Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Croatia and delivering a Council opinion on the 2023 Stability Programme of Croatia
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Croatia, economic policy, economic recovery, economic reform, energy policy, fiscal policy, renewable energy, stability pact, stability programme, sustainable mobility

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   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 611 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National Reform Programme of Croatia and delivering a Council opinion on the 2023 Stability Programme of Croatia {SWD(2023) 611 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National Reform Programme of Croatia and delivering a Council opinion 
on the 2023 Stability 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 5(2) 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  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey3,  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 

1 
2 

3 

OJ L 209, 2.8.1997, p. 1. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 
COM(2022) 780 final. 

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four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  1176/2011,  the  Commission  also  adopted  the 
2023  Alert  Mechanism  Report,  in  which  it  did  not  identify  Croatia  as  one  of  the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. On the same date, the Commission 
also adopted an opinion on Croatia’s 2023 draft budgetary plan. The Commission also 
adopted a recommendation for a Council recommendation on the economic  policy of 
the euro area, which the Council adopted on 16 May 2023, as well as the proposal for 
the 2023 Joint Employment Report analysing the implementation of the Employment 
Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights,  which  the 
Council adopted on 13 March 2023. 

(3)  While the EU economies  are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and inclusive growth, safeguard macroeconomic stability and increase resilience in the 
medium  term.  It  also  focuses  heavily  on  increasing  the  EU’s  competitiveness  and 
productivity. 

(4) 

(5) 

On  1  February  2023,  the  Commission  issued  the  Communication  A  Green  Deal 
Industrial  Plan  for  the  Net-Zero  Age4  to  boost  the  competitiveness  of  the  EU’s  net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling  of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains.  On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20305, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
improvements,  well  focused 
priorities  aimed  at  actively  ensuring  structural 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 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.  

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COM(2023) 62 final.  
COM(2023) 168 final.  

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(6) 

(7) 

(8) 

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8 

The REPowerEU Regulation6 adopted on 27 February 2023 aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination7.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023 stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
price  pressures,  Member  States  should  target  such  measures  much  better  than  in  the 
past  towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the 
fiscal  recommendations would be quantified and differentiated and be formulated on 
the basis of net primary expenditure, as proposed in its Communication on orientations 
for  a  reform  of  the  EU  economic  governance  framework8.  It  recommended  that  all 
Member States should  continue to  protect  nationally  financed investment and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transition  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive  reform of the EU's economic  governance rules. The central  objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 
inclusive growth in all Member States through reforms and investments. The proposals 
aim at providing Member States with more control over the design of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 

Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

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(9) 

Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

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 
accordance with the assessment guidelines of Annex V to that Regulation. On 28 July 
2021,  the  Council  adopted  its  Decision  on  the  approval  of  the  assessment  of  the 
recovery and resilience plan for Croatia9. 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  2023,  Croatia  submitted  its  2023  National  Reform  Programme  and  its 
2023 Stability Programme, in line with  Article 4(1) 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  2023 
National Reform Programme also reflects Croatia’s biannual reporting on the progress 
made in achieving its recovery and resilience plan.  

in 

addressing 

(11)  The Commission published the 2023 country report for Croatia10 on 24 May 2023. It 
assessed  Croatia’s  progress 
country-specific 
recommendations adopted by the Council between 2019 and 2022, and took stock of 
Croatia’s implementation of the recovery and resilience plan. 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. It also assessed Croatia’s progress on 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.  

relevant 

the 

(12)  Based on data validated by Eurostat,11 Croatia’s general government balance improved 
from  a  deficit  of  2.5%  of  GDP  in  2021  to  a  surplus  of  0.4%  in  2022,  while  general 
government debt fell from 78.4% of GDP at the end of 2021 to 68.4% at the end of 
2022. 

(13)  The  general  government  balance  has  been  impacted  by  the  fiscal  policy  measures 
adopted to mitigate the economic and social impact of the increase in energy prices. In 
2022, such revenue-decreasing measures included VAT and excise duties cuts; while 
such  expenditure-increasing  measures  included  energy  price  caps,  allowances  for 
vulnerable  consumers,  support  schemes  for  businesses,  and  social  assistance  for 
pensioners  and  vulnerable  households.  The  Commission  estimates  the  net  budgetary 
cost of these measures at 1.6% of GDP in 2022. The general government balance has 
also been impacted by the budgetary cost of temporary protection to displaced persons 
from  Ukraine,  which  is  estimated  at  0.1%  of  GDP  in  2022.  At  the  same  time,  the 

9 

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Council Implementing Decision of 28 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Croatia (ST 10687/21; ST 10687/21 ADD 1). 
SWD(2023) 611 final. 
Eurostat-Euro Indicators, 47/2023, 21.4.2023 

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estimated cost of COVID-19 temporary emergency measures dropped to 0.1% of GDP 
in 2022, from 1.3% in 2021. 

(14)  On  18  June  2021,  the  Council  recommended  that  in  2022  Croatia12  maintain  a 
supportive  fiscal  stance,  including  from  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. 

(15)  According  to  the  Commission  estimates,  the  fiscal  stance13  in  2022  was  broadly 
neutral, at +0.2% of GDP, which was appropriate in a context of high inflation14. As 
recommended  by  the  Council,  Croatia  continued  to  support  the  recovery  with 
investments  financed  by  the  Recovery  and  Resilience  Facility.  Expenditure  financed 
by Recovery and Resilience Facility grants and other EU funds amounted to 2.6% of 
GDP  in  2022  (2.7%  of  GDP  in  2021).  Nationally  financed  investment  provided  a 
contractionary  contribution  of  0.6  percentage  points15  to  the  fiscal  stance.16  Croatia 
therefore did not preserve nationally financed investment, which is not in line with the 
Council recommendation. At the same time, the growth in nationally financed primary 
current  expenditure  (net  of  new  revenue  measures)  provided  a  broadly  neutral 
contribution of 0.1 percentage points to the fiscal stance. Croatia therefore sufficiently 
kept under control the growth in nationally financed current expenditure. 

(16)  The macroeconomic scenario underpinning the budgetary projections in  the Stability 
Programme is favourable in 2023 and realistic thereafter. The government projects real 
GDP  to  grow  by  2.2%  in  2023  and  2.6%  in  2024.  By  comparison,  the  Commission 
2023 spring forecast projects a lower real GDP growth of 1.6% in 2023 and 2.3% in 
2024,  mainly  due  to  more  conservative  estimates  for  households’  and  public 
consumption, as well as total investment. 

(17) 

In its 2023 Stability Programme, the government expects that the general government 
balance will deteriorate to a deficit ratio of 0.7% of GDP in 2023. The deterioration in 
2023  mainly  reflects  the  lagged  impact  of  inflation  on  public  spending,  namely 
through  the  indexation  mechanisms  of  public  wages,  pensions  and  social  benefits. 
According to the programme, the general government debt-to-GDP ratio is expected to 
decrease from 68.4% at the end of 2022 to 62.6% at the end of 2023. The Commission 
2023 spring forecast projects a government deficit of 0.5% of GDP for 2023. This is 
broadly in line with the deficit projected in the Stability Programme. The Commission 
2023  spring  forecast  projects  a  similar  general  government  debt-to-GDP  ratio,  of 
63.0% at the end of 2023.  

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16 

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. 
The  fiscal  stance  is  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  growth.  For  more  details  see  Box 1  in  the  Fiscal  Statistical 
Tables. 
Croatia also experienced strong real GDP growth in 2022. 
Nationally financed investment had a contractionary contribution to the fiscal stance due to a decrease 
in investment expenditure done by local authorities. 
Other nationally financed capital expenditure provided an expansionary contribution of 0.5 percentage 
points of GDP. This was partly due to a one-off cost of an international arbitration case. 

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(18)  The government balance in 2023 is expected to continue to be impacted by the fiscal 
policy measures adopted to mitigate the economic and social impact of the increase in 
energy  prices.  They  consist  of  measures  extended  from  2022  (in  particular  on  the 
revenue  side:  VAT  and  excise  duties  cuts;  but  also  on  the  expenditure  side:  energy 
price caps, allowances for vulnerable consumers, support schemes for businesses, and 
social assistance for pensioners and vulnerable households). The net budgetary cost of 
the support measures is projected in the Commission 2023 spring forecast at 1.5% of 
GDP  in  202317.  Most  of  the  measures  in  2023  do  not  appear  targeted  to  the  most 
vulnerable  households  or  firms,  and  many  of  them  do  not  fully  preserve  the  price 
signal  to  reduce  energy  demand  and  increase  energy  efficiency.  As  a  result,  the 
amount  of  targeted  support  measures,  to  be  taken  into  account  in  the  assessment  of 
compliance with the fiscal recommendation for 2023, is estimated in the Commission 
2023  spring  forecast  at  0.2%  of  GDP  in  2023  (compared  to  0.3%  of  GDP  in  2022). 
The  budgetary  cost  of  temporary  protection  to  displaced  persons  from  Ukraine  is 
projected to remain stable compared to 2022. 

(19)  On  12  July  2022,  the  Council  recommended18  that  Croatia  take  action  to  ensure  in 
2023 that the growth of nationally financed primary current expenditure is in line with 
an  overall  neutral  policy  stance19,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Croatia  should  stand  ready  to  adjust  current  spending  to  the 
evolving situation. Croatia was also recommended to expand public investment for the 
green  and  digital  transitions,  and  for  energy  security  taking  into  account  the 
REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and  Resilience 
Facility and other Union funds. 

(20) 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
expansionary  (-1.0%  of  GDP),  in  a  context  of  high  inflation.  This  follows  a  broadly 
neutral  fiscal  stance  in  2022  (+0.2%  of  GDP).  The  growth  in  nationally  financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2023  is 
projected  to  provide  an  expansionary  contribution  of  0.4  %  of  GDP  to  the  fiscal 
stance. This includes the reduced cost of the targeted support measures to households 
and firms most vulnerable to energy price hikes by 0.1% of GDP. The expansionary 
contribution of nationally financed net primary current expenditure is therefore not due 
to the targeted support to households and firms most vulnerable to energy price hikes 
and  to  people  fleeing  Ukraine.  The  expansionary  growth  in  nationally  financed 
primary current expenditure (net of discretionary revenue measures) is also driven by 
the maintenance of untargeted energy measures, permanent increases in public sector 
wages and social benefits, and lower VAT rates on non-energy products. In sum, the 
projected growth of nationally financed primary current expenditure is not in line with 
the recommendation of the Council. Expenditure financed by Recovery and Resilience 
Facility  grants  and  other  EU  funds  is  projected  to  amount  to  3.1%  of  GDP  in  2023, 
while  nationally  financed  investment  is  projected  to  provide  an  expansionary 

17 

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19 

The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Croatia  and 
delivering a Council opinion on the 2022 Convergence Programme of Republic of Croatia  OJ C 334, 
1.9.2022, p. 88.  
Based  on  the  Commission  spring  2023  forecast,  the  medium-term  (10-year  average)  potential  output 
growth of Croatia, which is used to measure the fiscal stance, is estimated at 10.3% in nominal terms. 

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contribution to the fiscal stance of 0.7 percentage points20. Therefore, Croatia plans to 
finance additional investment through the Recovery and Resilience Facility and other 
EU  funds,  and  it  is  projected  to  preserve  nationally  financed  investment.  It  plans  to 
finance public investment for the green and digital transitions, and for energy security, 
such  as  energy  renovation  of  buildings,  digitalising  the  public  administration, 
investment in digital diagnostics and equipment in hospitals, and support to the green 
and  digital  transitions  of  the  business  sector,  which  are  funded  by  the  Recovery  and 
Resilience Facility and other EU funds. 

(21)  According to  the Stability Programme, the  general  government deficit is  expected to 
increase to 1.5% of GDP in 2024. The increase in 2024 mainly reflects higher capital 
expenditure  and  a  still  relatively  high  indexation  of  wages,  pensions,  and  social 
assistance  spending.  The  programme  expects  the  general  government  debt-to-GDP 
ratio to decrease to 59.8% at the end of 2024. Based on policy measures known at the 
cut-off  date  of  the  forecast,  the  Commission  2023  spring  forecast  projects  a 
government  deficit  of  1.3%  of  GDP  in  2024.  This  is  broadly  in  line  with  the  deficit 
projected in  the programme. The Commission  2023 spring forecast  projects  a higher 
general  government  debt-to-GDP  ratio,  of  61.8%  at  the  end  of  2024,  with  the 
difference vis-à-vis the Stability Programme projections being largely explained by the 
denominator  effect  (difference  in  the  nominal  GDP  in  2024)  and,  to  a  lesser  extent, 
different assumptions concerning the stock-flow adjustment.  

(22)  The  Stability  Programme  envisages  the  phasing  out  of  most  of  the  energy  support 
measures in 2024. The Commission currently assumes the net cost of energy support 
measures at 0.2% of GDP in 2024. These estimates hinge upon the assumption of no 
renewed energy price increases. 

(23)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark.21 
Taking  into  account  fiscal  sustainability  considerations,22  an  improvement  in  the 
structural balance of at least 0.3% of GDP for 2024 would be appropriate. To ensure 
such an improvement, the growth in net nationally financed primary expenditure23 in 
2024 should not exceed 5.1%, as reflected in this recommendation. At the same time, 
the  remaining  energy  support  measures  (currently  estimated  by  the  Commission  at 
1.5%  of  GDP  in  2023)  should  be  phased  out,  contingent  on  energy  market 
developments and starting from the least targeted ones, and the related savings should 
be used to reduce the government deficit. Based on Commission estimates, this would 
lead to a growth in net primary expenditure below the recommended maximum growth 
rate  for  2024.  In  addition,  according  to  the  Commission  2023  spring  forecast,  the 

20 

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22 

23 

Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.5 
percentage points of GDP. This is driven partly by a base effect of higher spending in 2022 due to some 
one-off measure, while in 2023 there is envisaged a reduction in transfers to utility companies.   

Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The Commission estimated that Croatia would need an average annual increase in the structural primary 
balance as a share of GDP of 0.75 percentage points to achieve a plausible debt reduction or ensure that 
government  debt  is  kept  at  prudent  levels  in  the  medium  term.  This  estimate  was  based  on  the 
Commission autumn 2022 forecast. The starting point  for this estimate  was the projected government 
deficit and debt for 2024 which assumed the withdrawal of energy support measures in 2024.  
Net  primary  expenditure  is  defined  as  nationally  financed  expenditure  net  of  discretionary  revenues 
measures and excluding interest expenditure as well as cyclical unemployment expenditure. 

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growth  in  net  nationally  financed  primary  current  expenditure  in  2023  is  not  in  line 
with  the  recommendation  of  the  Council.  If  this  is  confirmed,  lower  growth  in  net 
primary expenditure in 2024 would be appropriate. 

(24)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow at 6.8% in 2024, which is above the 
recommended  growth  rate.  The  adjustment  projected  in  the  Commission  forecast  is 
less than the savings from the full phasing out of energy support measures, which is 
due to an increase in the dynamics of capital, wage and social expenditure. 

(25)  According to the programme, government investment is expected to remain stable at 
4.6%  of  GDP  between  2023  and  2024.  The  programme  refers  to  reforms  and 
investments, that are expected to contribute to fiscal sustainability and sustainable and 
inclusive growth. These include reforms (health care and welfare sector, improving the 
management  of  state-owned  enterprises,  improving  the  fiscal  responsibility  act)  and 
investments (transport and water infrastructure, energy renovations of multi-dwelling 
buildings  and  houses,  investments  in  the  green  and  digital  transition,  as  well  as  in 
educational infrastructure) which are mostly also part of the Recovery and Resilience 
Plan. 

(26)  The Stability Programme outlines a medium-term fiscal path until 2026. According to 
the programme, the general government deficit is expected to decline to 0.8% of GDP 
in 2025 and to 0.6% by 2026. The general government deficit is therefore planned to 
remain below 3% of GDP over the programme horizon. According to the programme, 
the general government debt-to-GDP ratio is expected to decrease from 59.8% at the 
end of 2024 to 55.6% by the end of 2026. The general government debt-to-GDP ratio 
is therefore planned to drop and remain below 60% over the programme horizon.  

(27) 

In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. The implementation 
of  Croatia’s  recovery  and  resilience  plan  is  well  underway.  Croatia  submitted  two 
payment  request(s),  corresponding  to  59  milestones  and  targets  in  the  plan  and 
resulting in an overall disbursement of EUR 1.4 billion. Croatia is expected to submit 
an  amendment  of  its  plan,  which  should  feature  a  REPowerEU  chapter  as  well  as 
additional  measures  in  other  areas,  to  be  financed  by  the  loan  component.  In 
accordance  with  Article  14(6)  of  Regulation  (EU)  2021/241,  on  30  March  2023, 
Croatia  expressed  its  intention  to  request  EUR  3 612 000 000  of  additional  loan 
support  under  the  Recovery  and  Resilience  Facility.  The  swift  inclusion  of  the  new 
REPowerEU chapter in the recovery and resilience plan will allow additional reforms 
and investments to be financed in support of Croatia’s strategic objectives in the field 
of energy and the green transition. The systematic and effective involvement of local 
and  regional  authorities,  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.  

(28)  The Commission  approved all of Croatia’s cohesion  policy  programming  documents 
in 2022. Proceeding with the swift implementation of the cohesion policy programmes 
in  complementarity  and  synergy  with  the  recovery  and  resilience  plan,  including  the 
REPowerEU  chapter,  is  key  to  achieving  the  green  and  digital  transition,  increasing 
economic and social resilience as well as achieving balanced territorial development in 
Croatia. 

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(29)  Croatia imports about 53% of the total energy consumed each year, while having great 
potential in renewable energy, in particular from solar, wind, and geothermal sources. 
Half of the country’s electricity is generated by hydropower plants; the share of wind 
energy has increased and reached 14%, but the share of solar energy is still only 1%. 
Key factors to accelerate the uptake of solar and wind installations are the streamlining 
of the permitting procedures and finalisation of the relevant legislative framework to 
provide producers and self-consumers with more legal certainty. Other factors include 
a  significant  upgrading  of  the  transmission  network  and  extending  it  to  the  southern 
part of the country, which is where renewable energy sources are mainly produced, as 
well as the roll-out of smart metering for small solar installations. Energy consumption 
in  the residential  sector  is  rather high in  Croatia  (35%  of total  energy consumption), 
with  71%  dependency  on  gas  for  heating.  The  revision  and  simplification  of  the 
procedures  for  installing  solar  photovoltaic  facilities  in  multi-apartment  buildings  as 
well  as  the  accelerated  roll-out  of  heat  pumps  for  heating  and  cooling  are  relevant 
measures for energy renovation in the building sector. The share of renewable energy 
sources used in transport is low (7% against the 2030 target of 14% in 2030), as is the 
one of rail in passenger transport (2.5% against 8% in the EU). Modernising the rail 
infrastructure  and  rolling  stock  and  ensuring  an  increased  uptake  of  zero-emission 
vehicles can greatly contribute to the decarbonisation of the transport sector.  Croatia´s 
consumption  of  natural  gas  has  dropped  by  22%  in  the  period  August  2022-March 
2023,  compared  with  the  average  gas  consumption  over  the  same  period  in  the 
preceding  five  years,  beyond  the  15%  reduction  target.  Croatia  could  keep  pursuing 
efforts to temporarily reduce gas demand until 31 March 2024”24. 

(30)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 
creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High-quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation. To unlock untapped labour supply, these measures 
need  to  be  accessible,  in  particular  for  individuals  and  in  sectors  and  regions  most 
affected by the green transition. In 2022, labour shortages were reported in Croatia for 
31  occupations  that  required  specific  skills  or  knowledge  for  the  green  transition, 
including in the construction and manufacturing sectors (both below the EU average).  

(31) 

(32) 

In light of the Commission’s assessment, the Council has examined the 2022 Stability 
Programme and its opinion25 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union, the Council recommended that euro area Member States take action, including 
through  their  recovery  and  resilience  plans,  to  (i)  preserve  debt  sustainability  and 
refrain  from  broad-based  support  to  aggregate  demand  in  2023,  better  target  fiscal 
measures taken to mitigate the impact of high energy prices and reflect on appropriate 
ways to wind down support as energy price pressures diminish; (ii) sustain high public 
investment and promote private investment to support the green and digital transition; 
(iii)  support  wage  developments  that  mitigate  the  loss  in  purchasing  power  while 
limiting  second-round  effects  on  inflation,  further  improve  active  labour  market 
policies  and  address  skills  shortages;  (iv)  improve  the  business  environment  and 

24 
25 

Council Regulation (EU) 2022/1369  and Council Regulation (EU) 2023/706 
Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

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ensure that energy support to companies is cost-effective, temporary, targeted to viable 
firms  and  that  it  maintains  incentives  for  the  green  transition;  and  (v)  preserve 
macro-financial  stability  and  monitor  risks  while  continuing  to  work  on  completing 
the  Banking  Union.  For  Croatia,  recommendations  (1),  (2)  and  (3)  contribute  to  the 
implementation of the first, second and third euro area recommendations.  

HEREBY RECOMMENDS that Croatia take action in 2023 and 2024 to:  

1. 

2. 

3. 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023,  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. 

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 5.1%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF grants and other EU funds, in particular to foster the green and digital transitions. 

For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal  strategy  of 
gradual  and  sustainable  consolidation,  combined  with  investments  and  reforms 
conducive  to  higher  sustainable  growth,  to  achieve  a  prudent  medium-term  fiscal 
position. 

Continue  the  steady  implementation  of  its  recovery  and  resilience  plan  and  swiftly 
finalise the REPowerEU chapter with a view to  rapidly starting its implementation. 
Proceed  with  the  speedy  implementation  of  cohesion  policy  programmes,  in  close 
complementarity and synergy with the recovery and resilience plan.  

Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, 
in  particular  wind,  solar,  and  geothermal  sources,  finalising  the  incomplete 
legislative  framework,  streamlining  administrative  procedures  for  permitting, 
simplifying  the  procedures  for  installing  renewable  energy  sources  (i.e.  solar 
photovoltaic  facilities)  in  multi-apartment  buildings  and  providing  more  legal 
certainty.  ￼Support  small-scale  renewable  energy  generation  capacity.  Further 
upgrade electricity transmission and distribution grids, in particular by improving the 
transmission  links  between  the  north  and  south  of  the  country,  and  advancing  the 
roll-out  of  smart  meters.  Accelerate  the  implementation  of  energy  efficiency 
measures,  including  the  installation  of  heat  pumps.  Reduce  dependence  on  fossil 
fuels in the transport sector by promoting sustainable solutions, in particular rail and 
the electrification of road transport. Step up policy efforts aimed at the provision and 
acquisition of the skills needed for the green transition. 

Done at Brussels, 

For the Council 
The President 

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