Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Croatia
Date: 2024-06-19
Institutions: European Commission, Secretariat-General
Subjects: Croatia, budget policy, competitiveness, economic policy, economic recovery, economic reform, employment policy, fiscal policy, social policy, stability pact

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   EUROPEAN COMMISSION  Brussels, 19.6.2024  COM(2024) 611 final  Recommendation for a COUNCIL RECOMMENDATION on the economic, social, employment, structural and budgetary policies of Croatia   {SWD(2024) 611 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the economic, social, employment, structural and budgetary policies 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 Regulation (EU) 2024/1263 of the European Parliament and of the Council 
of  29  April  2024  on  the  effective  coordination  of  economic  policies  and  on  multilateral 
budgetary surveillance and repealing Council Regulation (EC) No 1466/971, and in particular 
Article 3(3) 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) 

(2) 

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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  investment,  entailing  a  fiscal  impulse 
financed by the EU. In line with the European Semester priorities, it helps achieve the 
economic  and  social  recovery  and  implement  sustainable  reforms  and  investment,  in 
particular  to  promote  the  green  and  digital  transitions  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  REPowerEU  Regulation3,  adopted  on  27  February  2023,  aims  to  phase  out  the 
EU’s  dependency  on  Russian  fossil  fuel  imports.  This  would  help  achieve  energy 

OJ L 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj.  
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing 
(OJ  L  57,  18.2.2021,  p.  17),  ELI: 
http://data.europa.eu/eli/reg/2021/241/oj. 
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 

the  Recovery  and  Resilience  Facility 

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security  and  diversify  the  EU’s  energy  supply,  while  increasing  the  uptake  of 
renewables,  energy  storage  capacities  and  energy  efficiency.  Croatia  added  a  new 
REPowerEU chapter to its national recovery and resilience plan in order to finance key 
reforms and investments that will help achieve the REPowerEU objectives. 

On  16  March  2023,  the  Commission  issued  a  Communication  on  the  ‘Long-term 
competitiveness of the EU: looking beyond 2030’4, in order to inform policy decisions 
and  create  the  framework  conditions  for  increasing  growth.  The  Communication 
frames competitiveness along nine mutually reinforcing drivers. Among these drivers, 
access to private capital, research and innovation, education and skills, and the single 
market  emerge  as  paramount  policy  priorities  for  reform  and  investment  to  address 
current productivity challenges as well as to build up the long-term competitiveness of 
the EU and  its Member States.  On 14 February  2024, the Commission  followed this 
Communication  with  the  Annual  Single  Market  and  Competitiveness  Report5.  The 
report  details  the  competitive  strengths  and  challenges  of  Europe's  Single  Market, 
tracking yearly developments according to the nine competitiveness drivers identified.  

On 21 November 2023, the Commission adopted the 2024 Annual Sustainable Growth 
Survey6, marking the start of the 2024 cycle of the European Semester for economic 
policy  coordination.  The  European  Council  endorsed  the  priorities  of  the  survey 
around  the  four  dimensions  of  competitive  sustainability  on  22  March  2024.  On  21 
November 2023, on the basis of Regulation (EU) No 1176/2011, the Commission also 
adopted the 2024 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 the 2024 draft budgetary plan of Croatia. The 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 12 April 2024, as well 
as the proposal  for the  2024  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 11 March 2024.  

On  30  April  2024,  the  EU’s  new  economic  governance  framework  came  into  force. 
The  framework  includes  the  new  Regulation  of  the  European  Parliament  and  of  the 
Council  (EU)  2024/1263  on  the  effective  coordination  of  economic  policies  and 
multilateral  budgetary  surveillance  and  repealing  Council  Regulation  (EC)  No 
1466/97.  It  also  includes  the  amended  Regulation  (EC)  No  1467/97  on  the 
implementation  of  the  excessive  deficit  procedure  and  the  amended  Directive 
2011/85/EU  on  the  budgetary  frameworks  of  Member  States7.  The  objectives  of  the 
new  framework  are  public  debt  sustainability  and  sustainable  and  inclusive  growth 
through gradual  fiscal consolidation  as  well as reforms  and investments.  It  promotes 
national  ownership  and  has  a  greater  medium-term  focus,  combined  with  more 

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), ELI: https://eur-lex.europa.eu/eli/reg/2021/241/oj. 
COM(2023) 168 final. 
COM(2024) 77 final 
COM(2023) 901 final. 
Council  Regulation  (EU)  2024/1264  of  29  April  2024  amending  Regulation  (EC)  No  1467/97  on 
speeding  up  and  clarifying  the  implementation  of  the  excessive  deficit  procedure  (OJ  L,  2024/1264, 
30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1264/oj)  and  Council  Directive  (EU)  2024/1265  of 
29  April  2024  amending  Directive  2011/85/EU  on  requirements  for  budgetary  frameworks  of  the 
Member States (OJ L, 2024/1265, 30.4.2024, ELI: http://data.europa.eu/eli/dir/2024/1265/oj). 

(3) 

(4) 

(5) 

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effective and coherent enforcement. Each Member State should submit to the Council 
and  to  the  Commission  a  national  medium-term  fiscal-structural  plan.  National 
medium-term  fiscal-structural  plans  contain  the  fiscal,  reform  and  investment 
commitments  of  a  Member  State,  covering  a  planning  horizon  of  4  years  or  5  years 
depending on the regular length of the national legislature. The net expenditure8 path 
in  the  national  medium-term  fiscal-structural  plans  should  comply  with  the 
requirements of Regulation (EU) No 2024/1263, including the requirements to put or 
keep  general  government  debt  on  a  plausibly  downward  path  by  the  end  of  the 
adjustment period at the latest, or for it to remain at prudent levels below 60% of GDP, 
and to bring and/or maintain the government deficit below the 3% of GDP reference 
value  over  the  medium  term.  Where  a  Member  State  commits  to  a  relevant  set  of 
reforms and investments in accordance with the criteria set out in Regulation (EU) No 
2024/1263, the adjustment period may be extended by 3 years at most. For the purpose 
of supporting the preparation of those plans, on [21 June] 2024, the Commission is set 
to  provide  Member  States  with  guidance  on  the  content  of  the  plans  and  the 
subsequent  annual  progress  reports  that  they  will  need  to  submit  and,  in  accordance 
with  Article  5  of  Regulation  (EU)  No  2024/1263,  will  transmit  to  them  technical 
guidance  on  the  fiscal  adjustments  (reference  trajectories  and  technical  information, 
where  applicable).  Member  States  should  submit  their  medium-term  fiscal-structural 
plans by 20 September 2024, unless the Member State and the Commission agree to 
extend the deadline by a reasonable period of time. Member States should ensure the 
involvement  of  their  national  parliaments,  and  the  consultation  of  independent  fiscal 
institutions, of social partners and other national stakeholders, as appropriate. 

In 2024, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  The  full 
implementation  of  the  recovery  and  resilience  plans  remains  essential  for  delivering 
the policy priorities under the European Semester, as the plans help effectively address 
all  or  a  significant  subset  of  challenges  identified  in  the  relevant  country-specific 
recommendations  issued  in  recent  years.  The  2019,  2020,  2022  and  2023  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.  

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,  which  was  amended  on  8  December  2023 
following Article 18(2) of Regulation (EU) 2021/241 to update the maximum financial 
contribution for non-repayable financial support, as well as to include the RePowerEU 

(6) 

(7) 

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Net expenditure as defined in Article 2 of Council Regulation (EU) 2024/1263 of 29 April 2024 (OJ L 
2024/1263,  30.4.2024,  ELI:  http://data.europa.eu/eli/reg/2024/1263/oj).  Net  expenditure  means 
government  expenditure  net  of  (i)  interest  expenditure,  (ii)  discretionary  revenue  measures,  (iii) 
expenditure  on  programmes  of  the  Union  fully  matched  by  Union  funds  revenue,  (iv)  national 
expenditure  on  co-financing  of  programmes  funded  by  the  Union,  (v)  cyclical  elements  of 
unemployment benefit expenditure, and (vi) one-offs and other temporary measures. 
Council Implementing Decision of 28 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Croatia (10687/2021). 

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in 

addressing 

chapter10. 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.  
The Commission published the 2024 country report for Croatia11 on 19 June 2024. It 
assessed  Croatia’s  progress 
country-specific 
recommendations  adopted by the Council  between 2019  and  2023 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.  
Based  on  data  validated  by  Eurostat12,  Croatia’s  general  government  balance 
decreased from a surplus of 0.1% of GDP in 2022 to a deficit of 0.7% in 2023, while 
the general government debt fell from 67.8% of GDP at the end of 2022 to 63.0% at 
the end of 2023. 

relevant 

the 

(8) 

(9) 

(10)  On  12  July  2022,  the  Council  recommended13  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  stance14,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people  fleeing  Ukraine.  Croatia  was  recommended  to  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.  In  2023,  according  to  the  Commission 
estimates, the fiscal stance15 was expansionary, by 3.0% of GDP, in a context of high 
inflation.  The  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary revenue measures) in 2023 provided an expansionary contribution to the 
fiscal  stance  of  1.3%  of  GDP.  This  includes  the  increased  cost  of  the  targeted 

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Council Implementing Decision of 8 December 2023 amending the Implementing Decision of 28 July 
2021 on the approval of the assessment of the recovery and resilience plan for Croatia (15834/2023). 
SWD(2024) 611 final. 
Eurostat-Euro Indicators, 22.4.2024. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Croatia  and 
delivering a Council opinion on the 2022 Convergence Programme of Croatia  OJ C 334, 1.9.2022, p. 
88. 
Based on the Commission Spring 2024 Forecast, the medium-term potential output growth of Croatia in 
2023, which is used to measure the fiscal stance, is estimated at 11.6% in nominal terms, based on the 
10-year average real potential growth rate and the 2023 GDP deflator. 
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of 
the  general  government.  It  aims  to  assess  the  economic  impulse  stemming  from  fiscal  policies,  both 
those  that  are  nationally  financed  and  those  that  are  financed  by  the  EU  budget.  The  fiscal  stance  is 
measured as the difference between (i) the medium-term potential growth and (ii) the change in primary 
expenditure  net  of  discretionary  revenue  measures  (and  excluding  temporary  emergency  measures 
related to the COVID-19 crisis) and including expenditure financed by non-repayable support (grants) 
from  the  Recovery  and  Resilience  Facility  and  other  Union  funds.  A  negative  (positive)  sign  of  the 
indicator indicates an expansionary (contractionary) fiscal policy. 

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emergency 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  in  2023  was  therefore  only  partly  due  to  the  targeted 
emergency support to households and firms most vulnerable to energy price hikes. The 
expansionary  growth  in  nationally  financed  primary  current  expenditure  (net  of 
discretionary  revenue  measures)  was  also  driven  by  untargeted  emergency  energy 
measures, permanent increases in public sector wages and social benefits. The growth 
of  nationally  financed  primary  current  expenditure  in  2023  was  not  in  line  with  the 
Council  recommendation.  Expenditure  financed  by  Recovery  and  Resilience  Facility 
grants  and  other  EU  funds  amounted  to  3.4%  of  GDP  in  2023.  Nationally  financed 
investment  amounted  to  3.6%  of  GDP  in  2023,  representing  an  increase  of  1.4 
percentage  points  as  compared  to  2022.  Croatia  financed  additional  investment 
through  the  Recovery  and  Resilience  Facility  and  other  EU  funds.  Croatia  financed 
public investment for the green and digital transitions, and for energy security, such as 
energy  renovation  of  buildings,  biofuel  and  hydrogen  production,  water  and  waste 
infrastructure, electricity and gas infrastructure, digitalising the public administration, 
investments in digital diagnostics and equipment in hospitals, support to the green and 
digital transitions of the business sector, which are partly funded by the Recovery and 
Resilience Facility and other EU funds. 

(11)  The  Commission  Spring  2024  Forecast  projects  real  GDP  to  grow  by  3.3%  in  2024 
and 2.9% in 2025, and HICP inflation to stand at 3.5% in 2024 and 2.2% in 2025. 

(12)  The Commission Spring 2024 Forecast projects a government deficit of 2.6% of GDP 
in 2024, while the general government debt-to-GDP ratio is set to decrease to 59.5% 
by  the  end  of  2024.  The  increase  of  the  deficit  in  2024  mainly  reflects  a  further 
increase in  expenditure  due to  the new  reform of public  wages,  a further increase in 
pensions  and  social  assistance  and  a  high  increase  in  nationally  funded  investment. 
The  decrease  of  the  general  government  debt-to-GDP  ratio  in  2024,  despite  an 
expansionary  fiscal  stance,  is  due  to  a  denominator  effect  from  still  robust  GDP 
growth and a debt-reducing stock-flow adjustment. The latter includes the partial use 
of  deposit  reserves  to  repay  part  of  the  debt  in  2024  (after  higher  deposits  were 
recorded  in  2023  due  to  prefinancing  part  of  future  debt  repayments)  and  the 
accounting transactions in ESA terms following the delivery of military jets that were 
paid  in  previous  years.  Based  on  the  Commission’s  estimates,  the  fiscal  stance  is 
projected to be expansionary, by 1.2% of GDP, in 2024. 

(13)  Expenditure amounting to 1.2% of GDP is expected to be financed by non-repayable 
support  (“grants”)  from  the  Recovery  and  Resilience  Facility  in  2024,  compared  to 
0.7%  of  GDP  in  2023,  according  to  the  Commission  Spring  2024  Forecast. 
Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  will  enable  high-
quality investment and productivity-enhancing reforms without a direct impact on the 
general  government  balance  and  debt  of  Croatia.  Expenditure  amounting  to  0.3%  of 
GDP is expected to be backed by loans from the Recovery and Resilience Facility in 
2024, compared to 0.1% of GDP in 2023, according to the Commission Spring 2024 
Forecast. 

(14)  On  14  July  2023,  the  Council  recommended16  that  Croatia  ensure  a  prudent  fiscal 
policy,  in  particular  by  limiting  the  nominal  increase  in  net  nationally  financed 

16 

Council  Recommendation  of  14  July  2023  on  the  2023  National  Reform  Programme  of  Croatia  and 
delivering a Council opinion on the 2023 Stability Programme of Croatia, OJ C 312, 1.9.2023, p. 97. 

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primary  expenditure17  in  2024  to  not  more  than  5.1%.  When  executing  their  2023 
budgets  and  preparing  their  Draft  Budgetary  Plans  for  2024,  Member  States  were 
invited  to  take  into  account  that  the  Commission  would  propose  to  the  Council  the 
opening  of  deficit-based  excessive  deficit  procedures  based  on  the  outturn  data  for 
2023.  According  to  the  Commission  Spring  2024  Forecast,  Croatia’s  net  nationally 
financed  primary  expenditure  is  projected  to  increase  by  14.4%  in  2024,  which  is 
above  the  recommended  maximum  growth  rate.  This  excess  spending  over  the 
recommended  maximum  growth  rate  in  net  nationally  financed  primary  expenditure 
corresponds  to  3.6%  of  GDP  in  2024.  This  risks  being  not  in  line  with  what  was 
recommended by the Council.  

(15)  Moreover,  the  Council  recommended  that  Croatia  take  action  to  wind  down  the 
emergency  energy support measures  in  force, using the related savings to  reduce the 
government  deficit,  as  soon  as  possible  in  2023  and  2024.  The  Council  further 
specified  that,  should  renewed  energy  price  increases  necessitate  new  or  continued 
support  measures,  Croatia  should  ensure  that  these  were  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings. According to the Commission Spring 2024 Forecast, the net budgetary 
cost18 of emergency energy support measures is estimated at 1.9% of GDP in 2023 and 
projected at 0.6% in 2024, and 0.0% in 2025. In particular, the electricity and gas price 
caps  measures  are  assumed  to  remain  in  force  until  end  of  September  2024.  If  the 
related  savings  were  used  to  reduce  the  government  deficit,  as  recommended  by  the 
Council, these projections would imply a fiscal adjustment of 1.3% of GDP in 2024, 
whereas  net  nationally  financed  primary  expenditure19provides  an  expansionary 
contribution to the fiscal stance of 2.2% of GDP in that year. The emergency energy 
support measures are not projected to be wound down as soon as possible in 2023 and 
2024.  This  risks  being  not  in  line  with  what  was  recommended  by  the  Council. 
Moreover,  the  related  savings  are  not  projected  to  be  fully  used  to  reduce  the 
government deficit. This also risks being not in line with the Council recommendation. 
The  budgetary  cost  of  emergency  energy  support  measures  targeted  at  protecting 
vulnerable households and firms is estimated at 0.1% of GDP in 2024 (0.4% in 2023), 
of which 0.1% of GDP preserve the price signal to reduce energy demand and increase 
energy efficiency (0.3% in 2023). 

(16) 

In  addition,  the  Council also  recommended  that  Croatia  preserve  nationally  financed 
public  investment  and  ensure  the  effective  absorption  of  Recovery  and  Resilience 
Facility  grants  and  other  EU  funds,  in  particular  to  foster  the  green  and  digital 
transitions.  According  to  the  Commission  Spring  2024  Forecast,  nationally  financed 
public investment is projected to increase to 4.5% of GDP in 2024, from 3.6% of GDP 
in  2023.  This  is  in  line with  what  was  recommended  by  the  Council.  In  turn,  public 
expenditure  financed  from  revenues  from  EU  funds,  including  Recovery  and 

17 

18 

19 

Net primary expenditure is defined as nationally financed expenditure net of  (i) discretionary revenue 
measures, (ii) interest expenditure, (iii) cyclical unemployment expenditure, and (iv) and one-offs and 
other temporary measures. 
The figure represents the level of the annual budgetary cost of those measures, including revenue and 
expenditure and, where applicable, net of the revenue from taxes on windfall profits of energy suppliers. 
This contribution is measured as the change in general government primary expenditure, net of  (i) the 
incremental  budgetary  impact  of  discretionary  revenue  measures,  (ii)  one-offs,  (iii)  cyclical 
unemployment  expenditure  and  (iv)  expenditure  financed by  non-repayable  support  (grants)  from  the 
Recovery  and  Resilience  Facility  and  other  EU  funds,  relative  to  the  medium-term  (10-year)  average 
potential nominal GDP growth rate, expressed as a ratio to nominal GDP. 

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Resilience Facility grants, is expected to decrease at 2.3% of GDP in 2024 from 3.4% 
of  GDP  in  2023.  This  decrease  is  driven  by  the  end  of  the  2014-2020  programming 
period of EU structural funds, for which funds were available until 2023. 

(17)  Based on policy measures known at the cut-off date of the forecast and on a no-policy-
change  assumption,  the  Commission  Spring  2024  Forecast  projects  a  government 
deficit of 2.6% of GDP in 2025. The general government debt-to-GDP ratio is set to 
decrease to 59.1% by the end of 2025.  

(18) 

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. These are expected 
to  help  effectively  address  all  or  a  significant  subset  of  challenges  identified  in  the 
relevant  country-specific  recommendations.  Within  this  tight  timeframe,  proceeding 
swiftly  with  the  effective  implementation  of  the  plan,  including  the  REPowerEU 
chapter,  is  essential  to  boost  Croatia’s  long-term  competitiveness  through  the  green 
and digital transition, while ensuring social fairness. To deliver on the commitments of 
the plan by August 2026, it is essential for Croatia to continue the implementation of 
reforms  and  to  accelerate  investments  by  addressing  risks  of  delays  while  ensuring 
strong  administrative  capacity.  Absorption  challenges  could  emerge  due  to  the  high 
concentration  of  investments  towards  the  end  of  the  implementation  period  of  the 
recovery  and  resilience  plan  (RRP).  Maintaining  a  sufficiently  strong  level  of 
coordination  among  different  levels  of  administration  would  lessen  such  risks  by 
ensuring  effective  governance  and  facilitating  timely  project  implementation.  The 
systematic involvement of local and regional authorities, social partners, civil society 
and  other  relevant  stakeholders  remains  essential  to  ensure  broad  ownership  for  the 
successful implementation of the recovery and resilience plan. 

(19)  As  part  of  the  mid-term  review  of  the  cohesion  policy  funds,  in  accordance  with 
Article  18  of  Regulation  (EU)  2021/1060,  Croatia  is  required  to  review  each 
programme  by  March  2025,  taking  into  account,  among  other  things,  the  challenges 
identified in the 2024 country-specific recommendations, as well as its national energy 
and climate plan. This  review  forms the basis for the definitive allocation of the EU 
funding  included  in  each  programme.  While  Croatia  has  made  progress  in 
implementing  cohesion  policy  and  the  European  Pillar  of  Social  Rights,  challenges 
remain  and significant  regional disparities persist  between the  capital  and the rest  of 
Croatia  in  terms  of  labour  productivity,  levels  of  investment  and  employment. 
Accelerating  the  implementation  of  cohesion  policy  programmes,  coupled  with  the 
strengthening  of  administrative  capacity  at  all  levels  of  government,  is  crucial.  The 
priorities  agreed  in  the  programmes  remain  relevant.  Beyond  the  administrative 
capacity measures, it is important to see fast implementation of investments in  R&D 
outside of the capital region. It is also necessary to facilitate the transition to a climate-
neutral  economy  by  implementing  the  territorial  just  transition  plans,  addressing 
energy poverty and creating  energy communities.  Improvement in  the collection and 
management  of  waste  remains  a  priority.  It  is  important  to  promote  active  labour 
market policies, upskilling and reskilling with a view to individual learning accounts, 
support deinstitutionalisation and invest in adequate and affordable community-based 
social  services.  Croatia  could  use  the  Strategic  Technologies  for  Europe  Platform 
initiative20to  help  transform  its  competitiveness  through  investments  in  the  areas  of 

20 

Regulation  (EU)  2024/795  of  29  February  2024  establishing  the  Strategic  Technologies  for  Europe 
Platform (STEP). 

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digital  technologies  and  deep  innovation,  clean  and  resource-efficient  technologies, 
and biotechnologies and medicinal production.   

(20)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan and other EU funds, Croatia faces several additional challenges related to access 
to  diverse  sources  of  financing  and  the  promotion  of  capital  markets,  skills 
mismatches  in  the  labour  market,  and  the  fragmentation  of  public  institutions  that 
carry out research, development and innovation activities.  

(21)  Non-bank  financing  in  Croatia  remains  insufficiently  developed.  Stock  market 
capitalisation  and  the  level  of  issuances  of  debt  and  equity  instruments  lag 
significantly  behind  the  EU  average.  Private  equity  and  venture  capital  market 
activities show limited positive trends. The low level of confidence in and the lack of 
attractiveness  of  alternative  sources  of  financing  act  as  a  further  barrier  to  the 
channelling of private savings to the capital market and the development of the stock 
market.  Increasing  the  capacity  of  innovative  small  and  medium-sized  enterprises  to 
achieve  market  readiness  and  attract  investors  can  promote  a  more  competitive 
investment climate. Measures that facilitate the direct participation of retail investors 
in bond and equity markets and address taxation-related obstacles for investors would 
further strengthen the role of market financing.  

(22)  Positive  trends  on  Croatia’s  labour  market  continue,  albeit  with  persistent  skills 
mismatches. These exacerbate labour shortages while limiting productivity increases. 
Labour  shortages  are  particularly  pronounced  in  construction,  tourism  and  in  some 
parts of  industry.  Despite improvements, the employment  rate is  still low, especially 
for  low-skilled  workers.  There  is  a  growing  number  of  inactive  people  among  those 
aged 15-29 not in education, employment or training. The limited availability of early 
childhood education and care facilities and adequate deinstitutionalised long-term care 
hinder labour force participation, particularly by women. This compounds labour force 
shortages  and  prevents  the  full  use  of  the  domestic  labour  force  amid  adverse 
demographic  trends.  Shortages  of  teachers  in  physics  and  mathematics  affect  basic 
skills  and  the  Programme  for  International  Student  Assessment  (PISA)  results, 
hindering  the  acquisition  of  more  advanced  skills,  the  improvement  of  tertiary 
education  attainment  (which  is  one  of  the  lowest  in  the  EU),  the  increase  in  the 
number of students in science, technology, engineering, and math (STEM) fields, and 
the innovation capacity of the economy. Participation in adult learning programmes is 
very limited. As a result, the availability of skilled staff is seen by businesses as one of 
the  main  barriers  to  investment.  Croatia  has  been  implementing  investments  and 
reforms  in  education  and  training,  including  under  the  RRP  and  cohesion  policy,  to 
improve  the  supply  of  skilled  workers  and  align  programmes  with  the  needs  of  the 
labour market.  However, there is  both  a  need  and scope to  intensify these efforts  by 
adjusting  existing  measures  and  introducing  individual  learning  accounts  to  make 
adult  learning  more  attractive  and  accessible,  including  for  the  inactive  working  age 
population and foreign workers. Increased efforts are also needed to develop the skills 
necessary  for  accelerating  the  transition  to  a  circular  economy,  both  within  the 
education system and the labour market.  

(23)  Croatia’s  research  and  innovation  performance  continues  to  show  positive  trends. 
However,  further  progress  is  hampered  to  some  extent  by  a  highly  fragmented 
landscape  of  public  research,  development  and  innovation  across  public  research 
institutions  and  faculties  within  universities.  In  particular,  the  large  number  and 
fragmentation  of  these  institutions  hinders  efficiency  and  reduces  scope  for 
cooperation  and  knowledge  transfer,  including  between  business  and  academia. 

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Croatia has been implementing reforms under the RRP to reduce the number of public 
research  institutions.  However,  an  increase  of  the  scope,  ambition  and  pace  of 
implementation  of  these  efforts  would  be  beneficial.  Additionally,  the  share  of 
business  expenditure  for  R&D  and  the  uptake  of  innovation  schemes  by  businesses 
remains well below the EU average, leading to an overall decrease in performance.  

(24) 

In view of the close interlinkages between the economies of euro area Member States 
and of their collective contribution to the functioning of the Economic and Monetary 
Union,  in  2024  the  Council  recommended  that  the  euro  area  Member  States  take 
action,  including  through  their  recovery  and  resilience  plans,  to  implement  the 
recommendation  on 
the  euro  area.  For  Croatia, 
recommendations  (1),  (2)  and  (3)  help  implement  the  first,  second,  third  and  fourth 
euro area recommendations. 

the  economic  policy  of 

HEREBY RECOMMENDS that Croatia take action in 2024 and 2025 to:  

1. 

2. 

Submit  the  medium-term  fiscal-structural  plan  in  a  timely  manner.  In  line  with  the 
requirements  of  the  reformed  Stability  and  Growth  Pact,  limit  the  growth  in  net 
expenditure21  in  2025 to  a rate  consistent  with  maintaining  the general  government 
deficit  below  the  3%  of  GDP  Treaty  reference  value  and  keeping  the  general 
government debt at a prudent level over the medium term. 

Strengthen administrative capacity to manage EU funds, accelerate investments and 
maintain momentum in the implementation of reforms. Address emerging delays to 
allow  for  continued,  swift  and  effective  implementation  of  the  recovery  and 
resilience  plan,  including  the  REPowerEU  chapter,  ensuring  completion  of  reforms 
and investments by August 2026. Accelerate the implementation of cohesion policy 
programmes.  In  the  context  of  their  mid-term  review,  continue  focusing  on  the 
agreed  priorities  while  considering  the  opportunities  provided  by  the  Strategic 
Technologies for Europe Platform initiative to improve competitiveness.      

21 

According  to  Article  2(2)  of  Regulation  (EU)  2024/1263,  ‘net  expenditure’  means  government 
expenditure net of interest expenditure, discretionary revenue measures, expenditure on programmes of 
the  Union  fully  matched  by  revenue  from  Union  funds,  national  expenditure  on  co-financing  of 
programmes funded by the Union, cyclical elements of unemployment benefit expenditure, and one-offs 
and other temporary measures. 

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3. 

To strengthen  competitiveness: (i) boost  access  to  diverse sources of financing  and 
promote  capital  markets  facilitating  the  participation  of  retail  investors  in  the  bond 
market, and addressing barriers to listing and strengthening corporate governance to 
improve the attractiveness of the stock market; (ii) reduce labour and skills shortages 
by  strengthening  basic  skills,  enhancing  upskilling  and  reskilling,  and  improving 
access  to  formal  home-  and  community-based  long-term  care;  and  (iii)  address  the 
fragmentation  of  public  institutions  that  carry  out  research,  development  and 
innovation activities by ensuring a comprehensive and binding approach to merging 
various  support  functions,  bolstering  the  financial  incentives  for  mergers,  and 
ensuring the promotion of relevant strategic goals under the performance agreements 
between  the  Ministry  of  Science  and  Education  and  public  research  and  higher 
education institutions.  

Done at Brussels, 

For the Council 
The President 

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