Embed This Data
- GDP (PPP):
- $78.4 billion
- -2.0% growth
- -1.9% 5-year compound annual growth
- $17,810 per capita
- Inflation (CPI):
- FDI Inflow:
Croatia’s economic freedom score is 60.4, making its economy the 87th freest in the 2014 Index. Its overall score is 0.9 point lower than last year, with deteriorations in six of the 10 economic freedoms including the control of government spending, fiscal freedom, monetary freedom, and business freedom. Croatia continues to fall behind other emerging economies in the region, and its overall score remains below the regional average.
Over the 20-year history of the Index, Croatia’s economic freedom score has improved by 12.4 points, with notable score gains in market openness as measured by investment freedom, trade freedom, and financial freedom. These improvements, together with greater regulatory efficiency driven by enhancements in business freedom and monetary freedom, have enabled Croatia to climb gradually up to the ranks of the “moderately free” from economically “repressed” two decades ago.
By sharp contrast, Croatia’s rule of law has deteriorated and remains fragile, undermined by substantial continuing corruption. Deeper systemic reforms to strengthen the independence of the judiciary are critically needed to ensure the country’s continuing progress toward greater economic freedom.
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 joined NATO in April 2009 and the European Union in 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. Turnout for Croatia’s first-ever elections for the EU Parliament, held in April 2013, was only 20.8 percent. The Croatian economy has been hurt by the global financial crisis and overreliance on tourism. The slow pace of privatization of state-owned businesses hinders growth.
A former prime minister and his deputy were convicted on corruption charges in 2012. High levels of corruption in public companies, universities, public procurement systems, and land registry offices and the lack of meaningful reforms in the judiciary suggest that Croatia’s 2013 EU membership may not bring immediate benefits. The court system is cumbersome and inefficient, and backlogs cause business disputes to drag on for years.
The individual income tax rate in Croatia is 40 percent, and the corporate tax rate is 20 percent. Other taxes include a value-added tax (VAT) and excise taxes. The overall tax burden is 32.6 percent of total domestic income. Government expenditures remain steady at about 43 percent of the domestic economy. Croatia will begin contributing to the EU budget in 2013. Public debt is about 56 percent of GDP.
The business start-up process has become less burdensome, taking less than 10 procedures, but obtaining necessary permits takes over 200 days and costs over four times the level of average annual income. Despite ongoing reform efforts, the labor market remains relatively rigid. Government spending on subsidies surged in 2013. The state influences price levels through the still-significant presence of state-owned enterprises.
Croatia’s average tariff rate in 2011 was 1.3 percent. The country joined the EU effective July 1, 2013. The complex legal and regulatory systems may be challenging for foreign investors. The banking sector is relatively well developed and open to competition, although non-performing loans have increased in recent years. Privatization in the financial sector has progressed well, with only one state-owned bank remaining.