The dynamism of domestic demand is sustaining activity in a context of controlled inflation. However, for this growth to be maintained, it remains contingent on accelerating reforms, especially those aimed at reducing the public deficit, which continues to be the economy's main weakness, and improving the legal and administrative environment for businesses.
The country faces a growing need for external financing as a result of the increasing current account deficit and rising debt repayments. Furthermore, it is grappling with a contraction in foreign direct investment due to the cessation of privatization efforts.
However, the repatriation of assets by banks and the government's overseas loans, which continue to enjoy favorable access to the capital markets, currently allow the financing need to be met without major difficulties.
On the political front, the governing coalition suffers from strong internal divisions and has to deal with the significant rise of nationalist parties in a context of high unemployment and a low standard of living for the population.
Market access conditions
Imports (which are increasing sharply) are generally exempt from prior authorization, except for products regulated by international agreements (weapons, gold, works of art, etc.) or those required by public health regulations (food products, livestock, etc.). The government has been gradually reducing customs duties since Croatia's accession to the WTO. The Stabilisation and Association Agreement signed with the European Union, in effect since January 1, 2002, provides for the complete elimination of tariffs for a large majority of products. The country has signed free trade agreements with most of its trading partners and is in the process of joining ACELE.
Within these various agreements, Croatia has agreed to establish import quotas on certain products (beef, pork, wheat, sugar, and chocolate products), which will benefit, within the limits of the fixed quantity, from customs duties significantly lower than those normally applied. For industrial products, the average general tariff rate should reach 5% by 2005. As for agri-food products, the average rate will gradually decrease to reach 16,4% by the same date.
Although foreign investors are afforded institutional guarantees in principle, investment still faces some practical obstacles. Uncertainties surrounding real estate and property rights generate a degree of insecurity that the legal system has yet to resolve satisfactorily (lengthy procedures, difficulties in enforcing court decisions, lack of judicial independence).
Coface Ibérica
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