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- GDP (PPP):
- $77.9 billion
- -1.0% growth
- -2.5% 5-year compound annual growth
- $18,191 per capita
- Inflation (CPI):
- FDI Inflow:
Croatia’s economic freedom score is 61.5, making its economy the 81st freest in the 2015 Index. Its overall score is 1.1 points better than last year, reflecting improvements in five of the 10 economic freedoms including freedom from corruption, fiscal freedom, and labor freedom. Croatia has registered its highest score ever in the 2015 Index, but it continues to lag behind many other emerging economies in the region, and its overall score remains below the regional average.
Despite its accession to the European Union in 2013, Croatia still suffers some of the difficulties facing other transitional economies. An independent judiciary has not been fully established, and there are delays and backlogs in adjudicating cases. High levels of corruption persist in business, education, and basic government services. Land registry offices need further reform to guarantee clearly defined property rights.
An uncertain civic environment and fiscal pressures will continue to challenge efforts to build on Croatia’s modest improvements in economic freedom over the past five years. Reforms to open up the investment regime should help the country to integrate more fully into the European market.
Croatia declared its independence in 1991, contributing to the breakup of Yugoslavia along ethnic and religious lines. Years of Croat/Serb conflict ended formally in 1995 with the Dayton Peace Accords. Croatia joined NATO in April 2009 and the European Union in July 2013. In December 2011, former Prime Minister Jadranka Kosor, credited with making the final push toward EU accession, was defeated by center-left Prime Minister Zoran Milanovic. Turnout for Croatia’s first-ever elections for the EU Parliament, held in April 2013, was only 20.8 percent. Growth has been hurt by the global financial crisis and overreliance on tourism, and domestic demand is weak. The slow pace of privatization of state-owned businesses has been a drag on the economy, which has been shrinking since 2008 despite membership in the EU.
Corruption is perceived as prevalent in major public companies, the health sector, universities, public procurement systems, the construction sector, and land registry offices. In 2014, a former prime minister was found guilty of masterminding a scheme to siphon off $2.7 million from state companies. Although some reforms are being implemented, the court system is cumbersome, inefficient, and time-consuming.
Croatia’s top individual income tax rate is 40 percent, and its top corporate tax rate is 20 percent. Other taxes include a value-added tax and an excise tax. The overall tax burden amounts to 22.6 percent of gross domestic product. Government spending is equal to 42.2 percent of the domestic economy, and public debt is equivalent to 60 percent of domestic income.
Reform measures have streamlined the procedures for establishing a business, but the overall regulatory environment remains burdensome and inefficient. Despite some progress, the labor market remains rigid. In 2014, the government pledged to cut subsidies and raise excise taxes on petrol and telecom operators to meet EU budget requirements. The state still attempts to influence price levels through various mechanisms.
EU members have a 1.0 percent average tariff rate. Although some non-tariff barriers exist, the EU is relatively open to external trade. In Croatia, foreign and domestic firms are generally treated equally under the law. The financial system has become more competitive. The consolidated banking sector is relatively efficient, with over 30 commercial banks. Croatia’s capital market is not fully developed and lags behind other key markets in the EU.