Policy challenges for the Croatian economy: Overcoming the external disequilibrium

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Policy challenges for the Croatian
economyOvercoming the external disequilibrium

• Hermine Vidovic and Vladimir Gligorov

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Topics covered

• Persistent external imbalance
• Surplus in services only partly compensates for
  the trade deficit
• Recently some recovery in industry with
  continuing fall in employment with high unit
  labour costs
• High unemployment
• Recently FDI inflows are higher
• Growing foreign debt

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Exports (of goods) per capita(in EUR)
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Exports of services in selected CEECs in of GDP
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Exports of goods and servicesin GDP
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Imports of goods and servicesin GDP
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Balance of goods and servicesin GDP
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Output growth in industry1995100
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Employment in industry 1995100
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Unit labour costs in manufacturing,1996-2001Austr
ia 100
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Current account balance,1999 -2003in of GDP

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FDI inflows of GDP

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Unemployment rates, 1996 and 2003 (Labour Force
Survey)
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Foreign debt and fiscal balance

• Unsustainable foreign debt fuelled by public
  investment and private consumption
• Ambiguous debt indicators
• Problems with fiscal balance
• Alternative policy mixes

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Gross external debtin of GDP
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Gross external debtin of exports of goods and
services
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Debt service in exports of goods and services
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Interest paymentsin exports of goods and
services
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Gross fixed capital formation of GDP

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Private consumption of GDP

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General government balance in of GDP
) 2002 positive balance due to transformation
of National Property Fund
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General government expenditures in of GDP
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General government revenues in of GDP
) 2002 Transformation of National Property Fund
into public funds.
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Real exchange rates(EUR vis-à-vis national
currency, PPI-deflated)
Note increasing line means real appreciation