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

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   EUROPEAN COMMISSION  Brussels, 23.5.2022  COM(2022) 613 final  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 {SWD(2022) 613 final} - {SWD(2022) 640 final}  
 
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 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 9(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021.  The  Recovery  and  Resilience  Facility  provides  financial  support  for  the 
implementation of reforms and investment, entailing a fiscal impulse financed by the 
Union.  It  contributes  to  the  economic  recovery  and  to  the  implementation  of 
sustainable and growth-enhancing reforms and investment, in particular to promote the 
green and digital transition, while strengthening the resilience and potential growth of 
the Member States’ economies. It also helps strengthen sustainable public finances and 
boost growth and job creation in the medium and long term. The maximum financial 
contribution  per  Member  State  under  the  Recovery  and  Resilience  Facility  [was] 
updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/2411.  

(2) 

On  24  November  2021,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Survey,  marking  the  start  of  the  2022  European  Semester  for  economic  policy 

1 
2 
3 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
stablishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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coordination.  It  took  due  account  of  the  reaffirmed  joint  commitment  of  the  Porto 
Social Summit of May 2021 to further implement the European Pillar of Social Rights, 
proclaimed  by  the  European  Parliament,  the  Council  and  the  Commission  on  17 
November  2017.  The  European  Council  endorsed  the  priorities  of  the  2022  Annual 
Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of 
Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted  the  Alert  Mechanism 
Report,  in  which  it  identified  Croatia  as  one  of  the  Member  States  for  which  an  in-
depth  review4  would  be  needed.  On  the  same  date,  the  Commission  adopted  the 
proposal  for the 2022 Joint Employment Report analysing the implementation  of the 
Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights, 
which was adopted by the Council on 14 March 2022. 

Russia´s  invasion  of  Ukraine,  in  the  wake  of  the  global  pandemic,  has  significantly 
altered the geopolitical and economic context. The impact of the invasion on Member 
States’ economies has been felt for example through higher energy and food prices and 
weaker  growth  prospects.  The  higher  energy  prices  weigh  particularly  on  the  most 
vulnerable  households  experiencing  energy  poverty.  The  EU  is  also  seeing  an 
unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the 
Temporary  Protection  Directive  was  triggered5  for  the  first  time,  granting  displaced 
persons from Ukraine the right to legally stay in the EU, as well as access to education 
and training, labour market, healthcare, housing and social welfare.  

Taking  account  of  the  rapidly  changing  economic  and  geopolitical  situation,  the 
European Semester resumes its broad economic and employment policy coordination 
in 2022, while evolving in line with the implementation requirements of the Recovery 
and  Resilience  Facility  as  outlined  in  the  2022  Annual  Sustainable  Growth  Survey. 
The  implementation  of  the  adopted  recovery  and  resilience  plans  is  essential  for  the 
delivery of the policy priorities under the European Semester, as the plans address all 
or a significant subset of the relevant country-specific recommendations issued in the 
2019  and  2020  Semester  cycles.  The  2019  and  2020  country-specific 
recommendations  remain  equally  relevant  also  for  recovery  and  resilience  plans 
revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation 
(EU) 2021/241, in addition to any country-specific recommendations issued up to the 
date of submission of the modified plan.  
The General Escape Clause has been active since March 20206. In its Communication 
of  3  March  20217,  the  Commission  set  out  its  view  that  the  decision  on  the 
deactivation or continued application of the general escape clause should be taken as 
an overall assessment of the state of the economy, with the level of economic activity 
in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative 
criterion. Heightened uncertainty and strong downside risks to  the economic outlook 
in  the  context  of  war  in  Europe,  unprecedented  energy  price  hikes  and  continued 

Regulation (EU) No1176/2011 of the European Parliament and of the Council of 16 November 2011 on 
the prevention and correction of macroeconomic imbalances, OJ L 306, 23.11.2011, p. 25. 
Council Implementing Decision (EU) 2022/382 of 4 March 2022 establishing the existence of a mass 
influx of displaced persons from Ukraine within the meaning of Article 5 of Directive 2001/55/EC, and 
having the effect of introducing temporary protection, OJ L 71, 4.3.2022, p. 1. 
Communication from the Commission to the Council on the activation of the general escape clause of 
the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final. 
Communication  from  the  Commission  to  the  Council  on  one  year  since  the  outbreak  of  COVID-19: 
fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final. 

(3) 

(4) 

(5) 

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(6) 

(7) 

supply  chain  disturbances  warrant  the  extension  of  the  general  escape  clause  of  the 
Stability and Growth Pact through 2023. 

Following  the  approach  in  the  Council  opinion  of  18  June  2021  on  the  2021 
Convergence Programme, the fiscal stance is currently best measured as the change in 
primary  expenditure  (net  of  discretionary  revenue  measures),  excluding  COVID-19 
crisis-related  temporary  emergency  measures  but  including  expenditure  financed  by 
non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other 
EU funds, relative to medium-term potential growth8. Going beyond the overall fiscal 
stance, in order to assess whether national fiscal policy is prudent and its composition 
is conducive to a sustainable recovery consistent with the green and digital transitions, 
attention  is  also  paid  to  the  evolution  of  nationally-financed9  primary  current 
expenditure  (net  of  discretionary  revenue  measures  and  excluding  COVID-19  crisis-
related temporary emergency measures) and investment. 

On  2  March  2022,  the  Commission  adopted  a  Communication  providing  broad 
guidance  for  fiscal  policy  in  2023,  aiming  at  supporting  the  preparation  of  Member 
States’  Stability  and  Convergence  Programmes  and  thereby  strengthening  policy 
coordination10. The Commission noted that, based on the macroeconomic outlook of 
the  2022  winter  forecast,  transitioning  from  an  aggregate  supportive  fiscal  stance  in 
2020-2022  to  a  broadly  neutral  aggregate  fiscal  stance  would  appear  appropriate  in 
2023,  while  standing  ready  to  react  to  the  evolving  economic  situation.  The 
Commission announced that the fiscal recommendations for 2023 should continue to 
differentiate  across  Member  States  and  take  into  account  possible  cross-country 
spillovers. The Commission invited the Member States to reflect the guidance in their 
Stability  and  Convergence  Programmes.  The  Commission  committed  to  closely 
monitor  the  economic  developments  and  adjust  its  policy  guidance  as  needed  and  at 
the latest in its Semester spring package of late May 2022. 

(8)  With  respect  to  the  fiscal  guidance  provided  on  2  March  2022,  the  fiscal 
recommendations  for  2023  take  into  account  the  worsened  economic  outlook,  the 
heightened uncertainty and further downside risks, and the higher inflation compared 
to the winter forecast. Against these considerations, the fiscal response has to expand 
public investment for the green and digital transition and energy security, and sustain 
the purchasing power of the most vulnerable households so as to cushion the impact of 
the energy price hike and help limit inflationary pressures from second round effects 
via targeted and temporary measures; fiscal policy has to remain agile so as to adjust 
to the rapidly evolving circumstances, and be differentiated across countries depending 
on their fiscal and economic situation, including as regards the exposure to the crisis 
and the inflow of displaced persons from Ukraine. 

(9) 

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On  14  May  2021,  Croatia  submitted  its  national  recovery  and  resilience  plan  to  the 
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant 
to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the  relevance, 
effectiveness,  efficiency  and  coherence  of  the  recovery  and  resilience  plan,  in 

The  estimates  on  the  fiscal  stance  and  its  components  in  this  recommendation  are  Commission 
estimates  based  on  the  assumptions  underlying  the  Commission  2022  spring  forecast.  The 
Commission’s estimates of medium-term potential growth do not include the positive impact of reforms 
that are part of the Recovery and Resilience Plan and that can boost potential growth.  
Not financed by grants from the Recovery and Resilience Facility and other EU funds. 
Communication  from  the  Commission  to  the  Council:  Fiscal  policy  guidance  for  2023,  Brussels, 
2.3.2022, COM(2022) 85 final. 

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accordance with the assessment guidelines of Annex V to that Regulation. On 20 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Croatia11. The release of instalments is conditional on 
a decision by the Commission,  taken in  accordance with  Article 24(5) of  Regulation 
(EU)  2021/241,  that  Croatia  has  satisfactorily  fulfilled  the  relevant  milestones  and 
targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory  fulfilment 
presupposes  that  the  achievement  of  preceding  milestones  and  targets  has  not  been 
reversed. 

(10)  On 28 April 2022, Croatia submitted its 2022 National Reform Programme and, on 29 
April  2022,  its  2022  Convergence  Programme,  in  line  with  Article  4  of  Regulation 
(EC)  No  1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have 
been  assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241, 
the  2022  National  Reform  Programme  also  reflects  Croatia’s  bi-annual  reporting  on 
the progress made in achieving its recovery and resilience plan.  

in 

the 

relevant 

addressing 

(11)  The Commission published the 2022 country report for Croatia12 on 23 May 2022. It 
country-specific 
assessed  Croatia’s  progress 
recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of 
Croatia’s  implementation  of  the  recovery  and  resilience  plan,  building  on  the 
Recovery  and  Resilience  Scoreboard.  Based  on  this  analysis,  the  country  report 
identified gaps with respect to those challenges that are not addressed or only partially 
addressed  by  the  recovery  and  resilience  plan,  as  well  as  new  and  emerging 
challenges,  including  those  emerging  from  Russia’s  invasion  of  Ukraine.  It  also 
assessed Croatia’s progress in implementing the European Pillar of Social Rights and 
on achieving the EU headline targets on employment, skills and poverty reduction, as 
well as progress in achieving the UN’s Sustainable Development Goals.  

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No  1176/2011  for  Croatia  and  published  its  results  on  23  May  202213.  The 
Commission  concluded  that  Croatia  is  no  longer  experiencing  macroeconomic 
imbalances.  In  particular,  important  progress  has  been  made  in  reducing  private 
indebtedness and net external liabilities, while government debt remains high but has 
resumed  the  downward  trajectory  that  delivered  marked  improvements  before  the 
pandemic.  

the economy  and  support 

(13)  On  20  July  2020,  the  Council  recommended  Croatia  to  take  in  2020  and  2021  all 
necessary  measures, in  line with  the general  escape clause, to  effectively  address  the 
pandemic,  sustain 
the  ensuing  recovery.  It  also  
recommended  Croatia  to  pursue,  when  economic  conditions  allow,  fiscal  policies 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt 
sustainability,  while  enhancing  investment.  In  2021,  based  on  data  validated  by 
Eurostat, Croatia’s general government deficit decreased from 7.3% of GDP in 2020 
to  2.9%  in  2021.  The  fiscal  policy  response  by  Croatia  supported  the  economic 
recovery in 2021, while temporary emergency support measures declined from 3.3 % 
of GDP in 2020 to 2,1% in 2021. The measures taken by Croatia in 2021 have been in 
line with the Council Recommendation of 20 July 2020. The discretionary budgetary 

Council Implementing Decision of 6 July 2021 on the approval of the assessment of the recovery and 

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resilience plan for Croatia (ST 10149 2021) 
12 
13 

SWD(2022) 613 final. 
SWD(2022) 633 final. 

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measures  adopted  by  the  government  in  2020  and  2021  were  mostly  temporary  or 
matched by offsetting measures. At the same time, some of the discretionary measures 
adopted  by  the  government  in  2021  were  not  temporary  or  matched  by  offsetting 
measures,  mainly  consisting  of  reduction  of  the  personal  and  corporate  income  tax 
amounting  in  total  to  0.5%  of  GDP.  Based  on  data  validated  by  Eurostat,  general 
government debt stood at 79.8% of GDP in 2021. 

(14)  The  macroeconomic  scenario  underpinning  the  budgetary  projections  in  the  2022 
Convergence  Programme  is  cautious  in  2022  and  favourable  thereafter.  The 
government  projects  real  GDP  to  grow  by  3.0%  in  2022  and  4.4%  in  2023.  By 
comparison, the Commission’s 2022 spring forecast projects a higher real GDP growth 
of  3.4%  in  2022  and  a  lower  growth  of  3.0%  in  2023,  with  the  difference  mainly 
reflecting  a lower expectation in 2022 by the Croatian authorities concerning growth 
in real household consumption. In its 2022 Convergence Programme, the Government 
expects that the headline deficit will slightly decrease to 2.8 % of GDP in 2022 and to 
1.6%  in  2023.  The  slight  decrease  in  2022  mainly  reflects  the  growth  in  economic 
activity  and  the  unwinding  of  most  emergency  measures.  According  to  the 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  decrease  to 
76.2% in 2022, and to decline to 71.7% in 2023. Based on policy measures known at 
the  cut-off  date  of  the  forecast,  the  Commission  2022  spring  forecast  projects  a 
government deficit for 2022 and 2023 of 2.3% of GDP and 1.8% respectively. This is 
lower than the deficit projected for 2022 and higher then the deficit projected for 2023 
in the Convergence Programme, mainly due to a lower level of expenditure expected 
by  the  Commission  in  2022  for  gross  fixed  capital  formation  and  other  expenditure. 
Furthermore  the  Commission  forecast  entails  somewhat  lower  level  shift  in  both 
revenues  and  expenditures  attributed  to  a  difference  in  the  inflation  outlook.  The 
Commission  2022  spring  forecast  projects  a  lower  general  government  debt-to-GDP 
ratio, of 75.3% in 2022 and a higher level 73.1% in 2023.  

(15) 

Based  on  the  Commission  spring  2022  forecast,  the  medium-term  (10-year  average) 
potential output growth is estimated at 2.2 %. However, this estimate does not include 
the  impact  of  the  reforms  that  are  part  of  the  Recovery  and  Resilience  Plan  and  can 
boost Croatia’s potential growth. 

In 2022, the government phased out the majority of measures taken in response to the 
COVID-19 crisis, such that the temporary emergency support measures are projected 
to  decline  from  2.1%  of  GDP  in  2021  to  0.4%  in  2022.  The  government  deficit  in 
2022 is impacted by the measures adopted to counter the economic and social impact 
of  the  increase  in  energy  prices,  which  in  the  Commission  spring  2022  forecast  are 
estimated  at  0.4%  of  GDP  in  2022  and  0.2%  of  GDP  in  2023.14  These  measures 
mainly consist of social transfers to poorer households, support for companies and cuts 
to  indirect  taxes  on  energy  consumption.  These  measures  are  mostly  temporary. 
However, in case energy prices remain elevated also in 2023, some of these measures 
could  be  continued.  Some  of  these  measures  are  not  targeted,  notably  the  across  the 
board cuts on indirect taxes on energy. The government deficit is also impacted by the 
costs  to  offer  temporary  protection  to  displaced  persons  from  Ukraine,  which  in  the 

14 

The figures represent the level of annual budgetary costs of those measures taken since autumn 2021, 
including current revenue and expenditure as well as – where relevant – capital expenditure measures. 

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Commission 2022 spring forecast are projected at 0.1% of GDP in 2022 and 0.1% in 
2023.15   

(16)  On  18  June  2021,  the  Council  recommended  that  in  2022  Croatia16  maintain  a 
supportive  fiscal  stance,  including  the  impulse  provided  by  the  Recovery  and 
Resilience  Facility,  and  preserve  nationally  financed  investment.  The  Council  also 
recommended  Croatia  to  keep  the  growth  of  nationally  financed  current  expenditure 
under  control.  It  also  recommended  Croatia  to  pursue,  when  economic  conditions 
allow,  a  fiscal  policy  aimed  at  achieving  prudent  medium-term  fiscal  positions  and 
ensuring  fiscal  sustainability  in  the  medium  term,  and  at  the  same  time,  to  enhance 
investment to boost growth potential. 

(17) 

In  2022,  based  on  the  Commission’s  2022  spring  forecast  and  including  the 
information incorporated in Croatia’s 2022 Convergence Programme, the fiscal stance 
is  projected  to  be  supportive  at  -1.8%  of  GDP,  as  recommended  by  the  Council.17 
Croatia  plans  to  provide  continued  support  to  the  recovery  by  making  use  of  the 
Recovery and Resilience Facility to finance additional investment as recommended by 
the Council. The positive contribution to economic activity of expenditure financed by 
Recovery and Resilience Facility grants and other EU funds is projected to increase by 
0.5  percentage  points  of  GDP  compared  to  2021.  Nationally-financed  investment  is 
projected to provide an expansionary contribution to the fiscal stance of 0.4 percentage 
points in 2022.18 Therefore, Croatia plans to preserve nationally financed investment, 
as recommended by the Council. At the same time, the growth in nationally-financed 
primary  current  expenditure  (net  of  new  revenue  measures)  in  2022  is  projected  to 
provide  an  expansionary  contribution  of  1.0  percentage  points  to  the  overall  fiscal 
stance. This significant expansionary contribution includes the additional impact of the 
measures to  address  the economic and social impact  of the increase in  energy prices 
(0.4% of GDP) as well as the costs to offer temporary protection to displaced persons 
from Ukraine (0.1% of GDP), while higher intermediate consumption expenditure, in 
part reflecting the increase in inflation, is also projected to contribute to the growth in 
net  current  expenditure.  Therefore,  on  the  basis  of  current  Commission  estimates, 
Croatia  does  not  sufficiently  keep  under  control  the  growth  of  nationally-financed 
current expenditure in 2022.  

(18) 

In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at -0.7% 
of GDP on a no-policy change assumption.19 Croatia is projected to continue using the 

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19 

The total number of displaced persons from Ukraine to the EU is assumed to gradually reach 6 million 
by  the  end  of  2022,  and  their  geographical  distribution  is  estimated  based  on  the  size  of  the  existing 
diaspora, the relative population of the receiving Member State, and the actual distribution of displaced 
persons from Ukraine across the EU as of March 2022. For budgetary costs per person, estimates are 
based on the Euromod microsimulation model of the Commission’s Joint Research Centre, taking into 
account both cash transfers people may be eligible for as well as in-kind benefits such as education and 
healthcare. 
Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Convergence 
Programme of Croatia, OJ C 304, 29.7.2021, p. 48. 
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 
Other  nationally-financed  capital  expenditure  is  projected  to  provide  a  slightly  contractionary 
contribution of 0.1 percentage points of GDP. 

A negative sign of the indicator corresponds to an excess of primary expenditure growth compared with 
medium-term economic growth, indicating an expansionary fiscal policy. 

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grants  from  the  Recovery  and  Resilience  Facility  in  2023  to  finance  additional 
investment in support of the recovery. The positive contribution to economic activity 
of  expenditure  financed  by  Recovery  and  Resilience  Facility  grants  and  other  EU 
funds is projected to increase by 0.5 percentage points compared to 2022. Nationally-
financed investment is projected to provide a slightly expansionary contribution to the 
fiscal  stance  of  0.1  percentage  points  in  2023.20  At  the  same  time,  the  growth  in 
nationally-financed  primary  current  expenditure  (net  of  new  revenue  measures)  in 
2023 is projected to provide a broadly neutral contribution of -0.2 percentage points to 
the  overall  fiscal  stance.  This  includes  the  impact  from  the  phasing  out  of  some 
measures  addressing  the  increased  energy  prices  (0.2%  of  GDP).  Therefore,  the 
broadly neutral contribution of nationally-financed current expenditure relies partially 
on  the  phasing  out  of  the  measures  to  address  the  impact  of  the  increase  in  energy 
prices as currently planned. 

In  the  2022  Convergence  Programme,  the  general  government  deficit  is  expected  to 
gradually decline to 1.6% of GDP in 2024 and to 1.2% by 2025. Therefore, the general 
government deficit is planned to remain below 3% of GDP by 2025. According to the 
Programme,  the  general  government  debt-to-GDP  ratio  is  expected  to  decrease  by 
2025, specifically with a decrease to 68.9% in 2024, and a decline to 66.9% in 2025. 
Based on the Commission’s analysis, debt sustainability risks appear medium over the 
medium term. 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These help address 
all  or  a  significant  subset  of  the  economic  and  social  challenges  outlined  in  the 
country-specific  recommendations  addressed  to  Croatia  by  the  Council  in  the 
European  Semester 
to  any  country-specific 
recommendations issued up to the date of adoption of the plan.  

in  2019  and  2020, 

in  addition 

In particular, the plan addresses the country-specific recommendations with reforms to 
reinforce  the  budgetary  framework,  active  labour  market  policy  measures  and  an 
education  reform  to  improve  access  to  education  and  the  quality  and  labour-market 
relevance  of  education.  The  challenges  faced  by  the  Croatian  healthcare  system  are 
addressed by measures to improve the efficiency, quality, accessibility, and financial 
the  COVID-19  pandemic. 
sustainability,  which  was  especially  stricken  by 
Furthermore,  the  plan  addresses  country-specific  recommendations  in  those  areas  by 
advancing  the  decarbonisation  of  the  energy  sector,  increasing  overall  energy 
efficiency, and focusing investments on sustainable transport and digital infrastructure 
and  services.  Moreover,  the  plan  contains  far-reaching  measures  to  improve  the 
efficiency  of  the  public  administration  and  justice  system,  to  prevent,  detect  and 
correct corruption, to improve the business environment and support investment in and 
the policy relevance of research and innovation. 

(19) 

(20) 

(21) 

(22)  The  implementation  of  the  recovery  and  resilience  plan  of  Croatia  is  expected  to 
contribute  to  making  further  progress  on  the  green  and  digital  transition.  Measures 
supporting  the  climate  objectives  in  Croatia  account  for  40.3%  of  the  plan’s  total 
allocation,  while  measures  supporting  digital  objectives  account  for  20.4%  of  the 
plan’s total allocation. The fully-fledged implementation of the recovery and resilience 

20 

Other  nationally-financed  capital  expenditure  is  projected  to  provide  a  slightly  contractionary 
contribution of 0.1 percentage points of GDP. 

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plan, in line with the relevant milestones and targets, will help Croatia swiftly recover 
from  the  fallout  of  the  COVID-19  crisis,  while  strengthening  its  resilience.  The 
systematic  involvement  of  social  partners  and  other  relevant  stakeholders  remains 
important  for  the  successful  implementation  of  the  recovery  and  resilience  plan,  as 
well  as  other  economic  and  employment  policies  going  beyond  the  plan,  to  ensure 
broad ownership of the overall policy agenda. 

(23)  Croatia has not yet submitted the Partnership Agreement and the other cohesion policy 
programming documents21.  In line with  Regulation (EU) 2021/1060  of the  European 
Parliament  and  of  the  Council  of  24  June  2021,  Croatia  shall  take  into  account  the 
relevant  country-specific  recommendations  in  the  programming  of  the  2021-2027 
cohesion  policy  funds.  This  is  a  prerequisite  for  improving  the  effectiveness  and 
maximising  the  added  value  of  the  financial  support  to  be  received  from  cohesion 
policy  funds,  while  promoting  the  coordination,  complementarity  and  coherence 
between  these  funds  and  other  Union  instruments  and  funds.  The  successful 
implementation  of  the  Recovery  and  Resilience  Facility  and  cohesion  policy 
programmes also depends on the removal of bottlenecks to investment to support the 
green and digital transition and balanced territorial development.  

(24) 

In response to the mandate by the EU Heads of State or Government, as set out in the 
Versailles Declaration, the REPowerEU plan aims to phase out the European Union´s 
dependence on fossil fuel imports from Russia as soon as possible. For this purpose, 
the most suitable projects, investments and reforms at national, regional and EU level 
are being identified in dialogue with the Member States. These measures aim to reduce 
overall reliance on fossil fuels, and shift fossil fuel imports away from Russia. 

(25)  Croatia  has  committed  to  a  phase-out  of  coal  for  electricity  production  by  2033.  In 
2020, Croatia reached a share of 28% of energy from renewable sources in gross final 
energy  consumption,  exceeding  its  target  of  20%.  Croatia  needs  to  accelerate 
decarbonisation  efforts,  including  in  the  industry,  reduce  energy  import  dependency 
from  Russia,  and  take  measures  to  foster  integration  in  the  single  market.  In  2021, 
imports  of  Russian  gas  accounted  for  22%  of  total  natural  gas  supply,  whereas  57% 
was imported through the new Liquefied Natural Gas (LNG) terminal (operating since 
the beginning of 2021). Gas and oil represent 30.3% and 33.7% of the Croatian energy 
mix, respectively. Any new infrastructure and network investments related to gas are 
recommended to be future-proof where possible, in order to facilitate their long-term 
sustainability through future repurposing for sustainable fuels. 

As regards developing renewable, secure and affordable energy, considerable potential 
remains  in  wind  and  solar  energy,  which  represent  around  2.1%  of  the  energy  mix 
(with  shares  of  13%  and  1%  of  the  total  installed  electricity-generation  capacity, 
respectively), and in geothermal energy sources. Key aspects to improve the efficiency 
of  the  energy  system,  security  of  supply  and  market  integration  are:  streamlining 
permit procedures for renewables, supporting the development of energy communities 
and  frontloading  investments  in  renewables,  including  by  households  and  for  small-
scale systems.  

21 

Regulation  (EU)  2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021  laying 
down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund 
Plus,  the  Cohesion  Fund,  the  Just  Transition  Fund  and  the  European  Maritime,  Fisheries  and 
Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the 
Internal  Security  Fund  and  the  Instrument  for  Financial  Support  for  Border  Management  and  Visa 
Policy.. OJ L 231, 30.6.2021, p. 159. 

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Further upgrades to  electricity transmission and distribution grids will be required to 
support  the  green  transition,  while  investments  in  electricity  storage  will  be  key  to 
managing an  energy system  with  a high share of renewables.  Improvements  are also 
necessary in the heating and cooling sector, most notably by transitioning from fossil-
based district and individual heating systems to renewable energy sources directly or 
through electricity generation.  

(26)  As regards energy efficiency, measures are necessary to step-up building renovation of 
the building stock, the supply of energy-efficient housing, in particular social housing, 
and the replacement  of  gas  and oil boilers with  heat  pumps and other more efficient 
and green solutions. In addition, more action is needed to reduce the oil dependence of 
Croatia’s  transport  sector,  particularly  by  increasing  the  use  of  public  transport  and 
further  greening  it,  using  intelligent  transport  systems,  deploying  electric  and 
hydrogen  charging  stations  and  transportation  more  broadly,  investing  in  mobility 
infrastructure  and  increasing  the  uptake  of  zero-  and  low-emission  vehicles.  Further 
increase in ambition for reducing greenhouse gas emissions and increasing renewable 
energy  and  energy  efficiency  will  be  needed  to  be  in  line  with  the  ‘Fit  for  55’ 
objective. 

(27)  While  the  acceleration  of  the  transition  towards  climate  neutrality  and  away  from 
fossil  fuels  will  create  significant  restructuring  costs  in  several  sectors,  Croatia  can 
make  use  of  the  Just  Transition  Mechanism  in  the  context  of  the  cohesion  policy  to 
alleviate  the socio-economic impact  of the  transition  in  the most  affected  regions.  In 
addition,  Croatia  can  make  use  of  the  European  Social  Fund  Plus  to  improve 
employment opportunities and strengthen social cohesion. 

(28) 

In  the  light  of  the  Commission’s  assessment,  the  Council  has  examined  the  2022 
Convergence Programme and its opinion22 is reflected in recommendation (1) below.  

(29)  On  10  July  2020,  the  Croatian  kuna  was  included  in  the  European  exchange  rate 
mechanism II (ERM II) as a preparatory step towards adopting the euro. To preserve 
economic  and  financial  stability  and  achieve  a  high  degree  of  sustainable  economic 
convergence,  Croatian  authorities  have  committed  to  implementing  specific  policy 
the  business  environment,  public-sector 
measures  on  anti-money 
governance  and 
the  necessary 
in  fulfilling 
requirements to  adopt  the euro  will be assessed in the 2022 Convergence Reports of 
the European Commission and the European Central Bank. 

judiciary.  Croatia’s  progress 

laundering, 

the 

HEREBY RECOMMENDS that Croatia take action in 2022 and 2023 to:  

1. 

In 2023, ensure that the growth of nationally-financed current expenditure is in line 
with  an  overall  neutral  policy  stance,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and 
to  people  fleeing  Ukraine.  Stand  ready  to  adjust  current  spending  to  the  evolving 
situation.  Expand  public  investment  for  the  green  and  digital  transition  and  for 
energy  security,  including  by  making  use  of  the  RRF,  RePowerEU  and  other  EU 
funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent 
medium-term fiscal positions.  

2. 

Proceed with the implementation of its recovery and resilience plan, in line with the 
milestones  and  targets  included  in  the  Council  Implementing  Decision  of  20  July 

22 

Under Article 9(2) of Council Regulation (EC) No 1466/97. 

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3. 

2021. Submit the 2021-2027 cohesion policy programming documents with a view to 
finalising these negotiations with the Commission and starting their implementation.  

Diversify  fossil  fuel  imports  and  reduce  overall  reliance  on  fossil  fuels.  Accelerate 
the deployment of renewables, focussing in particular on wind, solar and geothermal 
sources, including through small-scale renewable energy production and developing 
energy  communities,  mainly  by  streamlining  procedures  for  administrative 
authorisation  and  permits.  Further  upgrade  electricity  transmission  and  distribution 
grids  and  invest  in  electricity  storage.  Step-up  action  to  reduce  energy  demand  by 
improving  energy  efficiency,  mainly  in  residential  buildings,  and  to  reduce 
dependence on fossil fuels in the heating and transport sectors. 

Done at Brussels, 

For the Council 
The President 

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