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- GDP (PPP):
- $80.3 billion
- 0.0% growth
- -0.1% 5-year compound annual growth
- $18,192 per capita
- Inflation (CPI):
- FDI Inflow:
Croatia’s economic freedom score is 61.3, making its economy the 78th freest in the 2013 Index. Its overall score is 0.4 point higher than last year, with gains in the management of government spending and investment freedom largely offset by declines in labor freedom, fiscal freedom, and freedom from corruption. Croatia continues to fall behind other emerging economies in the region, and its overall score remains below the regional average.
The foundations for long-term economic development in Croatia remain fragile in the absence of an efficiently functioning legal framework. Systemic corruption continues to erode public confidence and trust in the government. The state maintains an extensive presence in many economic sectors through state-owned enterprises.
Previous structural reforms have included privatization in the banking sector, implementation of a competitive corporate tax rate, and modernization of the regulatory environment. However, deeper institutional reforms in such areas as public finance management and the labor market are critically needed. Few steps have been taken to reduce or control government spending, and the inefficient and bloated public sector severely undermines private-sector dynamism, hurting Croatia’s overall competitiveness.
Croatia declared its independence in 1991, contributing to the breakup of Yugoslavia along ethnic and religious lines. Years of conflict between Croats and Serbs ended formally in 1995 with the Dayton Peace Accords. Croatia became a member of NATO in April 2009. In a January 2012 referendum, 67 percent of the population supported membership in the European Union, and Croatia is expected to become a member by July 2013. Former Prime Minister Jadranka Kosor, credited with making the final push toward EU accession, was defeated by center-left Zoran Milanovic in December 2011. The Croatian economy has been heavily affected by the global financial crisis and is only now starting to recover. However, overreliance on tourism and the slow pace of privatization of state-owned businesses are hindering recovery.
Judicial corruption continues to undermine the rule of law. The court system is cumbersome and inefficient, and backlogs cause business disputes to drag on for years. Despite intellectual property rights legislation, piracy and counterfeiting continue. Corruption is widespread and has been reported in major public companies, universities, public procurement systems, and land registry offices. High-profile prosecutions have increased significantly.
The top income tax rate is 40 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax (VAT) and excise taxes. The overall tax burden equals 21.4 percent of GDP. Government spending amounts to 41.4 percent of total domestic output. Public finance management has deteriorated significantly, and the deficit has widened, averaging around 5 percent during the past three years.
Reform measures have streamlined the procedures for establishing a business, but the overall regulatory environment remains burdensome and inefficient. The cost and time required to obtain necessary licenses exceed world averages. Labor regulations remain rigid. Inflation has slowed, but the state influences price levels through the still-significant presence of state-owned enterprises.
The trade-weighted average tariff rate is quite low at 1.2 percent, but non-tariff barriers increase the cost of trade. Despite structural and administrative reforms, inefficient bureaucracy and the backlogged legal system continue to inhibit investment. The consolidated banking sector is relatively sound and efficient, but non-performing loans have risen significantly in recent years. Securities markets are open to foreign investors.