page_title: Economy of Croatia
section_title: Transition and war years
hierarchical_section_title: Economy of Croatia / History / Transition and war years
caption_attribution_description: English: General government gross debt of Croatia, quarterly data from Q4 2000-Q2 2016 http://ec.europa.eu/eurostat/tgm/table.do?tab=table&amp;init=1&amp;language=en&amp;pcode=teina230&amp;plugin=1
context_page_description: The economy of Croatia is a developing high-income service based economy with the tertiary sector accounting for 60% of total gross domestic product. After the collapse of socialism, Croatia went through a process of transition to a market-based economy in the 1990s, but its economy suffered badly during the Croatian War of Independence. After the war the economy began to improve, before the financial crisis of 2007–08 the Croatian economy grew at 4–5% annually, incomes doubled, and economic and social opportunities dramatically improved.
  The Croatian economy is one of the strongest economies in Southeast Europe. Croatia joined the World Trade Organization in 2000, NATO in 2009 and became a member of the European Union on 1 July 2013. Croatian economy was badly affected by the financial crisis which, together with slow progress of economic reforms, resulted in six years of recession and a cumulative decline in GDP of 12.5%.
  Croatia formally emerged from the recession in the 4th quarter of 2014, and had a continuous GDP growth since. Croatian economy reached pre
context_section_description: In the late 1980s and early 1990s, with the collapse of socialism and the beginning of economic transition, Croatia faced considerable economic problems stemming from:
  the legacy of longtime communist mismanagement of the economy;
  damage during the internecine fighting to bridges, factories, power lines, buildings, and houses;
  the large refugee and displaced population, both Croatian and Bosnian;
  the disruption of economic ties; and
  mishandled privatization
  At the time Croatia gained independence, its economy (and the whole Yugoslavian economy) was in the middle of recession. Privatization under the new government had barely begun when war broke out in 1991. As a result of the Croatian War of Independence, infrastructure sustained massive damage in the period 1991–92, especially the revenue-rich tourism industry. Privatization in Croatia and transformation from a planned economy to a market economy was thus slow and unsteady, largely as a result of public mistrust when many state-owned companies were sold to politically well-connected at below-market prices. With the end of the war, Croatia's economy recovered moderately, but corruption, cronyism, and a general lack of transparency stymied economic reforms and foreign investment. The privatization of large government-owned companies was practically halted during the war and in the years immediately following the conclusion of peace. As of 2000, roughly 70% of Croatia's major companies were still state-owned, including water, electricity, oil, transportation, telecommunications, and tourism.
  Early 1990s were characterized with high inflation rates. In 1991 the Croatian dinar was introduced as a transitional currency, but inflation continued to accelerate. The anti-inflationary stabilization steps in 1993 decreased retail price inflation from a monthly rate of 38.7% to 1.4%, and by the end of the year Croatia experienced deflation. In 1994 Croatia introduced the kuna as its currency.
  As a result of the macro-stabilization programs, the negative growth of GDP during the early 1990s stopped and turned into a positive trend. Post-war reconstruction activity provided another impetus to growth. Consumer spending and private sector investments, both of which were postponed during the war, contributed to the growth in 1995–1997. Croatia began its independence with a relatively low external debt because the debt of Yugoslavia was not shared among its former republics at the beginning. In March 1995 Croatia agreed with the Paris Club of creditor governments and took 28.5% of Yugoslavia's previously non-allocated debt over 14 years. In July 1996 an agreement was reached with the London Club of commercial creditors, when Croatia took 29.5% of Yugoslavia's debt to commercial banks. In 1997 around 60 percent of Croatia's external debt was inherited from former Yugoslavia.
  At the beginning of 1998 value-added tax was introduced. The central government budget was in surplus in that year, most of which was used to repay foreign debt. Government debt to GDP had fallen from 27.30% to 26.20% at the end of 1998. However, the consumer boom was disrupted in mid 1998, as a result of the bank crisis when 14 banks went bankrupt. Unemployment increased and GDP growth slowed down to 1.9%. The recession that began at the end of 1998 continued through most of 1999, and after a period of expansion GDP in 1999 had a negative growth of −0.9%. In 1999 the government tightened its fiscal policy and revised the budget with a 7% cut in spending.
  In 1999 the private sector share in GDP reached 60%, which was significantly lower than in other former socialist countries. After several years of successful macroeconomic stabilization policies, low inflation and a stable currency, economists warned that the lack of fiscal changes and the expanding role of the state in economy caused the decline in the late 1990s and were preventing a sustainable economic growth.
caption: General government gross debt of Croatia from 2000 to 2016
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