the EU) (see Figure 1). 
Petroleum  refineries  and  fossil-fuel-based  energy 
production  have  been 
identified  as  declining 
sectors (26)  and  transformations  are  expected  in 
the  chemicals  and  cement  sectors,  which  will 
require  the  upskilling  and  reskilling  of  workers. 
Croatia’s  energy-intensive 
including 
metals, chemicals and paper (27), provides jobs for 
2%  of  the  total  employed  workforce,  for  whom 
upskilling  and  reskilling  opportunities  will  be 
particularly 
(see  Annex  15).  The 
environmental  goods  and  services  sector  already 
employs  a  relatively  large  share  of  the  employed 
population  (2.3%  against  2.2%  in  the  EU) (28). 
Wind and solar energy potential as well as energy 
efficiency 
further 
opportunities  for  green  jobs (29).  At  the  same 
time,  however, 
labour  shortages  have  been 
identified in the energy sector (30). 

improvements 

important 

industry, 

offer 

As  for  the  social  aspect  of  the  green 
transition,  ensuring  access  to  transport  and 
energy services appears to be overall less of 
a challenge in Croatia, but the risk of poverty 
in  rural  areas  remains  high.  A  relatively  high 
share  of  the  population  at  risk  of  poverty  lives in 
rural  areas (24.2% against 18.7% in the EU) (31). 
The  share  of  the  population  unable  to  keep  their 
homes  warm  enough  decreased  from  9.9%  in 
2015  to  5.7%,  below  the  EU  average  of  8.2%  in 

(26)  SWD(2021) 275 final. 

(27)  2020 European Semester: Overview of Investment Guidance 
on the Just Transition Fund 2021-2027 per Member State 
(Annex D) 

(28)  There is currently no common EU-wide definition of green 
jobs. The environmental goods and services sector (EGSS) 
accounts only report on an economic sector that generates 
environmental products, i.e. goods and services produced for 
environmental protection or resource management. 

(29)  https://publications.jrc.ec.europa.eu/repository/handle 

/JRC126047 

(30)  Eurofound, 2021 

(31)  Based on COM(2021) 568 final (Annex I) As as a proxy for 
potential transport challenges in the context of the green 
transition (e.g. due to vulnerability to fuel prices) (see 
COM(2021) 568 final). 

 
 
                                                 
                                                 
 
2020. Lower-income groups are affected the most 
(see  Figure  2).  Consumption  patterns  vary  across 
the population: the average carbon footprint of the 
top 10% of emitters is about 5 times higher than 
that  of  the  bottom  50%  of  the  population  (5.3 
times in the EU). 

Tax  systems  are  the  key  to  ensuring  a  fair 
transition  towards  climate  neutrality (32). 
Croatia’s revenues from total environmental taxes 
increased  slightly  from  3.33%  of  the  Gross 
Domestic  Product  (GDP)  in  2015  to  3.46%  in 
2019,  but  decreased  again  to  3.28%  in  2020 
(against  2.24%  in  the  EU).  The  labour  tax  wedge 
for 
low-income  earners (33)  decreased  from 
32.8%  in  2015  to  31.3%  in  2019  (also  31.3%  in 
2021), compared to 31.9% in the EU in 2021 (see 
Annex 18). 

Graph A6.1: Fair green transition challenges 

Graph A6.2: Energy poverty by income decile 

Source: Eurostat EU-SILC survey (2020) 

(1) Numbers are the normalised indicator performance, 
signifying factors relative to EU27 average 
Source: Eurostat, World Inequality Database 

(32)  COM(2021) 801 final. 

(33)  Tax wedge for a single earner at 50% of the national 
average wage (Tax and benefits database, European 
Commission/OECD). 

32 

0,000,501,001,502,002,50GHG_GVA(MS/EU)GHG_worker(MS/EU)Empl_share_EII(MS/EU)AROP_rural(MS/EU)Energy_poverty(MS/EU)Carbon_inequality(MS/EU)CroatiaEU 2020Croatia 20150%5%10%15%20%25%30%12345678910Income decileCroatiaEuropean Union 
  
 
                                                 
  
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESOURCE EFFICIENCY AND PRODUCTIVITY 

operate  in  Croatia,  undermining  the  country’s 
green  transition.  Despite  efforts  to  close  and 
remedy illegal dumping sites, there remains scope 
for improvement.  

A successful transition to a circular economy 
requires  social  and  technological  innovation 
as full circular economy potential can only be 
reached  when  social  and 
technological 
innovation  are  implemented  across  all  value 
chains.  This  makes  eco-innovation  an  important 
enabling  factor  for  the  circular  economy.  Croatia 
ranked 21st in the list of EU countries with a total 
score  of  86  in  the  Eco-Innovation  Scoreboard  of 
2021. 

Graph A7.1: Economic importance and expansion of 
the circular economy: employment and value 
added in the Circular Economy sectors 

Source: Eurostat 

while 

minimising 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
industry 
clean 
creating  markets 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chains  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics,  helping  create  sustainable, 
local and well-paid jobs across Europe. 

for 

by 

Croatia  has  made  some  progress  in  circular 
secondary  material  usage  over  the  past 
decade  (5.1%  in  2020).  However,  it  is  still 
lagging  significantly  behind  the  EU  average 
(12.8%).  It  has  included  in  its  Recovery  and 
Resilience  Plan  (RRP)  circular  economy-related 
reforms  such  as  a  new  legal  framework  to 
facilitate  waste  prevention,  reuse  and  recycling, 
reform 
tourism  sector  more 
sustainable,  with  a  new  tourism  model  that 
contributes to the green transition and adheres to 
circular  economy  principles,  and  the  development 
of a framework for the design and implementation 
of  green  urban  renewal  strategies  aimed  at  
developing models for the circular management of 
space  and  buildings.  Nevertheless,  Croatia  would 
benefit  from  a  more  comprehensive  circular 
economy strategy. 

to  make 

the 

(PPS)/kg 

in  Croatia 

(1.8 
Resource  productivity 
purchasing  power  standards 
in 
2020)  remains  significantly  below  the  EU 
average  (2.23  PPS/kg)  and  has  not  been 
improving  over  in  recent  years.  Resource 
productivity 
the 
economy  uses  material  resources  to  produce 
wealth.  Improving  resource  productivity  can  help 
minimise  negative  impacts  on  the  environment 
and  reduce  dependency  on  volatile  raw  material 
markets.  

expresses  how 

efficiently 

Croatia’s  economic  growth 
is  not  yet 
decoupled from its generation of waste. It has 
made  slow  but  steady  progress  over  the  past 
decade  on  increasing  its  municipal  recycling  rate. 
Despite this, the municipal recycling rate for 2020 
was  34.3%,  far  below  the  2020  target  of  50% 
recycling  of  municipal  waste.  Moreover,  there  are 
indications  that  a  significant  number  of  irregular 
and  substandard 
including  municipal 
landfills, 
waste  being  landfilled  without  any  treatment, 

33 

0.0%0.5%1.0%1.5%2.0%2.5%3.0%2015201620172018Persons employed in the circular economy, HR (% of totalemployment)Value added at factor cost, HR (% of GDP ) 
 
 
  
 
 
 
Table A7.1: Selected resource efficiency indicators 

Source: Eurostat 

34 

SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)1.71.71.91.91.91.82.22020Material Intensity (kg/EUR)0.60.60.50.50.50.60.42020Circular Material Use Rate (%)4.64.65.25.05.25.112.82020Material footprint (Tones/capita)12.012.313.113.514.2-14.62019Waste Waste generation (kg/capita, total waste)-1286-1355--52342018Landfilling (% of total waste treated)-47.6-42.0--38.52018Recycling rate (% of municipal waste)18.021.023.625.330.234.347.82020Hazardous waste (% of municipal waste)-3.2-3.1--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)1.61.51.51.41.41.52.32019Private investment in circular economy (% of GDP)0.20.10.10.2--0.12018Latest year EU 27 
 
  
 
businesses  are  taking  good  advantage  of  the 
opportunities  in  digital  technologies  offer.  For 
example, the use of Artificial Intelligence and cloud 
are  all  above  the  EU  average  while  the  use  big 
data has reached the same level as EU average.   

Croatia  is  still  underperforming  in  digital 
public  services.  Croatia  scores  below  the  EU 
average  in  terms  of  the  availability  and  usage  of 
digital  online  services,  for  both  citizens  and 
particularly on those for businesses. The usage of 
digital  public  services  for  citizens  and  for 
businesses  stand  at  respectively  at  69%  (EU 
average of 75%) and 68% (EU average of 82%). 

ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The  areas  of  human  capital,  digital  connectivity, 
the 
technologies  by 
businesses  and  digital  public  services  reflect  the 
Digital  Decade’s  four  cardinal  points (34).  This 
Annex describes Croatia’s DESI performance.  

integration  of  digital 

The  Recovery  and  Resilience  Plan  (RRP) 
includes digital investments of a total share 
of  20.4%.  A 
these  digital 
large  part  of 
investments focuses on the digitalisation of public 
increase  the  provision  and 
administration  to 
quality  of  digital  public  services.  There  are  also 
reforms  and  investments  in  area  of  connectivity 
with dedicated measures to provide access to very 
high capacity networks in rural areas. 

The  lack  of  ICT  specialists  is  a  key  human 
capital  challenge  for  Croatia.  ICT  specialists 
account for a lower percentage of the workforce in 
Croatia  than  the  EU  average.  The  percentage  of 
female  ICT  specialists  is  slightly  above  the  EU 
average. The lack of specialists is also felt on the 
labour  market  with  68% (35)  of  businesses 
(compared to 55% in the EU) recruiting or trying to 
recruit 
reporting  problems 
finding  suitable  candidates.  Shortages  of  ICT 
specialists  can  directly  limit  businesses’  capacity 
to  innovate  or  provide  new  digital  services  and 
products.  

ICT  professionals 

very 

Fixed 

Croatia  has  a  mixed  performance  in  digital 
connectivity. 
high-capacity 
networks  (VHCN)  coverage  including  fibre  to 
the  premises  is  steadily  increasing,  however 
it is still significantly below the EU average. 
Penetration  of  100Mbps  services  and  the  related 
broadband price index are both well below the EU 
average  (16%  compared  to  41%  at  EU  average 
and  57%  compared  to  73%  at  EU  average). 
Croatia  has  assigned  all  5G  spectrum  in  the 
pioneer bands (5G readiness at  100%), but still is 
below EU average 5G coverage. 

businesses 

Croatian 
in 
integrating  digital  technology.  The  share  of 
SMEs with at least a basic level of digital intensity 
is  still below  the  EU  average  ).  However;  Croatian 

perform  well 

(34)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM (2021) 118 final. 

(35)  Source: Eurostat – European Union Survey on ICT Usage and 

eCommerce in Enterprises 

35 

 
 
                                                 
 
Table A8.1: Key Digital Economy and Society Index Indicators 

(*) The 5G coverage indicator does not measure users’ experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 

36 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA63%54%79%% individuals202120212021ICT specialists3.2%3.7%3.6%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists21%18%21%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage43%47%52%70%100%% households201920202021202120215G coverage (*)NA0%34%66%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA50%55%86%% SMEs202120212021Big data10%14%14%14%31%% enterprises20182020202020202020CloudNANA35%34%69%% enterprises202120212021Artificial IntelligenceNANA9%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA6975100Score (0 to 100)202120212021Digital public services for businessesNANA6882100Croatia 
 
 
 
   
 
ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

and 

innovation 

This  Annex  provides  a  general  overview  of 
the  performance  of  Croatian  research-
development 
system. 
According  to  the  2021  edition  of  the  European 
Innovation  Scoreboard1,  Croatia  is  an  emerging 
innovator. It has been reducing the gap between it 
and the EU innovation leaders. Total Research and 
Development  (R&D)  intensity  reached  1.25%  of 
the  Gross  Domestic  Product  (GDP)  in  2020,  still 
below  the  EU  average  but  with  a  clear  upward 
trend.  More  balanced  regional  distribution  of  R&D 
expenditure remains a challenge. 

The  framework  conditions  for  businesses  to 
innovate  and  invest  in  R&D  require  further 
improvement.  Progress  has  been  made  and 
businesses’ R&D expenditure increased to 0.6% in 
2020 from 0.4% in 2015, but it remains fairly low 
(EU  average  1.53%).  Public  sector  support  for 
businesses  has  been  especially  low  (0.038%  in 
2019,  compared  to  the  EU  average  of  0.196%), 
although  signs  of  significant  relative  increases 
have  been  noted  since  2018.  To  improve  these 
conditions  and  promote  business 
innovation, 
Recovery  and  Resilience  Facility  reforms  aim, 
among  other  things,  to  analyse  the  existing  R&D 
tax incentive scheme and amend and complement 
the  legal  framework  for  R&D  tax  incentives  to 
encourage  the  private  sector  to  increase  its  R&D 
investment intensity. 

the 

Croatia  continues  to  produce  scientific 
outputs  of  modest  quality  and  struggles  to 
foster  science-business  cooperation.  The 
share  of  the  country’s  scientific  publications 
top  10%  most  cited  scientific 
among 
publications  worldwide  has  been  increasing  since 
2013 (4.0% in 2018, compared to 2.7% in 2010), 
but remains below the EU average (9.9% in 2018). 
Regarding  science-business  cooperation,  public-
private  scientific  co-publications  have  increased, 
but  are  also  still  below  the  EU  average  (8.1% 
compared  to  the  2020  EU  average  of  9.05%). 
Public expenditure on R&D financed by businesses 
(%  of  GDP)  remains  notably  low.  To  tackle  these 
and  related  challenges,  the  Croatian  RRP  contains 
wide-ranging  reforms,  revamping  the  funding 
research 
system  of  universities  and  public 
organisations, strengthening research careers, and 
improving  the  efficiency  of  R&D  and  innovation 
to  promote 
support  programmes 
knowledge  transfer  and  the  commercialisation  of 
innovation.  Building  on 
the  RRP,  additional 
measures  would  be  welcome  to  strengthen  the 
links  between  relevant  R&I  actors  (such  as  the 

in  order 

Croatian  Science  Foundation  and  HAMAG-BICRO). 
This  would  help  to  encourage  science-business 
cooperation  and  pave  the  way  towards  a  stable 
steering of R&I programmes. 

37 

 
 
 
 
Table A9.1: Key research, development and innovation indicators 

Source: European Commission, OECD 

38 

CompoundedEUannual growthaverage2010-20R&D Intensity (GERD as % of GDP)0.740.830.951.081.255.42.32Public expenditure on R&D as % of GDP0.410.400.490.550.654.70.78Business enterprise expenditure on R&D (BERD) as % of GDP0.320.420.460.530.66.31.53Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 2.73.64.0::4.99.9PCT patent applications per billion GDP (in PPS)0.80.40.5::-6.93.5Public-private scientific co-publications as % of total publications7.56.97.78.58.10.79.05Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0300.0330.0070.0800.030-0.020.054New graduates in science & engineering per thousand pop. aged 25-3411.812.815.015.9:5.016.3Total public sector support for BERD as % of GDP0.0130.0050.0240.038:12.50.196Share of environment-related patents in total patent applications filed under PCT (%)16.712.87.4 :: -9.612.8Venture Capital (market statistics) as % of GDP0.0030.0060.0060.0040.0067.30.054Employment in fast-growing enterprises in 50% most innovative sectors2.63.34.04.2:5.55.5Finance for innovation and Economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation 2020Croatia2010201520182019 
 
 
 
  
 
ANNEX 10: INDUSTRY AND SINGLE MARKET 
ANNEX 10: INDUSTRY AND SINGLE MARKET 

reforms, 

Although  the  Croatian  economy 
is  well 
integrated  into  the  single  market,  barriers 
remain.  Despite 
several 
recent 
professions  (lawyers,  architects,  engineers,  tax 
advisers)  face  higher  regulatory  restrictions  than 
their  EU  counterparts.  The  RRP  is  expected  to 
tackle  such  restrictions  by  removing  at  least  50 
regulatory requirements based on Croatia’s second 
and  third  action  plans  on  the  liberalisation  of 
services markets. 

Overall,  the  Croatian  economy  has  been 
less  affected  than  other  EU 
relatively 
economies by global supply chain disruptions. 
This is because Croatia relies a bit less on extra-EU 
imports  and  depends  less  on  key  raw  materials 
than  the  EU  average.  This  is  partly  explained  by 
the  low  share  of  manufacturing  in  its  economy. 
Only 15% of firms reported shortages in materials 
or  equipment  in  2021  (against.  26%  for  the  EU 
average).  Public investments  have  been  sustained 
by 
the  uptake  of  EU  funds,  but  business 
investment remained lower than in the EU (2020), 
partly  because  the  business  environment  is  so 
restrictive,  because  the  state  is  so  present  in  the 
economy  and  Croatia’s  venture  capital  market  is 
so underdeveloped. The RRP includes measures to 
reduce  para-fiscal  charges  burdening  businesses 
and  the  number  of  non-strategic  state-owned 
companies.  

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence over the long run. A major source 
of  productivity  for  the  EU  economy  is  a  well-
functioning single market, where fair and effective 
competition  and  a  business  friendly  environment 
are  ensured, 
in  which  small  and  medium 
enterprises  (SMEs)  can  operate  and  innovate 
without  difficulty.  Businesses  and  industry  rely 
heavily  on  robust  supply  chains  and  are  facing 
bottlenecks that bear a negative impact on firms’ 
productivity 
levels,  employment,  turnover  and 
entry/exit  rates.  This  may  impact  the  Member 
States'  capacity  to  deliver  on  Europe’s  green  and 
digital transformation. 

Croatia’s labour productivity lags behind that 
its regional peers (36). Despite having increased 
from 2019 to 2021 (1.7% a year against 0.5% for 
the  EU),  its  level  remains  below  the  EU  average 
and varies widely across regions. Croatia has a low 
performance  in  skills  shortages  (19%  of  firms 
report  labour  shortages  against  14%  in  the  EU), 
total  factor  productivity,  and  allocative  efficiency 
and this impacts on its productivity gap. 

and  Development, 

improvements,  Croatia  performs 
Despite 
its  business 
it  comes  to 
poorly  when 
environment. Late payments are a major barrier 
to  SMEs’  resilience  and  growth  (48%  of  SMEs 
experienced payment delays in the past 6 months 
against  32%  for  the  EU).  They  were  the  second 
most  significant  barrier  for  SMEs  and  start-ups 
according to the 2020 Eurobarometer (37). Access 
to  finance  has  improved  thanks  to  the  successful 
loan  programmes  of  the  Croatian  Bank  for 
Reconstruction 
a 
cooperative  project  with  the  European  Investment 
Fund  establishing  a  new  venture  capital  fund. 
However,  access  to  equity  remains  constrained, 
especially for SMEs (0.06 compared to 0.18 for the 
EU).  The  Recovery  and  Resilience  Plan  (RRP) 
includes measures to create financial  instruments 
for  micro-businesses  and SMEs,  as  well  as  equity 
and  quasi-equity 
instruments.  Although  an 
average  public  procurement  performer  compared 
to the EU,  Croatia’s score for SME participation in 
public  procurement  procedures  is  below  the  EU 
average.  To  address  this  situation,  the  Croatian 
RRP  includes  measures  on  drafting  guidance  to 
improve SMEs’ participation in public procurement. 

and 

(36)  Regional peers include HU, PL, SI 

(37)  Flash Eurobarometer 486 

39 

 
 
                                                 
 
Table A10.1: Key Single Market and Industry indicators 

(1) Latest available data 
Source: See above in the table the respective source for each indicator in the column “description” 

40 

POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average(1)Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]64,8362,6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]22,7419,7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]12,417,6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]122,695,2102,8101,794,829,3%127,3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]159581136%26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]1915343025-24%14%Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]2,4%5,4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0,140,150,130,120,138%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]69,3064,6059,1058,8018%47.8%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]1,63,944,2-61,9%2,6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]1,81,10,2-0,6-400%0,4%Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]3,052,742,842,652,4524%1,59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])6   60%3,37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]5745%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]Below averageAbove averageAbove averageBelow averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]AboveOn averageOn averageOn averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]4956%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.70,1Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]110,4151,2140,6125-11.7%105,6Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]4850,750,2n.a.n.a.-4%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0,650,710,540,28130,6%0,56EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0,060,090,080,0519,4%0,18% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]2,79,96,350n.a.12,4%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]51514748486,3%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]4141375053-23%70,8%Public procurement SINGLE MARKETCompliance - cooperation EC and MSBUSINESS ENVIRONMENT - SMEsBusiness demographyAccess to financeInvestment dynamicsHEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependencies 
 
  
 
low  share  of  centralised  purchasing.  The  RRP 
addresses both of these matters.  

Graph A11.1: E-government benchmark scores (lhs) 
and e-government users (rhs) 

Source: Eurostat (ICT use survey) and E-government 
benchmark report 

the 

The RRP includes several measures related to 
the  civil  service  management.  While  plans  for 
de-politicisation and to professionalise the central 
administration  have  not  been  fully  implemented, 
some  progress  has  been  made  in  relation  to  the 
management  of 
internal  administrative 
structures  within  ministries,  which  was  entrusted 
to  senior  civil  servants.  There  is  also  a  limited 
participation  of  civil  servants  in  adult  learning. 
Accordingly,  the  RRP  aims  to  introduce  new  wage 
and work models in the public sector, upgrade the 
human  resource  management  system  and  put 
conditions in place that are conducive to mobility. 
It also aims to improve the recruitment process by 
strengthening 
and 
enhancing people’s skills. 

admission 

system 

the 

ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress  and 
fairness. Public administrations at all government 
levels deliver crisis response, ensure the provision 
of  public  services  and  contribute  to  building 
resilience  for  the  sustainable  development  of  the 
EU economy. 

The effectiveness of public administration in 
Croatia  is  ranked  significantly  below  the 
EU27  average1.  The  high  level  of  fragmentation 
as well as insufficient financial and administrative 
capacities  of  the  local  government,  result  in  wide 
disparities in public service provision. The recovery 
and  resilience  plan  (RRP)  aims  to  incentivise 
mergers  of  local  authorities,  improve  the  public 
administration´s  efficiency  and  strengthen  policy 
making. 

Croatia’s policy-making has significant room 
for improvement. Performance on the evidence-
based  policymaking  indicator  is  below  the  EU 
average,  in  particular  regarding  ex  ante  and  ex 
post evaluation of legislation, reflecting ministries’ 
limited  analytical  capacity.  The  RRP  aims  to 
enhance  coordination  among  relevant  ministries 
and 
impact  assessment 
processes. 

regulatory 

improve 

indicator 

Croatia 
lags  behind  on  e-government 
indicators  and  on  selected  fiscal  framework 
indicators,  despite  some  progress  recently. 
The share of e-government users has increased in 
recent years (from 47 % in 2017 to 55% in 2021), 
but  remains  much  more  below  the  EU  average 
the  e-government 
than  other  aspects  of 
benchmark 
(graph  A11.1).  The  RRP 
contains  various  measures  to  digitalise  public 
administration,  enhance 
interoperability  and 
increase the provision and quality of digital public 
services.  However,  it  lacks  targeted  measures  for 
the  development  of  digital  skills 
in  public 
administration.  Performance  is  also  below  the  EU 
average  for  the  mandate  of  independent  fiscal 
institutions  and  the  design  of  the  national 
medium-term budgetary framework (graph A11.2). 
However, 
in 
December  2021  (also  part  of  the  RRP)  has 
strengthened the coherence and guiding power of 
the medium-term budgetary framework. Croatia is 
procurement 
generally 
performer, but its score is below the EU average in 
several dimensions. The main reasons for this are 
the relatively high shares of contracts awarded in 
cases where there was just a single bidder and the 

the  new  Budget  Act  adopted 

average 

public 

an 

41 

01020304050607080HREU27averageHREU27averageUser centricityTo obtain informationTransparencyTo download official formsKey EnablersTo submit completed formsCross-border servicesE-governmentbenchnark scoreE-government users 
 
   
 
 
Graph A11.2: Scope Index of Independent Fiscal 
Institutions (SIFI, rhs) and medium term 
budgetary framework (MTBF, rhs) indices 

Source: European Commission Fiscal Governance Database, 
2020  

There  is  scope  for  improving  the  efficiency 
and  quality  of  justice.  The  justice  system 
extended electronic communication and decreased 
backlogs  at higher  court instances,  but  significant 
efficiency and quality issues remain. The backlogs 
and  length  of  proceedings  continued  to  decrease 
at second instance and in the Supreme Courts, and 
mostly  increased  or  stagnated  at  first  instance 
courts,  and  remain  among  the  most  considerable 
in  the  EU.  As  regards  the  quality  of  the  justice 
system  administrative  courts  were integrated into 
the  unified  ICT  system  and  the  use  of  electronic 
communication  grew,  but  significant  room  for 
improvement remains. Human resources shortages 
in  human  resources  at  the  State  Judicial  Council 
and  the  State  Attorney’s  Councils  are  being 
addressed  with  reinforcements,  while  targets  and 
measures are envisaged to reduce the duration of 
court  cases.  No  systematic  judicial  independence 
deficiencies have been reported.2 

42 

00.050.10.150.20.250.3Coverage (MTBF)CoherenceInvolvement ofparliamentInvolvement ofIFILevel of detailCompliance withfiscal rules (SIFI)Macro and fiscalforecastingSustainabilityassessmentPromotion offiscaltransparencyNormativeassessmentsHREU27 averageSIFIMTBF 
   
Table A11.1: Key public administration indicators 

(1)  High values stand for good performance barring indicators #7 and 8. 
(2) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. 
Source: ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); OECD Indicators of Regulatory Policy and Governance (# 12). 

43 

HR20172018201920202021EU27147.048.041.052.055.070.82nananana60.670.93nananana83.781.1425.025.042.542.5na56.8546.745.849.749.349.955.362.53.23.73.88.018.6712.88.09.414.215.221.8817.118.820.920.121.521.390.600.600.600.60na0.7210-0.2-0.21.41.4na1.511-0.32.74.71.7na-0.7121.57nananana1.6Share of public sector workers between 55 and 74 years (3)Indicator (1)E-government Share of individuals who used internet within the last year to interact with public authorities (%)2021 e-government benchmark´s overall score (2) Open government and independent fiscal institutions2021 open data maturity indexScope Index of Fiscal InstitutionsEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education, levels 5-8  (3)Participation rate of public administration employees in adult learning (3)Gender parity in senior civil service positions (4)Public Financial Management Medium term budgetary framework indexStrength of fiscal rules indexPublic procurement composite indicatorEvidence-based policy makingIndex of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and ex post evaluation of legislation  
 
  
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The European Pillar of Social Rights provides 
for  upward  convergence 
the  compass 
towards better working and living conditions 
in the EU. The implementation of its 20 principles 
on  equal  opportunities  and  access  to  the  labour 
market,  fair  working  conditions,  social  protection 
and inclusion, supported by the 2030 EU headline 
targets  on  employment,  skills  and  poverty 
reduction, will strengthen the EU’s drive towards a 
digital,  green  and  fair  transition.  This  annex 
provides  an  overview  of  Croatia's  progress  in 
achieving goals under the European Pillar of Social 
Rights. 

The  employment  rate  in  Croatia  has  been 
gradually  improving  since  2014,  but  is  still 
significantly  below  the  EU  average  (by  4.9 
percentage  points  (pps)  in  2021).  The  job 
preservation  scheme  has  helped  cushion  the 
impact  of  the  COVID-19  crisis.  However,  some 
vulnerabilities  in  the  labour  market  persist.  The 
rate  of  young  people  not 
in  employment, 
education  or  training  (NEET)  has  been  steadily 
increasing  since  2019,  while  prevention  and 
outreach  measures  for  inactive  NEETs  remain 
underdeveloped.  The  employment  rate  of  people 
with  disabilities  is  one  of  the  lowest  in  the  EU 
(36.9%  in  2020)  and  the  disability  employment 
gap  remains  high  (32.9  pps  in  2020),  well  above 
the EU average (24.5 pps). This is a clear indication 
of the need for Croatia to tackle discrimination, by 
ensuring  necessary  workplace  adaptations,  and 
assessing the performance of the quota system in 
the  open  labour  market.  The  gender  employment 
gap  has  been  steadily  increasing  since  2015,  but 
improved  in  2021  reaching  10.5%(0.3  pps  below 
the  EU  average  of  10.8%).  Furthermore,  the 
employment rates of low-skilled workers (42.1% in 
2021) lags considerably behind those of medium-
skilled  and  high-skilled  workers 
(67.1%  and 
84.1%,  respectively).  At  the  same  time,  labour 
shortages  highlighted  the  need  for  targeted 
reskilling  and  up-skilling  of 
the  workforce. 
Awarding  learning  vouchers  to  at  least  30 000 
beneficiaries, including those in vulnerable groups, 
as  part  of  the  recovery  and  resilience  plan  (RRP), 
will  contribute  to  addressing  this  challenge. 
Territorial disparities in employment outcomes are 
large,  with  Slavonia  and  Baranja  in  a  relatively 
more  difficult  situation.  There 
is  scope  for 
stepping-up  strategies  to  activate  the  inactive 
population and efforts to counter undeclared work 

44 

by  promoting 
formal  employment.  The  EU 
cohesion  funds  will  continue  to  support  active 
labour  market  policy  measures.  By  tackling  these 
challenges,  Croatia  will  be  able  to  contribute  to 
achieving  the  2030  EU  headline  employment 
target. 

Table A12.1: Social scoreboard for Croatia 

Source: European Commission 

is  facing  various  challenges 

Croatia 
in 
relation  to  education  and  training  (see  also 
Annex  13).  Participation  in  formal  childcare  for 
children under 3 continues to increase (to 20.4% in 
2020).  However,  the  rate  remains  below  the  EU 
average of 32.3%. Too much focus on theoretical 
knowledge  and  not  enough  practical  skills 
development  in  vocational  education  and  training 
continues 
to  create  a  mismatch  between 
graduates’ education and skills and labour market 
needs.  By  aligning  new  programmes  with  the 
Croatian  system  of  occupational  and  qualification 
relevance  of 
labour  market 
standards, 

the 

 
 
 
 
 
 
 
 
as  helping  to  support  the  development  of  social 
services,  promote  deinstitutionalisation  and  ease 
the  transition  to  family-  and  community-based 
care. 

education  and  training  is  expected  to  increase, 
helping  to  reduce  skills  mismatches  and  labour 
shortages.  Participation  in  adult  learning  over  the 
past  four  weeks  has  been  well  below  the  EU 
average (5.1% against 10.8% in 2021), especially 
for  low-qualified  workers.  The  newly  adopted  Act 
on  Adult  Education  should  contribute  to  achieve 
the 2030 EU headline target on adult learning.  

in 

The  share  of  the  population  at  risk  of 
poverty or social exclusion (AROPE) has been 
steadily  declining  in  Croatia  and  is currently 
the  EU  average,  but 
slightly  below 
vulnerabilities 
the  social  protection 
system are still pronounced. The AROPE rate of 
older people  is still high (32.4% against  20.3% in 
the  EU  in  2020),  especially  women,  and  people 
with  disabilities.  The  poverty  gap  and 
the 
persistent  at-risk-of-poverty  rate  in  2020  (28.0% 
and  12.9%  respectively)  remained  above  the 
respective  EU  averages,  indicating  that  lower-
income  households  are  not  benefiting  from  the 
improved economic conditions. The risk of poverty 
is  likely  to  have  increased  during  the  COVID-19 
crisis according to the Eurostat Flash estimates on 
2020  incomes.  The  already  low  impact  of  social 
transfers on poverty reduction further deteriorated 
in  2020  (23.1%  against  32.7%  in  the  EU).  In 
particular,  the  minimum  income  benefit  has  a 
weak  poverty  reduction  capacity,  due  to  low 
adequacy and limited coverage, with both aspects 
envisaged to be improved under the RRP. Likewise, 
unemployment  benefits  do  not  provide  an 
adequate  safety  net  for  dismissed  workers,  as 
both  their  coverage  and  adequacy  are  low.  There 
are  also  gaps  in  access  to  social  protection, 
indicated by the low shares of temporary contract 
workers (5.3% against the EU average of 40.9% in 
2019)  and  self-employed  people  (4%  against 
12.9% in the EU in 2019) receiving benefits when 
they  are  at  risk  of  poverty.  There  is  scope  for 
strengthening  the  provision  of  social  services  and 
long-term  care  as  they  do  not  reach  many  of 
those  in  need,  and  measures  in  the  RRP  aim  to 
address shortcomings. Croatia is facing very rapid 
demographic  ageing,  also  linked  to  continued 
emigration,  which  will  result  in  challenges  for  the 
pension,  healthcare  and  long-term  care  systems. 
The  aggregate  replacement  ratio  (ARR),  39%  in 
2020  is  still  among  the  lowest  in  the  EU.  By 
tackling these challenges, Croatia will contribute to 
achieving  the  2030  EU  headline  target  for 
reducing  the  number  of  people  at  risk  of  poverty 
or  social  exclusion.  Various  RRP  and  cohesion 
policy funds measures could help with this, as well 

45 

 
 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

This  annex  outlines  the  main  challenges  for 
Croatia’s  education  and  training  system  in 
light of the EU-level targets of the European 
Education  Area  strategic  framework  and 
other  contextual  indicators,  based  on  the 
analysis  from  the  2021  Education  and 
Training  Monitor.  Education  in  Croatia  faces 
challenges with regard to low participation in early 
childhood  educational  and  care  (ECEC),  low  basic 
skills  and  tertiary  education  attainment  (TEA). 
There  are  also  regional  differences  and  shortage 
of  teachers  in  ECEC,  as  well  as  gender  gaps  and 
urban-rural  divide  in  TEA.  The  participation  of 
Roma  children  and  pupils  in  education  is  much 
lower across all levels. 

Few pupils leave school early, but basic skills 
are  often  low.  The  share  of  early  leavers  from 
education  and  training  is  the  lowest  in  the  EU 
(2.4%  against  9.7%  for  the  EU),  but  much  higher 
for Roma pupils and particularly Roma girls (78% 
for  girls).  The  percentage  of  low-achieving  15-
year-olds in terms of basic skills is above both the 
EU-level target of 15% and the EU average for all 
three  subjects  tested,  and  among  the  highest  in 
the  EU  for  mathematics  (31.2%)  and  science 
(25.4%).  Ongoing  education  reform  supported  by 
the  RRP  should  improve  education  outcomes.  The 
RRP also aims to increase instruction time and the 
percentage  of  pupils  in  single-shift  schools  (to 
70%) in view of moving to whole-day schools.  

ECEC  participation  is  improving,  but  remains  low 
with  marked  regional  differences.  Participation  in 
ECEC  from  age  3  has 
increased  by  11.8 
percentage  points  (pps)  since  2014,  but  remains 
substantially  below  both  the  EU  average  and  the 
new EU-level target. Regional differences are high, 
with  provision  especially 
rural 
municipalities:  40%  lack  a  nursery  school  and 
lack  a  kindergarten.  The 
more 
participation of Roma children is also much lower: 
23% in 2016-2017. Challenges persist in terms of 
quality (i.e. Croatia lacks a quality framework and 
has oversized class groups, as Table A13.1 shows) 
and  a  shortage  of  ECEC  teachers,  due  to 
unattractive working conditions.  

than  25% 

lacking 

in 

rate 

(TEA) 

divide. 

Tertiary 

attainment 

is 
Tertiary 
characterized by significant gender gaps and 
urban-rural 
educational 
attainment,  below  the  EU  average  and  EU-level 
target,  is  affected  by  the  low  share  of  pupils  in 
general  secondary  education.  It  also  has  a  big 
gender gap (16.6 pps) and wide urban-rural divide 
(24.4  pps).  One  reason  for  this  is  that  the 
in  general  secondary 
percentage  of  students 
schools  is  among  the  lowest  in  the  EU  (31% 
against  52%  in  the  EU),  and  even  lower  in  less 
developed counties. Pupils from 4-year Vocational 
Education  Training  (VET)  programmes  often  aim 
for  higher  education,  but are  much more  likely  to 
fail  the  required  matriculation  exams  than  pupils 
from general secondary education (37.8% against 

Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

(1) The 2018 EU average on PISA reading performance does not include ES; b = break in time series, u = low reliability, : = not 
available; Data is not yet available for the remaining EU-level targets under the European Education Area strategic framework, 
covering underachievement in digital skills, exposure of vocational educational training graduates to work based learning and 
participation of adults in learning. 
Source: Eurostat (UOE, LFS); OECD (PISA).  

46 

96%69.5%91.9%79.4%201992.8%2019Reading< 15%19.9% 20.4%21.6%201822.5%2018Mathematics< 15%32.0% 22.2%31.2%201822.9%2018Science< 15%24.6% 21.1%25.4%201822.3%2018< 9 %2.8%u11.0%2.4%u9.7%Men3.5%u12.5%3.0%u11.4%Women2.0%u9.4%1.8%u7.9%Cities1.6%u9.6%2.0%u8.7%Rural areas3.3%u12.2%2.5%u10.0%Native2.7%u10.0%2.2%u8.5%EU-born:u20.7%:u21.4%Non EU-born:u23.4%:u21.6%45%30.8%36.5%35.7%41.2%Men23.5%31.2%27.5%35.7%Women38.3% 41.8%44.1%46.8%Cities43.1%46.2%47.9%51.4%Rural areas22.9%26.9%23.5%29.6%Native31.2%37.7%34.9%42.1%EU-born57.5%u32.7%49.6%40.7%Non EU-born22.2%u27.0%46.1%34.7%29.5% 38.3%29.8%201938.9%2019By degree of urbanisationBy country of birth20152021IndicatorTargetCroatiaEU27CroatiaEU27Participation in early childhood education (age 3+)Low achieving 15-year-olds in:Early leavers from education and training (age 18-24)TotalBy genderTertiary educational attainment (age 25-34)TotalBy genderBy degree of urbanisationBy country of birthShare of school teachers (ISCED 1-3) who are 50 years or over 
 
 
 
   
 
3.9% in 2020) and to drop out of higher education. 
The  employment  rate  of  recent  higher  education 
graduates (77.2% in 2020, below the EU’s 83.7%) 
is  one  of  the  lowest  in  the  EU  and  decreased  by 
1.9 pps between 2019 and 2020.   

Graph A13.1: Pedagogical standard limit and 
average real number of enrolled children by age 

Source: Working in kindergartens: Results of research on 
working conditions in early and preschool education´ Ivšić, 
Jaklin, 2020, p. 83 

The  overall  number  of  pupils  is  rapidly 
decreasing  as  a  result of  population decline. 
Since  2013  the  population  of  upper  secondary 
pupils has decreased by 19.2%, and by up to 36% 
in rural areas. This decline of nearly 34 500 pupils 
in  8  years  has  also  resulted  in  11  031  empty 
study  places  at  universities  in  2021/2022,  as  the 
number of places has not been adjusted.  

issues 

RRP reforms and investments aim to address 
the  main 
in  education.  The  main 
education reform aims to increase participation in 
ECEC  and  improve  the  education  outcomes  by 
increasing  instruction  time.  This  is  supported  by 
two  major  infrastructure  investments  in  ECEC 
facilities  and  primary  schools.  Other  measures 
seek  to  rebalance  upper  secondary  education  and 
improve  tertiary  educational  attainment  and  the 
quality of higher education.  

47 

812141820232515.616.118.82124.224.224.905101520253012-18 monthold18-24 monthold2 years old3 years old4 years old5years old6+ years oldNumber of children determined by the State Pedagogical StandardAverage real number of children in the group 
   
 
medical  needs  due  to  distance  was  below  the  EU 
average  in  2020  (1.5  %,  EU  1.9%)  .  At  the  same 
time,  a  number  of  hospitals  in  close  proximity 
offer the same types of services. 

Graph A14.2: Projected increase in public 
expenditure on health care over 2019-2070 
(reference scenario) 

Source: European Commission 

Through  its  Recovery  and  Resilience  Plan 
(RRP),  Croatia  plans  to  invest  EUR  353 
million  in  healthcare,  mainly  to  improve  the 
prevention,  diagnosis  and  treatment  of  cancer 
the 
patients 
infrastructure  of  hospitals,  to  increase  day  care, 
training  of  nurses,  and  digitalisation  of  health 
services  and  their  provisions  in  rural  areas  with 
moving facilities.  

specialities, 

other 

and 

for 

ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Croatia.  

Life  expectancy  in  Croatia  is  lower  than  in 
the EU as a whole, and fell in 2020 by more 
than 9 months due to COVID-19. As of 17 April 
2022, Croatia reported 3.88 cumulative COVID-19 
deaths  per  1 000  inhabitants  and  274  confirmed 
cumulative COVID-19 cases per 1 000 inhabitants. 
Treatable mortality  in Croatia is far above the EU 
average,  pointing  to  possible  shortcomings  in 
providing timely and effective care. 

Health  spending  relative  to  the  Gross 
Domestic Product (GDP) in Croatia was below 
the  EU  average  in  2019.  Moreover,  health 
spending  per  head,  lower  in  Croatia  than  in  most 
other EU countries, has remained fairly constant in 
recent  years.  However,  public  funding  as  a 
proportion  of  total  expenditure  was  81.9  %  in 
2019  –  higher  than  in  most  EU  countries  with 
comparative  levels  of  expenditure.  The  share  of 
public  financing  was  higher  than  the  EU  average 
for  all  areas  of  care,  with  a  higher  proportion  of 
public  coverage  in  particular  for  dental  care  and 
pharmaceuticals.  Public  expenditure  on  health  is 
projected to increase by 0.7 percentage points (pp) 
of GDP by 2070 (compared to 0.9 pps for the EU).  

Graph A14.1: Life expectancy at birth, years 

Source: European Commission 

The  geographical  distribution  of  health  care 
infrastructure  and  human  resources  for 
health varies considerably. Central Croatia has 
the  largest  numbers  of  facilities  and  healthcare 
workers,  while  there  are  fewer  in  more  remote 
areas.  People  in  Croatia  that  reported  unmet 

48 

80.980.98181.380.478.27878.278.677.820162017201820192020EUCroatia6.65,90.90,702468EUCroatia% of GDP20192070increase 
 
   
   
 
Table A14.1: Key health indicators 

(1) Doctors' density data refer to practising doctors except for FI, EL, PT (licensed to practice) and SK (professionally active). 
Nurses' density data refer to practising nurses (imputation from year 2014 for FI) except for IE, FR, PT, SK (professionally active) 
and EL (nurses working in hospitals only).  
Source: Eurostat Database; except: *Eurostat Database and OECD, ** ECDC. 

49 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)139.5139.1133.1128.392.1 (2017)Cancer mortality per 100 000 population333.9321.8323.9311.0252.5 (2017)Current expenditure on health, % GDP 6.86.86.97.09.9 (2019)Public share of health expenditure, % of current health expenditure82.582.582.081.979.5 (2018)Spending on prevention, % of current health expenditure 3.13.13.13.02.8 (2018)Acute care care beds per 100 000 population348.3350.5350.5354.3387.4 (2019)Doctors per 1 000 population *3.23.43.43.53.8 (2018)Nurses per 1 000 population *6.36.66.76.98.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **17.116.817.016.914.114.5 (2020) 
 
 
 
  
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

is  an 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  the  EU  Member  States. 
Taking into account this dimension enables a well-
calibrated  and  targeted  policy  response  that 
fosters  cohesion  and  ensures  sustainable  and 
resilient economic development across all regions.  

Croatia’s  Gross  Domestic  Product  (GDP)  per 
head was at 64% of the EU average in 2020, 
with  marked  regional  disparities  ranging 
from the city of Zagreb (118%) to counties in 
eastern Croatia, only 36% of the EU average. 
These  disparities  could  create  bottlenecks  and 
slow  down  the  country’s  green  and  digital 
transition.  

Graph A15.1: GDP per head (2010) and GDP growth 
(2010-2019) in Croatia 

Source: Eurostat 

Croatia’s  sustained  catch-up  with  the  EU 
average  at  country  level  hides  increasing 
territorial disparities. Between 2014 and 2019, 
Croatia steadily gained ground in terms of GDP per 
head  (in  pps)  compared  to  the  EU27  average, 
increasing  from  60%  to  65%.  This  reveals  a 
robust,  ongoing  process  of  convergence  of  the 
country as a whole to the EU. However, significant 
territorial  disparities are hidden: GDP per head (in 
pps) against the EU average. 

Graph A15.2: Territories most affected by the 
climate transition in Croatia 

Source: European Commission 

In 

national 

The gap in GDP per head between the capital 
region and the less developed regions of the 
country  is  linked  to  disparities  in  labour 
productivity. 
labour 
2019, 
productivity  measured  by  real  gross  value  added 
per worker, was 43% of the EU average. This gap 
diminished  in  2000-2005  and  since  then  has 
remained  almost  constant.  This  suggests  that the 
convergence  process  in  GDP  per  head  at  national 
level  has  been  achieved  in  recent  years  more 
through  an increase in  the  employment  base  (the 
employment rate of people aged 20-64 increased 
by  9  percentage  points  in  2002-2020)  than  by 
means  of  productivity.  Several  factors  explain the 
observed gaps: human capital and specialisation in 
high  technology  sectors  for  example  or  the 
negative  impact  of  demographic  dynamics  on the 
country.  Between  2011  and  2019,  Croatia 
experienced a marked overall decline in population 
by 5.4% against EU average population growth of 
1.8%, with marked differences between its capital 

Table A15.1: Croatia, selected indicators at regional level 

Source: EUROSTAT, *EDGAR Database. 

50 

NUTS 2 RegionGDP per head (PPS)Productivity (GVA (PPS) per person employed)GDP per head growthPopulation growthUnemployment rateR&D expenditureRegional Competitiveness IndexCO2 emissions from fossil fuels  per headInnovation performanceEU27=100, 2019EU27=100, 2018Avg % change on preceding year, 2010-2019Total % change, 2011-2019% of active population, 2020% of GDP, 2018Range 0-100, 2019tCO2 equivalent, 2018RIS regional performance groupEuropean Union1001001.391.87.12.1957.37.2Hrvatska65681.33-5.47.50.9732.3Jadranska Hrvatska64691.11-2.87.50.4630.47.7Emerging innovator +Kontinentalna Hrvatska66671.44-6.77.51.2233.34.7 
 
 
 
 
 
 
 
   
 
region and its remaining regions.  

Graph A15.3: CO2 emissions from fossil fuels per 
head, 2018 

Source: European Commission 

is  an  emerging 

Croatia 
innovator  with 
important territorial disparities. Total national 
R&D  expenditure  (0.97%)  was  less  than  half  the 
in  2018,  unequally 
EU27  average 
distributed across regions: only 0.5% in Jadranska 
Hrvatska against 1.2% in Kontinentalna Hrvatska.  

(2.2%) 

Graph A15.4: Innovation performance in Croatia 

Hrvatska  regions.  There  are  greater  disparities  at 
county level. 

The COVID-19 pandemic affected all Croatian 
regions  in  a  similar  way.  National  mortality 
between  week  9  of  2020  and  week  30  of  2021 
was almost 11% higher than average mortality in 
the  same  weeks  of  years  2015-2019.  The 
pandemic  also  affected  the  annual  change  in  the 
employment 
rate,  which  diminished  by  1.4 
percentage  point  compared  to  what  would  be 
expected based on the 2015-2019 trend. The drop 
affected  both  NUTS2  regions  to  a  similar  extent, 
with  slightly  worse  performance  in  Kontinentalna 
Hrvatska  (-1.54  pp).  The  unemployment  rate 
increased  in  2020  by  around  1%  in  both  NUTS2 
regions.  The  rate  of  the  population  in  severe 
material  deprivation  increased  in  both  NUTS2 
regions  by  around  1.5  percentage  points  in  2020 
compared to what would be expected based on the 
2015-2019 trend. 

At  NUTS-3  level,  counties  with  the  highest 
decline  in  employment  at  the  end  of  2019 
were  those  that  rely  heavily  on  tourism  (e.g. 
Split-Dalmatia, 
Istria,  Primorje-Gorski  Kotar, 
Dubrovnik-Neretva,  City  of  Zagreb).  Among  the 
counties  with  the  highest  cumulative  rise 
in 
employment  are  four  affected  by  earthquakes  in 
2020 (Sisak-Moslavina, City of Zagreb, Zagreb and 
Krapina-Zagorje counties). 

Graph A15.5: Decline in employment 

Source: European Commission 

Source: Croatian Pension Insurance Institute 

The  unemployment  rate  is  similar  in  both 
Croatian NUTS2 regions (38). It is below the EU 
average  in  both  regions.  However,  there  is  a 
difference  of  3  percentage  points  between  the 
rates of the Jadranska Hrvatska and Kontinentalna 

(38)  Nomenclature of territorial units for statistics, 

https://ec.europa.eu/eurostat/en/web/nuts/nuts-maps 

51 

 
 
 
                                                 
 
MACROECONOMIC STABILITY 
MACROECONOMIC STABILITY 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

standards. 

anti-seismic 

overvaluation,  elevated  house  price  growth,  high 
mortgage credit growth, signs of the loosening of 
lending  standards.  House  prices  show  signs  of 
overvaluation partially explained by the increase in 
the number of foreign buyers, and the reduction of 
the  housing  stock  available  to  be  transacted  that 
meets 
Household 
indebtedness  is  low,  with  lending  growth  of  4.9% 
in Q3 2021. The ESRB has warned that the current 
policy  mix  in  Croatia  is  partially  appropriate  and 
partially  sufficient 
risks  and 
suggested ensuring the quality of data on lending 
standards, 
borrower-based 
measures  and  complementing  the  current  implicit 
debt  service-to-income  limit;  and,  if  necessary, 
making  policy  adjustments  as  government  house 
subsidies and support loans may contribute to the 
increasing  overvaluation  of  prices  and  household 
indebtedness. 

for  mitigating 

activating 

other 

This  annex  provides  an  overview  of  key 
developments  in  Croatia's  financial  sector. 
The Croatian banking sector is highly concentrated 
and  predominantly  foreign-owned.  Total  banking 
sector  assets  accounted  for  124.6%  of  the  Gross 
Domestic Product (GDP) in the 3rd quarter of 2021. 
The  five  largest  banks  in  the  system  own  about 
80.5% of the total assets. The domestic ownership 
of  local  lenders  was  only  8.9%  in  Q3  2021.  The 
market  to  funding  ratio  was  at  53.8%  in  2020. 
This  shows  that  the  economy  also  relies  on  non-
banking  intermediaries.  The  loan-to-deposit  ratio 
was 79% in Q3 2021 (against 86.5% in the EU). 

The Croatian banking sector remained stable 
despite  the  COVID-19  pandemic.  The  banking 
solvency ratio reached 23.7% in Q3 2021 (against 
19.3%  in  the  EU).  Banking  sector  profitability 
remained  high  with  a  return  on  equity  (ROE)  of 
8.5%  in  Q3  2021  (against  7.1%  in  the  EU).  Asset 
quality  has  improved  for  both  corporates  and 
households  while  the  cost-to-income-ratio  has 
injections  of 
remained  stable.  Central  bank 
additional liquidity to the financial system (roughly 
0.7%  of  total  liabilities  in  Q3  2021)  helped  the 
liquidity  coverage 
in  Q3  2021. 
Challenges  for  Croatia’s  banking  sector  include  a 
possible  rise  of  in  the  number  of  non-performing 
loans  with  the  expiration  of  moratoria  in  2021, 
and the buoyant residential real estate market. 

(LCR) 

ratio 

The  residential  real  estate  market  exhibits 
medium-term  vulnerabilities.  The  European 
Systemic Risk Board (ESRB) ((2022) has identified 
several  key  vulnerabilities:  signs  of  house  price 

Table A16.1: Financial soundness indicators 

(1) Last data: Q3 2021 
Source: ECB, Eurostat, Refinitiv 

52 

20172018201920202021Total assets of the banking sector (% of GDP)117,1114,3109,2127,8124,6Share (total assets) of the five largest bank (%)72,879,479,880,5-Share (total assets) of domestic credit institutions (%)19,29,48,98,99,0Financial soundness indicators:1- non-performing loans (% of total loans)8,87,35,25,34,6- capital adequacy ratio (%)21,421,122,523,223,7- return on equity (%)5,98,89,14,78,5NFC credit growth (year-on-year % change)5,02,24,45,62,0HH credit growth (year-on-year % change)4,85,87,52,04,9Cost-to-income ratio (%)152,150,750,351,550,3Loan-to-deposit ratio (%)182,182,182,378,879,0Central bank liquidity as % of liabilities0,40,60,51,2-Private sector debt (% of GDP)96,392,088,398,0-Long-term interest rate spread versus Bund (basis points)245,0177,6154,0134,382,2Market funding ratio (%)53,453,654,853,8-Green bond issuance (bn EUR)----- 
 
 
 
 
 
  
 
ANNEX 17: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX 
ANNEX 17: MACROECONOMIC IMBALANCE PROCEDURE ASSESSMENT MATRIX 

private  and  external  debts.  Adverse  global  shocks 
or shifts in market confidence could harm the real 
economy. 

included 

Measures 
in  the  RRP  and  the 
potential  euro  adoption  should  contribute  to 
further reductions of vulnerabilities. Croatia’s 
RRP  contains  measures  that  should  increase  the 
efficiency  and  sustainability  of  the  public  sector, 
improve insolvency procedures and promote equity 
financing  for  the  private  sector,  and  increase  the 
competitiveness  and  productivity  of  the  Croatian 
economy.  A  new  Budget  act  was  adopted  at  the 
end  of  2021,  while  reforms  in  the  healthcare 
sector are to be implemented in 2022. As regards 
private  debt-related  measures, 
the  Croatian 
authorities committed to set up new equity-based 
financial  instruments,  adopt  amendments  to  the 
Bankruptcy  Act  and  the  Consumer  Insolvency  Act 
and  continue  with  the  reduction  of  administrative 
burden  over  the  course  of  2022.  Also,  the  reform 
of the R&D incentive system and measures aimed 
at  strengthening  the  R&D  capacity  of  the  public 
research  sector  should  be  implemented  in  2022. 
Finally,  a  successful  adoption  of  the  euro  would 
reduce risks from exchange rate exposures. 

For  those  reasons,  and  more  generally  on  the 
basis  of  the  elements  of  the  in-depth  review 
undertaken  for  Croatia  under  Regulation  (EU)  No 
1176/2011  on  the  prevention  and  correction  of 
macroeconomic  imbalances  as  summarised  in 
Staff  Working  Document  (SWD  (2022)633  final), 
the  Commission  has  considered 
its 
Communication  “European  Semester  –  2022 
Spring  Package”  (COM(2022)600  final)  that 
Croatia 
experiencing 
macroeconomic imbalances. 

longer 

no 

in 

is 

The  Macroeconomic 
Imbalance  Procedure 
matrix presents the main elements of the in-
depth  review  undertaken  for  the  Croatia  in 
accordance  with  Article  5  of  Regulation  (EU)  No 
1176/2011  on  the  prevention  and  correction  of 
macroeconomic imbalances, as summarized in the 
Staff  Working  Document 
(2022)633 
final) (39).    For  Member  States  selected  in  the 
it  presents, 
2022  Alert  Mechanism  Report 
separately  for  each  source  of  imbalance  and 
adjustment issue, the main findings regarding the 
gravity  and 
identified 
challenges, as well as policy response and gaps. 

the  evolution  of  the 

(SWD 

Croatia’s  vulnerabilities  relating  to  high 
external,  private  and  government  debt,  in  a 
low  potential  growth,  have 
context  of 
substantially  improved.  Croatia’s  private  debt-
to-GDP  ratio  decreased  strongly  over  the  period 
from 2010 to 2019, going from 122% to 88% of 
GDP.  The  pandemic-led  sharp  increase  in  2020 
was reversed with the strong economic rebound in 
2021.  The  current  account  balance  returned  to  a 
surplus in  2021,  following  its temporary  marginal 
deficit  in  2020.  The  NIIP  has  surpassed  the 
prudential benchmark as well as the indicative MIP 
threshold  of  -35%  of  GDP  in  2021.  Government 
debt  remains  above  the  60%  threshold.  In  2021, 
the  government  debt-to-GDP  ratio  returned  back 
to a downward trajectory, although from a higher 
level  than  before  the  pandemic.  Potential  output 
growth has accelerated, although it remains below 
the  potential  growth  rate  of  comparable  new 
Member States. 

forward, 

macroeconomic 
Going 
vulnerabilities  in  Croatia  are  expected  to 
continue  declining.  The  public  debt  ratio  should 
continue  declining  as  deficits  narrow  and  growth 
continues. Private debt and NPL ratios should also 
stay  on  a  downward 
trajectory.  External 
imbalances are expected to further improve as the 
current  account  balance  remains  positive  and  the 
the 
NIIP  should  strengthen 
in  2022.  Potential 
indicative  -35%  threshold 
growth  should  additionally  accelerate 
in  the 
medium  term,  supported  by  the  Recovery  and 
Resilience  Plan  (RRP)  investments  and  reforms, 
and  in  turn  further  help  the  reduction  of  public, 

further  beyond 

(39)  European Commission (2022), COMMISSION STAFF 

WORKING DOCUMENT In-Depth Review for Croatia in 
accordance with Article 5 of Regulation (EU) No 1176/2011 
on the prevention and correction of macroeconomic 
imbalances. 

53 

 
 
                                                 
 
 
 
 
 
Table A17.1: Assessment of Macroeconomic Imbalances matrix 

Source: European Commission 

54 

Gravity of the challengeEvolution and prospectsPolicy responseThe public debt ratio decreased by more than 7 percentage points to 79.8% of GDP in 2021. The decrease came on the back of a V-shaped economic recovery, which grew by 10.2%, as well as the substantial phasing out of COVID-19-related spending, which helped narrow the deficit.The public debt ratio is expected to continue declining in 2022 as output increases further and public finances improve. The public deficit is expected to narrow to 1.8% of GDP by 2023, allowing debt to drop to around 73% of GDP in 2023. Afterasubstantialdeleveragingintheperiod2010-2019(-34pp),Croatia’sprivatedebt-to-GDPratioincreasedstronglyin2020,fromaround83%to98%ofGDP.Theincreaseinboththehouseholdandcorporatedebtratioshasbeenlargelydrivenby the substantial fall in the denominator.Thedownwardtrajectoryinprivatesectordebtresumedin2021,drivenbythestrongreboundofeconomicactivity.Totalprivatedebtdeclinedfrom98%ofGDPin2020to91%in2021withbothcorporateandhouseholddebtratiosdecreasing,to55%and36%ofGDP,respectively.Bothratiosstoodbelowprudentialthresholds.Meanwhile,thegrowthinmortgagesacceleratedin2021,sustaining the house price rise.FiscalsupportmeasurestoNFCsduringthepandemiccrisispreventedabuild-upofexcessdebt.Atthesametime,policymeasureslikeloanmoratoriaandspecialguaranteeschemescushionedtheimpactonloanimpairment.Inthecontextoftheprojectedfavourableeconomictrends,thephasingoutofthesemeasuresisnotexpectedtoleadtoabuild-upofdebtoradeteriorationinNPLs,althoughthesectorsmostexposedtotourismcouldcontinuetofacedifficulties.Foreigncurrencyrisksrelatedtothehighsharesofhousehold(45%)andcorporatedebt(65%)denominatedinforeigncurrency(mainlyEUR)persist,butshouldbeseeninthecontextofthestronglevelofeuroisationofCroatia’seconomyand the stability of the kuna. Afteramildincreasein2020,theshareofNPLsdroppedto4.3%in2021.TheshareofNPLsforNFCsremainshighat9.9%,despiteimprovingin2021.Basedontheobservedtrendsregardinginsolvencyandimpairedloans,mildimprovementscanbeexpectedtocontinue.Thebankingsectorremains stable and liquid.Evidencesuggeststhatthehousingsubsidyschemeiscontributing to rising house prices.Afterdroppingbymorethan8pps.since2014,theNPLshareincreasedmarginallyto5.3%in2020asa result of the impact of the pandemic crisis. Adecade-longimprovementintheNIIP,from-94%in2010to-47%ofGDPin2019,hasbeenbrieflyinterruptedin2020,withtheNIIPslidingslightlyto-48%.Theimprovementsinthenetinternationalinvestmentposition(NIIP)resumedin2021,whentheNIIPimprovedbymorethan14percentagepointsto-34%ofGDP,whichbroughtitinlinewiththeprudentialbenchmark(-44%)andinconformitywiththeindicative-35%thresholdin2022. ThecompositionofCroatia’sexternalliabilitiesremainedfavourableastheNIIPexcludingnon-defaultableinstruments(NENDI)improvedfurtherto nearly a balanced position of -0.3% in 2020.Thecurrentaccounthasrecoveredfasterthanexpected,recordingasurplusof3.1%ofGDPin2021,largelyonthebackofsolidtradeperformance,andnotwithstandingastillincompletereboundininternationaltourism.Inthemediumterm,itisexpectedtoremaininsurplus,alsoduetofurtherrecoveryintouristactivity,anddespiteaworseningoftheenergybalancethatpartlyimpactedthecurrentaccountalreadyin2021.Afteraperiodofsolidsurpluses,thecurrentaccountturnedslightlynegativein2020,withadeficitof0.1%ofGDP.Theoveralleconomy’snetlendingwassupportedbysubstantialcapitalaccount surplus.Theaccelerationinpotentialoutputgrowthin2018and2019endedin2020.Theunemploymentrateincreased from 6.6% in 2019 to 7.5% in 2020, thus interruptingthemedium-termdecliningtrend.Thisinpartreflectedaslightincreaseintheactivityratein2020,whichneverthelessremainedatacomparativelylowlevel.Thecontributionoftotalfactorproductivitytopotentialgrowthhasbeenlow for a catching-up economy like Croatia’s.Overall,potentialgrowthhasbeenlowrelativetopeercountries,thusslowingCroatia’sconvergencewith the EU.Imbalances (unsustainable trends, vulnerabilities and associated risks)Public debtAfter five years of consecutive declines, Croatia’s public debt-to-GDP ratio, soared to a record-high 87.3% in 2020. As the pandemic depressed economic output, shrinking the denominator, it also created a need for extra spending, which pushed the government balance deep into negative territory (-7.4% of GDP in 2020). Croatia’srelativelyprudentfiscalpolicyinpastyearshascontributedtoimprovingthecreditratingintoinvestmentgrade.Thisenabledastructuraldecreaseintheinterestratespread,compoundingthepositiveeffectofthelowinterest-rateenvironment.Asaresult,themajorityofCroatia’smostexpensivepublicdebthasbeenrefinancedatsignificantlylowerrates,yieldingsubstantialsavingsandimprovingsustainability.Croatia’spossibleaccessiontotheeuroareaasof1January2023wouldfurtherreducethedebt-associatedrisks,particularlytheexchangeratecomponent.Household and corporate debt and the financial sectorExternal liabilities and trade performanceExportsofservicesbenefittedfromCroatia’srelativelylowdependenceoftourismonairtravel,ahighshareofprivateaccommodationandsomewhatlessstringentCOVID-19-relatedmeasurescomparedtomostofotherEUcountries.Goodsexportswereveryfasttorecover,thankstotheirrelativelylowexposuretobottlenecksinthesupplychainandthestrongdemandinkeytradingpartners.Moreover,despitethestrongfiscalsupporttorealsectorwages,theULC-deflatedrealeffectiveexchangeratecontinuedtodepreciate.Inthemediumandlongerterm,competitivenessissettobenefitfromtheimplementationoftheinvestmentsandreformsfromtheRRPaimedatfurtherreductionofadministrativeburden,digitalisation,commercialization of export products,  R&D incentives etc.Potential outputTheemploymentrateincreasedto68.2%in2021asthelabourmarketrecoveredfromtheimpactofthepandemic-inducedcrisis.ActivityandemploymentratesinCroatiaremainamongthelowestintheEU,evenifpreliminarycensusdatasuggestsomeunderestimation.Theeconomyisexpectedtocontinueaddingjobsin2022and2023asoutputgrows.Investments’contributiontogrowthshouldrise,andtheresultingcapitaldeepening is projected to add to potential outputPotentialoutputissettobenefitfromcapitaldeepeningboostedbyfurtherinvestments,includingthoseplannedundertheRRP,theresultingjobcreationandproductivitygrowthsupportedbywide-rangingreformsprovidedforintheRRP.Thelatterinparticularincludereformsrelatedtothereductionofadministrativeandparafiscalburden,SOEgovernance,andefficiencyofpublicadministrationandthejudiciary. 
 
  
 
ANNEX 18: TAXATION 
ANNEX 18: TAXATION 

This  Annex  provides  an 
indicator-based 
overview  of  Croatia’s  tax  system.  It  includes 
information  on  the  tax  structure,  i.e.  the  types  of 
tax  that  Croatia  derives  most  revenue  from,  the 
tax  burden  for  workers,  and  the  progressivity  and 
redistributive  effect  of  the  tax  system.  It  also 
provides 
tax  collection  and 
compliance  and  on  the  risks  of  aggressive  tax 
planning. 

information  on 

2021 was very close to the EU average at various 
income levels, i.e. for single people on the average 
wage (100%)  as well as at 50%, 67% and 167% 
of the average wage. At the same time, the ability 
of  the  tax-benefit  system  to  reduce  income 
inequality  (as  measured  by  the  GINI  coefficient) 
was below the EU average in 2020, indicating the 
system could be made even more progressive. 

Croatia’s  tax  revenues  are  somewhat  below 
the  EU  average  in  relation  to  the  Gross 
Domestic Product (GDP), with the tax system 
relying  particularly  heavily  on  consumption 
taxation,  and  less  on  labour,  capital,  and 
property  taxes.  Total  tax  revenue  was  37%  of 
GDP  in  2020  compared  to  the  EU  average  of 
40.1%.  Croatia’s  reliance  on  consumption  tax 
revenue is among the highest in the EU (18.2% of 
GDP  in  2020  compared  to  the  EU  average  of 
10.8%),  while  revenues  from  labour  and  capital 
taxes  are  lower.  Tax  reform,  in  place  since  1 
January  2021,  features  further  reductions  in 
personal  income  tax  rates,  as  well  as  corporate 
and 
from 
taxation. 
environmental  taxes  is  comparatively  high,  while 
revenue 
is 
somewhat below the EU average (although higher 
than in most central and eastern Member States). 

recurrent  property 

Revenue 

dividend 

taxes 

from 

Croatia’s labour tax burden is close to the EU 
average for different wage levels across the 
income  distribution.  The  labour  tax  wedge  in 

Table A18.1: Indicators on taxation 

(1) Forward-looking Effective Tax Rate (OECD). 
(*) EU-27 simple average as there is no aggregated EU-27 value. 

Source: European Commission 

55 

2010201820192020202120102018201920202021Total taxes (including compulsory actual social contributions) (% of GDP)35.837.637.637.037.940.139.940.1Labour taxes (as % of GDP)15.213.813.614.120.020.720.721.5Consumption taxes (as % of GDP)16.919.019.118.210.811.111.110.8Capital taxes (as % of GDP)3.74.84.84.77.18.28.17.9Total property taxes (as % of GDP)1.01.11.11.11.92.22.22.3Recurrent taxes on immovable property (as % of GDP)0.60.70.70.71.11.21.21.2Environmental taxes as % of GDP3.03.53.53.32.42.42.42.2Tax wedge at 50% of Average Wage (Single person) (*)31.731.331.331.333.932.432.031.531.9Tax wedge at 100% of Average Wage (Single person) (*)39.839.839.738.541.040.240.139.939.7Corporate Income Tax - Effective Average Tax rates (1) (*)16.516.516.519.819.519.3Difference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)9.27.47.36.68.47.97.48.3Outstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)19.916.631.931.8VAT Gap (% of VTTL)7.41.011.210.5Dividends, Interests and Royalties (paid and received) as a share of GDP (%)2.42.81.410.710.5FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)0.00.00.047.846.236.7Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity RiskCroatiaEU-27 
 
 
 
  
 
 
Graph A18.1: Tax wedge 

(1) The second earner average tax wedge measures how much extra personal income tax (PIT) plus employee and employer social 
security contributions (SSCs) the family will have to pay as a result of the second earner entering employment, as a proportion of 
the second earner’s gross earnings plus the employer SSCs due on the second earner’s income. For a more detailed discussion see 
OECD (2016), “Taxing Wages 2016”, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en  
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission 

56 

31.334.038.542.139.9At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% of AverageWage (Two earner couple, 1st earner100% of AW) (1)Tax wedge 2021 (%)HREU-27 (*) 
  
ANNEX 19: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 19: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A19.1:Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares. 
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled. 
Source: Eurostat, ECB, as of 2 May 2022, where available; European Commission for forecast figures (Spring forecast 2022) 

57 

2004-072008-122013-1820192020202120222023Real GDP (y-o-y)4.6-1.81.93.5-8.110.23.43.0Potential growth (y-o-y)3.20.01.02.51.82.72.92.7Private consumption (y-o-y)3.9-1.81.04.1-5.310.02.43.6Public consumption (y-o-y)4.50.31.13.34.13.12.62.2Gross fixed capital formation (y-o-y)4.7-5.82.89.8-6.17.66.58.2Exports of goods and services (y-o-y)6.2-1.76.36.8-22.733.38.45.5Imports of goods and services (y-o-y) 6.2-4.36.46.5-12.314.78.18.0Contribution to GDP growth:Domestic demand (y-o-y)4.5-2.41.35.0-3.58.33.44.5Inventories (y-o-y)0.7-0.60.7-1.60.7-4.90.00.0Net exports (y-o-y)-0.61.1-0.10.1-5.36.80.1-1.5Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.7-0.6-0.31.21.21.21.41.0Capital accumulation (y-o-y)1.71.00.50.80.50.70.81.0Total factor productivity (y-o-y)0.8-0.30.80.40.20.80.70.7Output gap3.3-0.4-1.23.6-6.50.30.81.1Unemployment rate11.911.813.96.67.57.66.36.0GDP deflator (y-o-y)3.72.50.71.9-0.13.23.82.4Harmonised index of consumer prices (HICP, y-o-y)2.82.90.70.80.02.76.12.8Nominal compensation per employee (y-o-y)4.82.0-0.20.42.15.63.02.7Labour productivity (real, hours worked, y-o-y)2.50.21.9-1.1-6.88.90.3-0.4Unit labour costs (ULC, whole economy, y-o-y)2.11.9-1.10.09.8-3.11.11.5Real unit labour costs (y-o-y)-1.5-0.6-1.7-1.910.0-6.1-2.6-0.9Real effective exchange rate (ULC, y-o-y)1.7-1.1-1.6-3.1....Real effective exchange rate (HICP, y-o-y)0.8-0.70.7-1.5-0.50.6..Net savings rate of households (net saving as percentage of net disposable income)0.40.52.63.97.5...Private credit flow, consolidated (% of GDP)14.73.60.21.11.3...Private sector debt, consolidated (% of GDP)86.0117.4105.588.398.0...of which household debt, consolidated (% of GDP)32.340.336.533.837.6...of which non-financial corporate debt, consolidated (% of GDP)53.877.169.054.560.4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)..10.54.64.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)-5.8-0.71.30.21.3...Corporations, gross operating surplus (% of GDP)17.819.620.120.118.7...Households, net lending (+) or net borrowing (-) (% of GDP)2.32.23.74.07.4...Deflated house price index (y-o-y)9.8-4.9-0.17.87.3...Residential investment (% of GDP)3.73.42.73.03.43.1..Current account balance (% of GDP), balance of payments-7.3-4.61.73.0-0.13.11.50.1Trade balance (% of GDP), balance of payments-8.5-4.1-0.2-0.3-6.8-1.2..Terms of trade of goods and services (y-o-y)1.40.60.50.8-1.6-1.9-2.8-0.2Capital account balance (% of GDP)0.00.10.81.62.12.3..Net international investment position (% of GDP)-68.9-88.4-74.4-46.7-47.8-33.9..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-32.1-48.8-32.8-1.5-0.38.5..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)74.293.185.758.063.362.1..Export performance vs. advanced countries (% change over 5 years)30.7-3.71.320.20.6...Export market share, goods and services (y-o-y)-0.1-5.83.84.4-15.121.23.61.2Net FDI flows (% of GDP)-4.7-2.9-2.0-6.1-1.3-3.9..General government balance (% of GDP)-3.5-5.7-2.40.2-7.3-2.9-2.3-1.8Structural budget balance (% of GDP)..-1.9-1.4-4.4-3.1-2.7-2.3General government gross debt (% of GDP)39.155.679.671.187.379.875.373.1forecast 
 
 
 
 
  
 
ANNEX 20: DEBT SUSTAINABILITY ANALYSIS 
ANNEX 20: DEBT SUSTAINABILITY ANALYSIS 

less  favourable  snowball  effect  than 
in  the 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022.  

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2 000  different  shocks  affecting  the 
economic 
government’s 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 
cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 
projected 
public 
expenditure  such  as  pensions,  health  care  and 
requirement 
long-term  care,  and 
measures  the  additional  adjustment  needed  to 

in  ageing-related 

the  debt 

change 

This  annex  assesses  fiscal  sustainability 
risks for Croatia over the short, medium and 
long term. It follows the same multi-dimensional 
approach as the 2021 Fiscal Sustainability Report, 
updated  on  the  basis  of  the  Commission  2022 
spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
Next Generation EU.  

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 
balance (SPB) gradually returns to its past average 
level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 
‘adverse interest-growth rate’ scenario assumes a 

Table A20.1: Debt sustainability analysis for Croatia 

Source: European Commission 

58 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)71.187.379.875.373.168.966.765.066.966.967.367.968.669.3Change in debt-2.216.2-7.5-4.5-2.2-4.2-2.2-1.61.90.00.30.60.70.7of whichPrimary deficit-2.45.31.30.90.5-0.6-0.5-0.21.31.31.31.31.31.3Snowball effect-1.68.4-9.1-4.0-2.6-3.6-1.7-1.40.6-1.3-1.0-0.7-0.6-0.6Stock-flow adjustment1.82.50.2-1.3-0.10.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)14.021.412.39.710.69.59.59.711.611.912.312.713.113.3S1S2Overall index (pps. of GDP)1.11.0of whichInitial budgetary position-0.11.5Debt requirement0.9Ageing costs0.2-0.5of whichPensions0.1-1.1Health care0.20.6Long-term care0.00.2Others-0.1-0.1                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators4555657585952019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9045556575859520192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
     
 
reach the 60% of GDP debt target. 

Finally,  the  heat  map  presents  the  overall 
fiscal  sustainability  risk  classification  (Table 
A20.2).  The  short-term  risk  category  is  based  on 
the  S0  indicator,  an  early-detection  indicator  of 
fiscal  stress  in  the  upcoming  year.  The  medium-
term  risk  category  is  derived  from  the  debt 
sustainability  analysis  (DSA)  and  the  S1  indicator. 
The DSA assesses risks to sustainability based on 
several  criteria:  the  projected  debt  level  in  10 
years’  time,  the  debt  trajectory  (‘peak  year’),  the 
plausibility  of  fiscal  assumptions  and  room  for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA.  

indicator S1 signals that an adjustment of 1.1 pps. 
of GDP of the structural primary balance would be 
needed to reduce debt to 60% of GDP in 15 years’ 
time  (Table 2).  Overall,  the  medium  risks  reflect 
the  debt  level,  the  limited  fiscal  consolidation 
space and the sensitivity to adverse shocks 

Long-term  risks  to  fiscal  sustainability  are 
medium.  Over  the  long  term,  the  sustainability 
gap indicator S2 (at 1.0 pp. of GDP) points to low 
risks,  while  the  DSA  points  to  medium  risks, 
leading to this overall assessment The S2 indicator 
suggests  that  the  projected  decline  in  public 
pension  expenditure  relative  to  GDP  will  help 
stabilise  debt  over 
term,  despite 
the 
pressures  stemming  mainly  from  health  care 
expenditure (Table 2).   

long 

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection  indicator  (S0)  does  not  signal  major 
short-term fiscal risks (Table A20.2).  

risks 

to 

two  elements  of 

Medium-term  risks  to  fiscal  sustainability 
are  medium.  The 
the 
Commission’s  medium-term  analysis  lead  to  this 
conclusion.  First,  the  debt  sustainability  analysis 
(DSA) shows that in the baseline, government debt 
is projected to decline from 75% of GDP in 2022 
to 65% of GDP in 2026 before increasing again to 
about  69%  of  GDP  in  2032  (Table 1).  This  debt 
path  is  sensitive  to  possible  shocks  to  fiscal, 
macroeconomic  and 
financial  variables,  as 
illustrated by  alternative scenarios (all pointing to 
medium  risks)  and  stochastic  simulations  (Tables 
A20.1 and A20.2). Moreover, the sustainability gap 

Table A20.2: Heat map of fiscal sustainability risks for Croatia 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty.  
Source: European Commission (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report). 

59 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallMEDIUMMEDIUMMEDIUMMEDIUMMEDIUMLOWDebt level (2032), % GDP6970727570Debt peak year20212021202120212021Fiscal consolidation space43%48%49%43%43%Probability of debt ratio exceeding in 2026 its 2021 level9%Difference between 90th and 10th percentiles (pps. GDP)26LOWMEDIUMDeterministic scenariosStochastic projectionsLOWMEDIUMMEDIUMMEDIUMShort termMedium termLong termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)S2Overall     (S2+DSA)Overall