Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No. 39641-HR
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AND
INTERNATIONAL FINANCE CORPORATION
COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT
FOR
THE REPUBLIC OF CROATIA
FOR THE PERIOD FY05-FY08
May 7, 2007
South Central Europe Country Unit
Europe and Central Asia Region
International Finance Corporation
Southern Europe and Central Asia Department
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
The date of the last Country Assistance Strategy was December 21, 2004.
CURRENCY EQUIVALENTS
(Exchange rate as of April 24, 2007):
Currency Unit = Croatian Kuna (HRK)
US$1 = 5.455 HRK
GOVERNMENT’S FISCAL YEAR: January 1 – December 31
Vice President:
Director:
Task Team Leader:
IBRD
Shigeo Katsu
Anand K. Seth
Myla Taylor Williams
IFC
Edward Nassim
Shahbaz Mavaddat
George Konda
ABBREVIATIONS AND ACRONYMS
AAA
ARPP
BEEPS
BICRO
CAS
CNB
CPF
CPI
CPPR
CROSTAT
DECDG
DFID
DRG
DSO
EBRD
EC
ECA
ESOP
EU
EU8
EU8+2
EU15
EU25
EUROSTAT
EUR
ESDP
ESCO
FDI
FIAS
FSAP
GDP
GEF
GMOs
GNI
GNP
HANFA
HAC
HBOR
HC
HDZ
HEP
HIV/AIDS
HR
HRK
HROTE
HZ
HZZO
IBRD
ICT
IDA
IDF
IFA
Analytical and Advisory Services
Annual Review of Portfolio Performance
Business Environment and Enterprise Performance
Survey
Business Innovation Center of Croatia
Country Assistance Strategy
Croatian National Bank
Croatian Fund for Privatization
Consumer Price Index
Country Portfolio Performance Review
Central Bureau of Statistics
Development Economics, Development Data Group
Department for International Development
Diagnostic Related Group
Distribution System Operator
European Bank for Reconstruction and Development
European Commission
Europe and Central Asia
Employee Stock Ownership Plan
European Union
EU New Member States as of May 1, 2004,
excluding Malta and Cyprus
EU New Member States as of May 1, 2004,
excluding Malta and Cyprus, plus New Member
States as of January 1, 2007
EU Member States prior to May 1, 2004
EU Member States prior to January 1, 2007
Statistical Office of the European Communities
Euro is the currency of 13 European Union countries
Education Sector Development Project
Energy Service Company
Foreign direct investment
Foreign Investment Advisory Service
Financial Sector Assessment Program
Gross Domestic Product
Global Environment Facility
Genetically Modified Organisms
Gross National Income
Gross National Product
Hrvatska agencija za nadzor financijskih usluga
(Croatian Financial Services Supervisory Agency)
Hrvatske autoceste (Croatian Motorways)
Croatian Bank for Reconstruction and Development
Hrvatske ceste (Croatian Roads)
Croatian Democratic Union
Hrvatska Elektroprivreda (Croatia’s national electric
utility)
Human Immunodeficiency Virus/Acquired
Immunodeficiency Syndrome
Human Resources
Croatian Kuna
Hrvatski operator trzista energije (Croatian Energy
Market Operator)
Croatian Railways
Croatian Institute for Health Insurance
International Bank for Reconstruction and
Development
Information and Communication Technology
International Development Association
Institutional Development Fund
Institutional Fiduciary Assessment
IFC
IFI
ILO
IMF
IPA
ISPA
JPR
LGUs
LSA
MDG
MIGA
MEPPPC
MoJ
MoF
NATO
NPP
NSRD
NTRB
OECD
OED
OSCE
QPR
PAL
PEP-SE
PIU
PISA
PPIAF
PPP
PPP
PSD
PSIA
PSR
RBI
R&D
ROPs
ROSC
RE
SAPARD
SBA
SDF
SEE
SEEC
SIDA
SME
SOE
SWDP
TA
TB
TSO
UK
UNCCCF
UNDP
UNHCR
USAID
USD
VET
WBG
International Finance Corporation
International financial institution
International Labor Organization
International Monetary Fund
Instrument for Pre-Accession Assistance
Instrument for Structural Policies for Pre-Accession
Joint Portfolio Review
Local Government Units
Living Standards Assessment
Millennium Development Goals
Multilateral Investment Guarantee Agency
Ministry of Environmental Protection, Physical
Planning and Construction
Ministry of Justice
Ministry of Finance
North Atlantic Treaty Organization
National Population Policy
National Strategy for Regional Development
Neretva and Trebisnjica River Basin
Organization for Economic Cooperation and
Development
Operations Evaluation Department
Organization for Security and Cooperation in Europe
Quarterly CAS Implementation Progress Review
Programmatic Adjustment Loan
Private Enterprise Partnership – Southeast Europe
Infrastructure
Project Implementation Unit
OECD Program for International Student Assessment
Public-Private Infrastructure Advisory Facility
Purchasing Power Parity
Public Private Partnership
Private Sector Development
Poverty and Social Impact Assessment
Project Status Report
Rudjer Boskovic Institute
Research and Development
Regional Operational Programs
Report on the Observance of Standards and Codes
Renewable Energy
Special Accession Program for Agriculture and Rural
Development
Stand-By Arrangement
Strategic Development Framework
South East Europe
South East European Countries
Swedish International Development Agency
Small and medium enterprises
State-owned enterprise
Social Welfare Development Project
Technical assistance
Tuberculosis
Transmission System Operator
United Kingdom
UN Framework Convention on Climate Change
United Nations Development Program
United Nations High Commissioner for Refugees
United States Agency for International Development
United States dollar
Vocational Education Training
World Bank Group
COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT FOR
THE REPUBLIC OF CROATIA
TABLE OF CONTENTS
I.
INTRODUCTION ........................................................................................................... 1
II.
COUNTRY CONTEXT................................................................................................... 1
A. Political Developments ........................................................................................... 1
B. Economic Developments ........................................................................................ 1
C. Governance ............................................................................................................. 4
D. Social Developments .............................................................................................. 5
III.
RELEVANCE OF CAS ................................................................................................... 6
IV.
FY07-FY08 CAS PROGRAM ADJUSTMENTS ........................................................... 7
A. Status of CAS Triggers ........................................................................................... 7
B. FY07-FY08 Scenarios and Triggers ....................................................................... 8
C. Lending Volumes and IBRD Exposure .................................................................. 8
D. Priorities for World Bank Group Support ............................................................. 10
E. Managing External and Implementation Risks ..................................................... 11
Tables
In main text:
Table 1:
Table 2:
Table 3:
Table 4:
Selected Medium-Term Macroeconomic Indicators
Indicative IBRD Lending Program FY05-FY08
IBRD Exposure Indicators for Base Case
Complementarity between EU Accession Agenda and World Bank Group
Program
In annexes:
Table A: Progress toward Achievement of Croatia CAS Country Development
Goals
Table B: Croatia and the Millennium Development Goals
Figures
Figure 1: Economic Developments (2000-2006)
Figure 2: Selected Governance Indicators in 2005
Figure 3: Corruption Perception Index
Annexes
Annex A2:
Annex B2:
Annex B3:
Annex B3:
Annex B3:
Annex B3:
Annex B4:
Annex B6:
Annex B7:
Annex B8:
Annex B8:
Annex B9:
Annex C1:
Annex C2:
Annex C3:
Country-at-a-Glance and MDGs
Selected Indicators of Bank Portfolio Performance and Management
IBRD/GEF Base Case Program Summary
IBRD/GEF High Case Program Summary
IBRD/GEF Low Case Program Summary
IFC and MIGA Program
Summary of IBRD Nonlending Services
Key Economic Indicators
Key Exposure Indicators
IBRD Operations Portfolio
IFC Committed and Outstanding Portfolio
CAS Results Matrix
Progress Towards CAS Outcomes and Milestones
CAS Program Delivery and Portfolio Management
Planned FY07-FY08 IBRD and GEF Programs and Linkages to EU’s
Instrument for Pre-Accession Assistance (IPA)
CROATIA: COUNTRY ASSISTANCE STRATEGY PROGRESS REPORT
I.
INTRODUCTION
1.
The Board of Executive Directors discussed the FY05-FY08 Country Assistance Strategy for
Croatia (CAS) on December 21, 2004 (Report No. 30717-HR). This paper assesses the relevance of
the CAS, takes stock of implementation of the CAS, and makes some adjustments to the second half
of the CAS program (FY07-FY08) to take account of developments since December 2004, in
particular (i) the EU’s launch of negotiations with Croatia for EU membership in October 2005 and
Croatia’s progress to date on the EU accession track, (ii) progress to date in meeting the CAS triggers
and toward achieving the CAS outcomes, and (iii) the status of implementation of Croatia’s structural
reform program supported by the Bank’s Programmatic Adjustment Loans starting in September
2005. This CAS Progress Report maintains the overall strategic framework of the CAS but with a
more streamlined approach to CAS triggers and with some modifications to the lending program and
the CAS Results Matrix, in light of evolving Government priorities and the need for greater
selectivity and complementarity with Croatia’s EU accession agenda, now that EU accession
negotiations are under way.
II.
COUNTRY CONTEXT
A.
Political Developments
2.
The coalition government formed by the center-right Croatian Democratic Union party
(HDZ) in 2003 remains in office. It has reaffirmed Croatia’s European orientation and aims to
make EU accession a reality. In addition, Croatia’s achievements under the Partnership for Peace
process in the past couple of years are aiding the country’s quest for an invitation in 2008 for NATO
membership.
3.
After the European Council granted Croatia candidate status in June 2004, the opening
of accession negotiations was delayed from early 2005 until some pre-conditions were met. In
October 2005 Croatia opened EU accession negotiations. The bilateral screening ended in October
2006, and negotiations for six of the 33 chapters of the accession treaty have been opened, while two
(science and research, and education and culture) have already been provisionally closed. A further
three (economic and monetary policy, enterprise and industrial policy, consumer and health
protection and intellectual property law) have had closing benchmarks set. Assuming accession
negotiations are finalized by early 2008, Croatia envisages accession in 2009.
4.
The next Parliamentary elections are scheduled for November 2007. While the ruling
coalition’s majority currently still rests on only one seat, the likelihood of early elections remains
small. The Government intends to sustain its fiscal discipline and structural reform momentum, but
there are risks due to political pressures for fiscal relaxation during the pre-election period.
B.
Economic Developments
5.
Benefiting from successful economic transformation after independence and the start of
EU accession negotiations, economic activity has been robust in the past few years. Inflation
has been modest despite increased oil and commodity prices, helped by central bank efforts to
maintain exchange rate stability. Growth recovered in 2005 and continued strong in 2006. Real
GDP growth, after moderating in 2004, accelerated to 4.3 percent in 2005 and further to 4.8 percent
in 2006 (see Figure 1 and Table 1). Inflation has remained low at 3.2 percent in 2006, despite
2
increased oil prices. Growth has been underpinned primarily by the growth in gross fixed investment
(which grew 10.9 percent) and personal consumption (which grew 3.5 percent.) Government
consumption has increased as well, by 2.2 percent. Financial intermediation, industry, transport and
communications have been the key contributors to GDP growth. Total industrial production
recorded a 5.1 percent growth rate in 2005 but has decelerated in 2006 to 4.5 percent.
Figure 1: Economic Developments (2000-2006)
Real GDP Growth has been strong ...
... and inflation moderate.
14
12
14
(
12
10
6
4
5
5
8
4
4
6
3
3
2
2
1
1
4
Real GDP
2
2
0
0
-2
-2
2000
2001
2002
2003
2004
2005
0
2006
40
12
35
35
30
30
25
25
20
20
10
8
6
4
2
0
-2
-4
-6
-8
-10
15
15
10
(12-month percent change)
5
5
0
0
2001
2002
2003
2004
2005
2001
2006
2001
2002
100
95
90
85
80
75
70
65
60
55
50
45
2003
2004
2005
2004
2005
2006
(In percent of GDP)
Current
account deficit
2000
2001
2002
2003
2004
2005
2006
Public debt has stagnated.
(In percent of GDP)
2000
2003
FDI
... and external debt increased further.
100
95
90
85
80
75
70
65
60
55
50
45
2002
... while the current account widened
anew ...
40
2000
0
2000
Credit growth has picked up, funded in
large part by foreign borrowing ...
10
6
(12-month percent change)
10
Domestic
demand
8
6
2006
55
54
53
52
51
50
49
48
47
46
45
(In percent of GDP)
2000
2001
2002
2003
Sources: CROSTAT, Ministry of Finance, Croatian National Bank; and World Bank staff estimate.
2004
2005
2006
3
Table 1: Selected Medium-Term Macroeconomic Indicators
Read GDP Growth (%)
GNP per capita (US$, Atlas method)
Investment (% of GDP):
Public (% of GDP)
Private (% of GDP)
CPI Inflation (% annual)
Real Interest Rate1/ (%)
Current Account Balance (% of GDP)
Annual value growth rates (%):
Merchandise Exports (f.o.b.)
Merchandise Imports (f.o.b.)
Capital and Financial Account (% of GDP)
FDI, net inflow (% of GDP)
Overall Fiscal Balance2/ (% of GDP)
Public Debt3/ (% of GDP)
2005
4.3
8,000
31.0
5.2
25.8
3.3
6.5
-6.6
2006
Preliminary
4.8
8,880
32.8
5.3
27.5
3.2
6.0
-7.4
2007
Projected4/
4.6
9,510
33.1
5.0
28.1
2.7
7.1
-7.0
2008
Projected4/
4.0
10,060
33.4
4.6
28.8
2.5
6.8
-5.8
9.1
10.5
9.3
4.0
-3.9
52.3
18.4
15.4
11.4
7.8
-3.1
49.6
7.0
6.3
8.6
6.0
-3.0
49.4
7.0
5.0
7.7
3.3
-2.8
48.6
1/
Real lending short-term rate
General Government Balance (includes all LGUs)
3/ Includes General Government, HBOR and guarantees
4/ Base case scenario
2/
6.
Moderate fiscal consolidation has taken place. Fiscal policy has tightened in the past few
years to arrest growth in public debt, but less than initially planned: the fiscal deficit declined from
4.8 percent of GDP in 2004 to 3.9 percent in 2005, and a preliminary 3.1 percent in 2006.1 While
noteworthy, once the quasi-fiscal activities are added, this is still above a sustainable level by about
one percentage point of GDP. The public debt-to-GDP ratio rose slightly from 51.6 percent in 2004
to 52.3 percent in 2005, but then declined to 49.6 percent by December 2006 with the help of a
slowdown in guarantees’ issuance and financing of pensioners’ debt repayment through privatization
receipts. Further fiscal consolidation is needed, as indicated by the fact that the size of the state
remains high by international standards2 at 48.8 percent of GDP in 2005.
7.
Further fiscal consolidation is also required because the scope for increasing tax
revenues is limited. Relying on privatization receipts to finance deficits is not a viable mediumterm strategy, since they are expected to decline after Telecom and HEP Electrical Company IPOs.
The overall tax burden in Croatia is high even in the European context, given the level of Croatia’s
economic development. Croatia taxes directly and indirectly 39 percent of its GDP.3 However,
without cuts in public spending, tax reduction is not feasible.
8.
After a cooling down, domestic credit expansion has picked up again since 2004, driven
by the shift in government borrowing towards the domestic market and rising corporate sector
activity. Domestic credit growth at 20.3 percent in 2005 was eight percentage points higher than
monetary authorities’ target. Loans to government and households rose by 44.1 percent and 20.3
percent, respectively. The Croatian National Bank has taken several measures to discourage foreign
1
2
3
Includes all LGUs, but excludes deficit of HBOR and pensioners’ debt repayment that adds a further 1.1 percent of GDP.
The average general government spending for EU new member states (EU8+2) was about 39.2 percent of GDP in 2005.
The average tax burden for the EU new member states (EU8+2) was below 30 percent of GDP in 2005.
4
borrowing by banks, including the increase of the marginal reserve requirement on new bank
borrowing from abroad, first from 30 to 40 and then to 50 and 55 percent.
9.
These domestic policy measures have not been sufficient to curtail the credit expansion
and subsequent rise in the current account deficit. Credit growth increased to 22.7 percent in
2006. Loans to households and enterprises rose by 21.8 percent and 26.1 percent, respectively. The
current account deficit (in USD terms) increased to 6.6 percent of GDP in 2005 from 5.2 percent in
2004, and grew further to 7.4 percent of GDP in 2006, despite strong growth in exports of goods
(non-ship) and services. The trade deficit widened by 11.9 percent compared to 2004 and further to
15.8 percent in 2006. Net FDI inflows stood at 4.0 percent of GDP in 2005, nearly double the 2004
level, and grew to 7.8 percent of GDP in 2006, in excess of current account deficit financing needs.
Net FDI inflows are projected to continue strong in 2007 and 2008, given the upcoming Telecom and
HEP Electrical Company IPOs.
10.
As a result, external debt has continued to rise and with it, the country’s external
vulnerability. Gross external debt (in EUR) stood at 84.7 percent of GDP in December 2006, up 5.3
percentage points of GDP since end-2004, owing to strong capital inflows to domestic banks and
rising corporate sector borrowing from abroad. In USD terms, the external debt-to-GDP ratio
declined by about nine percentage points of GDP to 77.7 percent in 2005 but rose to 89.0 percent of
GDP by December 2006, partially driven by USD depreciation. In 2005, in order to reduce foreign
indebtedness, the Government shifted from foreign to domestic sources of finance, but since
domestic banks are re-lending loans from foreign mother banks, the public sector continued to
contribute indirectly to the external debt growth. The monetary policy further tightened at end-2006
with an introduction of compulsory purchase of Croatia National Bank (CNB) bills on credit growth
in excess of 12 percent per annum. However, discretionary measures tend to have limited impact on
the supply side pressures and unless accompanied by tighter demand-side controls, through stronger
fiscal consolidation efforts, external vulnerability will continue to grow in 2007.
11.
Continued external vulnerability poses a risk to macroeconomic stability and leaves the
Government with little room to maneuver in the event of shocks. Given the high degree of
euroization of the Croatian economy, external shocks could potentially cause substantial damage.
Hence, arresting the growth of external debt is critical to reducing Croatia’s macroeconomic
vulnerability over the medium term.
12.
The Stand-By Arrangement (SBA) of the IMF for Croatia was extended from April to
November 15, 2006. The first and second reviews experienced delays, and the third review was
concluded on September 29, 2006. The objective of SBA was to reduce external vulnerabilities by
narrowing the domestic saving-investment gap and stabilizing the external debt-to-GDP ratio. With
the exception of the one dealing with general government arrears, all end-September quantitative
performance criteria for the third review were met. But as indicated above, the ultimate goals of the
program have remained somewhat elusive.
C.
Governance
13.
Progress in strengthening public financial management has been mixed, with good
progress in a number of important areas such as a single treasury account and internal audit
but with continuing weaknesses in control over expenditures, guarantees, and arrears, and a
delay in adoption of a new Public Procurement Law aligned with EU requirements. Greater
attention to some of these budget execution issues could contribute towards addressing fiscal
challenges. Improvements in public financial management are also having a positive impact on the
overall level of fiduciary risk. Country systems are already being relied upon to a considerable
extent, and further progress is expected as Croatia moves closer to harmonization with EU standards.
5
Public procurement capacity has been strengthened with support from the EU, and adoption of the
new Public Procurement Law is expected in 2008.
14.
The results of the EBRD-World Bank Business Environment and Enterprise
Performance Survey (BEEPS) indicate that corruption has declined in Croatia since 1999. The
Parliament approved a new Anti-Corruption Program 2006-2008 in 2006, with special attention
devoted to areas where corruption is considered to be most prevalent, such as the judiciary, health
services, local government, and public administration. An ambitious action plan which covers all the
ministries was subsequently prepared. The capacity of the Office for the Prevention of Corruption
and Organized Crime has been strengthened and has signed a cooperation agreement with the
Ministry of Finance and the Tax Administration. Reforms launched include the adoption of ethics
codes, codes of conduct in the public sector, conflict of interest legislation, and public procurement
and state aid legislation; depoliticization of public administration; reform of political party financing;
and direct election of city mayors and county prefects. Effective prosecution of malfeasance will
require strong political commitment, which will be tested as implementation proceeds. However,
monitoring by the EC can be expected to help Croatia stay on course.
Figure 2: Selected Governance Indicators in 2005
(Percentile Rank)
Figure 3: Corruption Perception Index (0-10)
100
90
80
70
EU15
60
50
EU8
40
30
2005
20
Croatia
10
2006
0
EU-15
EU-8
Bulgaria
Government Effectiveness
Rule of Law
Croatia
Romania
Other SEEC
Regulatory Quality
Control of Corruption
Source: World Bank, BEEPS - Governance indicators
Notes: EU-8 includes Czech R., Estonia, Hungary, Lithuania,
Latvia, Poland, Slovakia, and Slovenia.
Other SEEC includes Albania, Bosnia and Herzegovina,
Macedonia, Montenegro, and Serbia.
D.
Other SEEC
0
2
4
0- high corruption
6
8
10
10- low corruption
Source: Transparency International
Notes: EU10 includes EU8, Bulgaria, and Romania.
Social Developments
15.
The poverty analysis conducted in 20064 as input to the Croatia Living Standards
Assessment (LSA)5 indicates that poverty in Croatia is relatively low and shallow but has not
changed since the last poverty assessment in the late 1990s. Four percent of the population live
on less than US$ 4.30 a day (at the purchasing power parity), and about 11 percent live on about US$
10 a day, which the LSA suggests is an absolute poverty line for Croatia. Another ten percent of
population is at risk of poverty, as their average consumption is less than 25 percent above the
poverty line. About one percent of the population faces severe deprivation. The poverty gap is about
2.6 percent. The LSA estimates that to lift all poor out of poverty with perfect targeting would cost
only about 0.7 percent of GDP. This amount of funds could be found by restructuring the overall
social benefit envelope, to which Croatia devotes 3.9 percent of GDP but out of which only a small
fraction (0.26 percent of GDP) is spent on poverty benefits. Income inequality measured by the Gini
4
5
The analysis was based on the 2002-2004 household budget surveys.
World Bank Report No. 37992-HR (February 7, 2007).
6
coefficient was 0.25 in 2004, which is on par with the average of advanced transition countries.
Household size, education, age, and employment status of the household head are important
correlates of poverty.
16.
At only 55 percent6, Croatia’s employment rate in 2005 was one of the lowest in Europe.
The proportion of long-term unemployed (that is, workers without jobs for 12 months or longer) is
higher than in all EU countries except Poland and Slovakia. The low 2005 employment rate reflects
a relatively low labor force participation rate among the working age population (63.2 percent) and a
relatively high unemployment rate: using the ILO definition, about 13 percent in 2005. The
unemployment rate declined to 11.8 percent in the first half of 2006. The job creation rate7 in
Croatia is at only 3.5 percent, which is low compared to about 10 percent in Lithuania and 7 percent
in Bulgaria. Women and youth face clear disadvantages in the labor market. Women have higher
unemployment rates and lower wages than male labor market participants. Among youth,
employment rates and average earnings are particularly low. Fewer than one in four people aged 1525 years have jobs, and the unemployment rate for this age group is three times that of the age group
25-50.
17.
With high and rising dependency ratios,8 the main challenge for the education sector is
to produce a more competitive labor force that can earn the income levels needed to maintain
and improve social well-being for the population as a whole, without incurring excessive fiscal
costs. Thus the key question is how the education system can improve the skills base of the labor
force so that it can significantly increase productivity and compete in both the European and global
economies. This will require a better match between skills produced by the education system and
those demanded by the market. Enrollment rates, especially at the tertiary level, as well as
completion rates need to be increased, and repetition rates at the tertiary level need to be reduced.
18.
Looking ahead, the task of faster external income convergence with the EU and
improving living standards in lagging regions will be challenging. It will require robust and
sustainable private sector-led growth, through faster job creation and increased productivity. This
further underscores the need to strengthen the enabling environment for private sector-led growth,
including through completion of privatizations and structural reforms, increasing labor market
flexibility, improving the investment climate and education outcomes, investing in infrastructure, and
strengthening R&D linkages to the business sector.
III.
RELEVANCE OF CAS
19.
The Government’s goals are consistent with those at the time of the CAS and take
account of Croatia’s status as an EU accession candidate country. They are to increase the
average GDP growth rate to six percent by 2013, to facilitate convergence to the average EU25
income per capita at PPP, by: (i) completing the transition, which includes redefining the role of the
state, finishing privatization and restructuring processes, and improving investment climate; (ii)
developing infrastructure, including ICT, improving education outcomes, R&D linkages to the
business sector, increasing flexibility of labor markets, and strengthening social cohesion; and (iii)
sustaining and promoting macroeconomic stability, environment and regional development, and
integrated financial services. These goals are reflected in the Government’s Strategic Development
Framework (SDF) for 2006-2013, adopted in August 2006.
6
7
8
Employed as a share of working age population 15-64.
The job creation rate refers to the share of new jobs in total employment.
Ratio of dependent groups, e.g., seniors and children, to the working age population.
7
20.
Equally, the country development goals – or country-level outcomes – which underpin
the strategic framework of the CAS remain relevant and aligned with achievement of the
Government’s objectives. The country development goals are to support the Government’s growth
and reform strategy for successful EU accession, integration, and convergence through: (i)
macroeconomic stability; (ii) sustainable private sector-led growth; (iii) broad participation in
growth; and (iv) sustainable natural resource management. The corresponding outcomes influenced
by the World Bank Group program during CAS period, as reflected in the CAS Results Matrix,
remain relevant as well.
21.
The main development since the CAS was discussed at the Board in December 2004 is
the launch of EU accession negotiations in October 2005. As a result, Croatia is now focused on
addressing issues flagged in the 2006 as well as future EU Progress Reports and on EU pre-accession
funds absorption. This has implications for the Bank’s priorities and program during the second half
of the CAS period. (See paras. 30-32.) Croatia’s progress towards CAS outcomes and milestones is
summarized in Annex C1.
IV.
FY07-FY08 CAS PROGRAM ADJUSTMENTS
A.
Status of CAS Triggers
22.
At the beginning of the CAS period it was anticipated that Croatia would move from
the low case to the base case by the end of FY05, once reforms supported by PAL I were
completed. However, with the delay of PAL I until September 2005, Croatia did not move to the
base case until FY06.
23.
Since September 2005, Croatia’s overall performance against the three base case CAS
triggers has been on track. The CAS triggers framework included ten specific actions (a number of
which are supported by the ongoing Programmatic Adjustment Loan (PAL) Program) indicative of
performance against three triggers: (i) a satisfactory macroeconomic framework and fiscal
consolidation – for which three actions are fully met or on track, and one (implementation of an
agreed strategy for restructuring railways) is partially met and at risk; (ii) implementation of policies
and improved governance for a more competitive business environment – for which all three actions
are on track; and (iii) improved targeting, sustainability, quality, and efficiency of social services –
for which two actions are on track and one (reduction in social benefits as a percentage of GDP while
increasing the share of means-tested social benefits) has met with some progress but is at risk.
24.
Croatia is also on track with the three high case triggers of the CAS. The three high case
triggers and their respective status are as follows: (i) adoption of road transport expenditure priorities
agreed with the Bank – total roads expenditures in 2005 and 2006 were significantly lower (19
percent and 20 percent lower, respectively) than at the beginning of the CAS period, and while the
share of maintenance and rehabilitation in 2005 and 2006 (27 percent and 28 percent, respectively)
was below the 2004 share of 30 percent, it is projected to increase to 35 percent in 2007 and 38
percent in 2008; (ii) restructuring the railways sector – for which the indicative action, steady
progress toward divestiture of subsidiaries, has been delayed but is expected to be achieved as a prior
action under PAL II; and (iii) restructuring of the electricity utility (HEP) to meet EU accession
requirements – for which the indicative actions have been fully met or are on track.
8
B.
FY07-FY08 Scenarios and Triggers
25.
The three cases of the CAS (low, base, and high) will remain in place for the second half
of the CAS period, but the triggers framework is being streamlined in view of Croatia’s
performance and launch of EU accession negotiations last year. Croatia is obliged to meet the
EU’s newly introduced opening and closing benchmarks for each acquis chapter. With the EU now
issuing its Croatia Progress Report each fall until Croatia’s accession (the next such report being
issued around the time of Croatia’s 2007 national elections), meeting those benchmarks will stretch
Croatia’s already constrained institutional capacity. The triggers for the remainder of the CAS period
are therefore very selective and focus on priority areas complementary to Croatia’s EU accession
agenda. In light of the performance risks posed by the pre-election political environment, base case
triggers will continue to be grounded in the PAL program (see paras. 1-2 in Annex C3) which
supports the Government’s Strategic Development Framework and Pre-Accession Economic
Program.
26.
Accordingly, Croatia’s performance against the following base case triggers will form
the basis on which the Bank will assess whether Croatia is in the base case during the
remainder of the CAS period:
a. maintenance of a satisfactory macroeconomic framework and fiscal consolidation;
b. completion of reforms supported by the second tranche of PAL II and no reversals of
reforms supported by PAL I or PAL II;
c. 2007 performance on track for completion in 2008 of agreed prior actions for PAL III
relating to subsidies, social benefits spending, and HZ9; and
d. 2008 performance on track against milestones for achievement of CAS outcomes in
support of the first three country development goals in the CAS (macroeconomic
sustainability, sustainable private sector-led growth, and broad participation in
growth).
27.
High case triggers will be the same as those for the base case but with the added
flexibility that incremental loans or loan amounts in a given sector will depend on sectorspecific performance:
a. a sector policy environment satisfactory to the Bank; and
b. a medium-term expenditure framework satisfactory to the Bank (i.e., broadly in line
with recommendations in the Bank’s Public Finance Review delivered in FY07).
C.
Lending Volumes and IBRD Exposure
28.
The FY07-FY08 base case lending volume (US$ 681 million) is US$ 146 million higher
than that in the CAS, mainly due to the increase in the amount of PAL II (see para. 2 in Annex
C2) and of a water sector investment loan, and additional financing for the Rijeka Gateway I
project. The FY07-FY08 base case program includes loans that are high priority for the
Government, as a strong incentive to meet the base case triggers during the remainder of the CAS
period, including during 2007 despite the challenges posed by the pre-election political economy.
The four-year base case envelope of US$ 1,137 million is above that of the CAS (US$ 1,064
9
Reduction of subsidies to 2.2 percent of GDP in 2007, holding social benefits spending in 2007 to 4.0 percent of GDP, and
reduction of HZ’s working ratio to 170 percent in 2007.
9
million). And while the FY07-FY08 high case volume of US$ 996 million is higher than the CAS
level of US$ 810 million, the four-year high case envelope of US$ 1,452 million is within the high
case ceiling of the CAS (US$ 1,514 million). The FY07-FY08 low case lending volume (US$ 225
million), and the actual FY05 lending volume when Croatia was in the low case (US$ 86 million)
during the delays in the PAL program, are US$ 67 million more than the CAS low case program for
those three fiscal years, mainly due to the additional financing for the Rijeka Gateway I project. (See
Table 2 and Annex B3.)
29.
In the base case lending program, IBRD’s share of total debt outstanding and disbursed
is projected to be well below that shown in the CAS: a four-year average of 2.7 percent versus
4.5 percent. However, IBRD’s share of public debt service is expected to rise slightly, to an average
of 6.3 percent compared with 5.0 percent in the CAS. With greater access to European IFIs now that
EU accession negotiations are under way, Croatia’s preferred creditor debt service as a percentage of
public debt service is expected to average about 10 percent versus 7.4 percent in the CAS. (See
Table 3.)
Table 2: Indicative IBRD Lending Program FY05-FY08 (US$ million)
Original Base Case
FY05
FY06
FY07
FY08
a/ Slipped
Social and Economic Recovery
Science and Technology a/
PAL Ia/
Education Sector Development a/
Total
Social Protectionb/
Agricultural Acquis Cohesion
PAL IIc/
44.00
40.00
150.00
85.00
319.00
30.00
30.00
150.00
Total
Trade and Transport Integration d/
PAL III e/
Health Sector Development f/
210.0
50.00
150.00
75.00
Total
275.00
Municipal Services g/
50.00
Environmental Management h/
60.00
Regional Economic Rehabilitation i/
50.00
Growth Policy Support i/
100.00
Total
260.00
TOTAL
1,064.00
Actual FY05-FY06+Revised FY07-FY08
Base Case
Social and Economic Recovery
45.68
Social Welfare Development
40.00
Total
85.68
Agricultural Acquis Cohesion
30.14
District Heating j/
29.80
Education Sector Development
85.00
Science and Technology
40.00
PAL I
184.90
Total
369.84
Trade and Transport Integration k/
75.30
PAL II
197.40
Inland Waters
133.41
Rijeka Gateway I Additional Financing 48.03
Total
454.14
Revenue Administration Modernization 67.00
Rijeka Gateway II
100.00
Judicial Reform
35.00
Sustainable Health Systems
25.00
Total
227.00
TOTAL
1,136.66
to FY06.
Social Welfare Development and accelerated to FY05.
c/ Slipped to FY07.
d/ Envisioned in the CAS as a sequel to Rijeka Gateway I (approved in FY04), but focus of loan was changed to Port of Ploce,
and sequel operation was renamed Rijeka Gateway II (FY08).
e/ Slipped to high case of FY08 or base case during next CAS period.
f/ Renamed Sustainable Health Systems and slipped to FY08.
g/ Renamed Inland Waters and accelerated to FY07.
h/ Moved to high case only.
i/ Dropped.
j/ Delayed from September 2001 CAS Progress Report Program.
k/ Approved November 14, 2006.
b/ Renamed
10
Table 3: IBRD Exposure Indicators for Base Case
Preferred creditor debt service / public debt service
(%)
IBRD share of public debt service (%)
IBRD debt service / exports of goods and services
IBRD share of total debt outstanding (%)
IBRD total debt outstanding, including present value
of guarantees (US$m)
D.
2005
2006
2007
2008
2005Actual Estimate Projected Projected 2008
Average
10.0
10.0
10.0
10.3
10.1
5.6
0.5
2.7
809
6.4
0.5
2.5
969
6.5
0.4
2.9
1101
6.7
0.4
2.8
1128
6.3
0.5
2.7
1002
Priorities for World Bank Group Support
30.
The proposed operations in the FY07-FY08 IBRD lending program are aligned with the
strategic framework of the CAS and in addition, aim to address areas cited in the EU’s Croatia
2006 Progress Report as needing significant effort – judicial and public administration reform,
anti-corruption, agriculture, and environment – as well as to facilitate Croatia’s absorption of
grant funds under the EU’s new Instrument for Pre-Accession Assistance (IPA). (See Table 4
below for the revised IBRD lending program, Annex C3 for proposed project descriptions, and para.
4 of Annex C1 regarding associated modifications to the CAS Results Matrix.) The EU has allocated
a total of EUR 435.7 million in IPA funds to Croatia during 2007-2009. The funds are earmarked for
five components: (i) transition assistance and institution building; (ii) cross-border cooperation; (iii)
regional development (which includes infrastructure and environment); (iv) human resources
development; and (v) rural development.
31.
Bank Group support to Croatia during the remainder of the CAS period will continue
to be joint between the Bank and IFC. During FY07-09, IFC expects to continue to implement its
strategy in the areas highlighted in the CAS:

post-privatization restructuring in tourism, agribusiness, retail, and construction
and construction material sectors;

helping local companies to become more competitive in the domestic market and
expand in other countries in the region;

in infrastructure, in close coordination with the Bank, promoting private sector
investments in infrastructure. IFC’s Private Enterprise Partnership – Southeast
Europe Infrastructure (PEP-SE Infrastructure)10 could assist Croatia by providing
advisory services to attract private investors and operators in infrastructure through
public-private partnership (PPP) approaches (e.g., possibly the proposed Rijeka
Gateway II Project – see Annex C3), if requested by the Government; and

in the financial sector, given further improvements in the banking sector which now
is in a well developed stage and highly competitive, IFC will focus mostly on
structured finance products, leasing, and non-bank financial institutions.
Launched in FY06 to succeed IFC’s Balkans Infrastructure Development Facility and its SEE Enterprise Development
Program.
10
11
32.
In addition, FIAS (jointly with USAID and UNDP) is helping the Government of
Croatia to improve the quality of regulations, thereby reducing the cost and risk of doing
business.
Table 4: Complementarity Between EU Accession Agenda and World Bank Group Program
Priority Areas for Croatia’s Accession Agenda
Transition and Institution Building (IPA Component I)
Cross-Border Cooperation (IPA Component II)









Regional Development (IPA Component III)







Human Resources Development (IPA Component IV)
Rural Development (IPA Component V)
a/
b/




Croatia FY07-FY08 IBRD and GEF Program
PAL II
PAL IIIa/
Revenue Administration Modernization
Judicial Reform
Trade and Transport Integration
Rijeka Gateway II
Energy a/, b/
Neretva and Trebisnjica River Basin Management
(GEF)
Assistance to local companies to enhance their
domestic and international competitiveness (IFC)
Trade and Transport Integration
Inland Waters
Rijeka Gateway II
Environment a/, b/
Agriculture Pollution Control (GEF)
Neretva and Trebisnjica River Basin Management
(GEF)
PEP-SE Infrastructure to facilitate PPP in
infrastructure
Sustainable Health Systems
Inland Waters
Coastal Cities Pollution Control II a/
Agriculture Pollution Control Project (GEF)
High case only.
FY08 high case program includes a loan in either energy or environment.
E.
Managing External and Implementation Risks
33.
An ongoing risk for Croatia is its vulnerability to contagion from adverse developments
in international financial markets. This risk has increased further since the CAS. As noted above,
despite some progress under the recently completed IMF SBA, macroeconomic vulnerabilities are
worrisome: since the CAS, a widening of the external current account deficit by nearly 3 percentage
points of GDP, financed by large capital inflows and a rising external debt (at the very high level of
89.0 percent of GDP in December 2006). Given the high degree of euroization of the Croatian
economy, its financial sector remains vulnerable to exchange rate risks. The Croatian National Bank
has, however, taken several measures to control the risk by discouraging foreign borrowing by banks,
monitoring foreign exchange exposures of bank clients, and strengthening supervision of banks as
well as, jointly with HANFA, non-bank financial institutions. Implementation of the structural
reforms supported by the PAL program and called for in the EU’s Croatia 2006 Progress Report
should serve to mitigate these vulnerabilities by facilitating further fiscal consolidation (i) to reduce
the public and external debt burdens, and (ii) to shrink the public sector to allow for private sector
activity and attract more investment that is less dependent on debt-creating inflows.
12
34.
As was the case when the CAS was prepared, any setback in the security situation in
South East Europe could have a severe impact on Croatia’s external position and economic
growth. External shocks with adverse effects on regional stability could seriously harm the
country’s reform effort. Given Croatia’s heavy reliance on tourism revenues, it is vulnerable to any
deterioration in regional stability. However, continued regional economic integration within South
East Europe, particularly through trade, is expected to enhance regional stability.
And
implementation of PAL-supported reforms as well as public investment (e.g., in infrastructure and
education) aimed at improving Croatia’s competitiveness, investment climate, and economic
diversification is expected to mitigate these risks.
35.
Implementation risks during FY07-FY08, reminiscent of “first-generation” risks in
transition economies, remain those cited in the CAS – primarily, potential policy slippages due
to political pressures. Croatia continues to have a coalition government with a mere one-seat
majority in Parliament, and the coalition Government’s reform agenda is ambitious and politically
challenging. With the next Parliamentary elections scheduled for November 2007, there is greater
risk of adoption of fiscally unsustainable policies and investments in the near term. Former socialist
approaches could re-emerge in the run-up to the Parliamentary election in November 2007,
characterized by renewed pressure for social spending, under the guise of a recently approved
National Population Policy, and pressures to resurrect the failed employee-management buy-out
scheme of the past through an Employee Stock Ownership Plan (ESOP) Law. However, reforms to
be supported by the PAL program are consistent with the EU accession agenda, for which there is
both political and public support, which is expected to mitigate these risks. The three-case program
of the CAS also mitigates these risks, with a shift to the significantly reduced lending levels of the
low case if reform momentum is not sustained. Experience in the region has demonstrated that,
despite the fragility of political coalitions, the EU accession agenda provides continuity in the
program of one government to the next. Nonetheless, building support for reforms will be important
to the Government’s ability to sustain its reform program, particularly in an election year.
36.
Capacity weaknesses could also impede implementation of proposed reforms. Capacity
is uneven and limited in several ministries, which may hinder the reform effort. However, Bankfinanced investment projects that complement the PAL program, utilization of the EU’s IPA funds,
and technical assistance by other partners mitigate some of the capacity constraints.
Annex A2
Page 1 of 3
Croatia at a glance
Europe &
Central
Croatia
Asia
POVERTY and SOCIAL
2005
Population, mid-year (millions)
GNI per capita (Atlas method, US$)
GNI (Atlas method, US$ billions)
Uppermiddleincome
4.4
8,370
37.2
473
4,113
1,945
599
5,625
3,368
-0.4
0.7
0.0
0.6
0.6
1.2
11
69
75
6
..
76
98
96
96
95
..
64
69
28
5
92
97
104
105
102
..
72
69
23
7
94
94
107
108
106
4/25/07
Development diamond*
Life expectancy
Average annual growth, 1999-05
Population (%)
Labor force (%)
Most recent estimate (latest year available, 1999-05)
Poverty (% of population below national poverty line)
Urban population (% of total population)
Life expectancy at birth (years)
Infant mortality (per 1,000 live births)
Child malnutrition (% of children under 5)
Access to an improved water source (% of population)
Literacy (% of population age 15+)
Gross primary enrollment (% of school-age population)
Male
Female
GNI
per
capita
Gross
primary
enrollment
Access to improved water source
Croatia
Upper-middle-income group
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1985
1995
2004
2005
GDP (US$ billions)
Gross capital formation/GDP
Exports of goods and services/GDP
Gross domestic savings/GDP
Gross national savings/GDP
..
..
..
..
..
18.8
17.6
38.6
6.7
10.8
35.6
30.6
47.5
21.7
23.6
38.9
31.0
47.1
22.6
23.3
Current account balance/GDP
Interest payments/GDP
Total debt/GDP
Total debt service/exports
Present value of debt/GDP
Present value of debt/exports
..
..
..
..
..
..
-7.5
0.7
17.7
4.7
..
..
-5.2
3.7
87.0
22.2
..
..
-6.6
3.3
77.7
23.9
..
..
1985-95
1995-05
2004
2005
2005-09
-6.0
-6.0
..
3.8
4.2
6.3
4.3
4.3
5.7
4.3
4.2
4.6
4.3
4.4
5.9
Economic ratios*
Trade
Domestic
savings
Capital
formation
Indebtedness
(average annual growth)
GDP
GDP per capita
Exports of goods and services
Croatia
Upper-middle-income group
STRUCTURE of the ECONOMY
1985
1995
2004
2005
(% of GDP)
Agriculture
Industry
Manufacturing
Services
..
..
..
..
10.7
34.3
24.3
55.0
7.8
31.1
20.5
61.1
7.6
31.6
20.9
60.8
Household final consumption expenditure
General gov't final consumption expenditure
Imports of goods and services
..
..
..
63.9
29.4
49.5
57.3
21.1
56.4
56.9
20.5
55.5
1985-95
1995-05
2004
2005
-6.7
-12.6
-12.9
-1.1
0.4
4.1
4.1
3.3
9.7
5.8
7.4
2.7
0.1
4.8
5.8
4.2
..
..
..
..
3.8
0.4
8.7
6.5
4.8
-0.3
4.8
4.6
3.4
0.8
6.3
3.5
(average annual growth)
Agriculture
Industry
Manufacturing
Services
Household final consumption expenditure
General gov't final consumption expenditure
Gross capital formation
Imports of goods and services
Growth of capital and GDP (%)
30
20
10
0
-10
00
01
02
03
04
05
-20
GCF
GDP
Growth of exports and imports (%)
15
10
5
0
00
01
02
03
04
05
-5
Exports
Imports
Note: 2005 data are preliminary estimates. Group data are to 2004.
* The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will
be incomplete.
Annex A2
Page 2 of 3
Croatia
PRICES and GOVERNMENT FINANCE
1985
Domestic prices
(% change)
Consumer prices
Implicit GDP deflator
Government finance
(% of GDP, includes current grants)
Current revenue
Current budget balance
Overall surplus/deficit
1995
2004
2005
Inflation (%)
5
..
..
2.0
5.3
2.1
3.9
3.3
3.2
4
3
2
1
0
..
..
..
47.2
2.7
-2.3
45.1
4.1
-4.8
44.9
3.8
-3.9
00
01
02
03
04
GDP deflator
05
CPI
TRADE
1985
1995
2004
2005
(US$ millions)
Total exports (fob)
Commodity 1
Commodity 2
Manufactures
Total imports (cif)
Food
Fuel and energy
Capital goods
..
..
..
..
..
..
..
..
4,517
250
392
1,806
7,745
771
860
1,952
8,210
449
909
3,824
16,560
1,190
1,987
5,739
8,955
487
1,219
4,338
18,301
1,333
2,806
6,115
Export price index (2000=100)
Import price index (2000=100)
Terms of trade (2000=100)
..
..
..
67
67
99
73
73
100
72
72
100
Export and import levels (US$ mill.)
20,000
15,000
10,000
5,000
0
99
00
01
02
03
Exports
04
05
Imports
BALANCE of PAYMENTS
1985
1995
2004
2005
(US$ millions)
Exports of goods and services
Imports of goods and services
Resource balance
..
..
..
6,972
9,152
-2,181
17,583
20,126
-2,543
18,876
21,702
-2,825
Net income
Net current transfers
..
..
-29
802
-784
1,486
-1,226
1,475
-4
Current account balance
..
-1,407
-1,841
-2,576
-6
Financing items (net)
Changes in net reserves
..
..
1,850
-443
1,909
-68
3,599
-1,022
Memo:
Reserves including gold (US$ millions)
Conversion rate (DEC, local/US$)
..
..
1,895
5.2
8,759
6.0
8,801
5.9
Current account balance to GDP (%)
0
-1
99
00
01
02
03
04
05
-2
-3
-5
-7
-8
-9
EXTERNAL DEBT and RESOURCE FLOWS
1985
1995
2004
2005
(US$ millions)
Total debt outstanding and disbursed
IBRD
IDA
..
..
..
3,336
60
0
31,002
851
0
30,220
809
0
Total debt service
IBRD
IDA
..
..
..
365
28
0
4,476
86
0
5,129
104
0
Composition of net resource flows
Official grants
Official creditors
Private creditors
Foreign direct investment (net inflows)
Portfolio equity (net inflows)
..
..
..
..
..
31
20
265
109
5
..
263
4,261
877
261
..
103
1,927
1,550
-1,345
World Bank program
Commitments
Disbursements
Principal repayments
Net flows
Interest payments
Net transfers
..
..
..
..
..
..
120
50
20
29
7
22
209
95
61
35
26
9
86
80
70
9
33
-24
Development Economics
Composition of 2005 debt (US$ mill.)
G: 4,235
A: 809
D: E:
6951,558
F: 22,923
A - IBRD
B - IDA
C - IMF
D - Other multilateral
E - Bilateral
F - Private
G - Short-term
4/25/07
Annex A2
Page 3 of 3
Croatia
Millennium Development Goals
With selected targets to achieve between 1990 and 2015
Croatia
(estimate closest to date shown, +/- 2 years)
Goal 1: halve the rates for $1 a day poverty and malnutrition
Poverty headcount ratio at $1 a day (PPP, % of population)
Poverty headcount ratio at national poverty line (% of population)
Share of income or consumption to the poorest qunitile (%)
Prevalence of malnutrition (% of children under 5)
1990
<2
..
..
..
1995
..
..
..
1
2000
<2
..
8.3
..
2004
..
..
..
..
79
..
76
100
82
82
..
..
92
92
85
..
93
91
88
100
Goal 3: eliminate gender disparity in education and empower women
Ratio of girls to boys in primary and secondary education (%)
Women employed in the nonagricultural sector (% of nonagricultural employment)
Proportion of seats held by women in national parliament (%)
97
44
..
97
45
8
96
46
21
96
44
22
Goal 4: reduce under-5 mortality by two-thirds
Under-5 mortality rate (per 1,000)
Infant mortality rate (per 1,000 live births)
Measles immunization (proportion of one-year olds immunized, %)
12
11
90
10
9
92
9
7
93
7
6
96
Goal 5: reduce maternal mortality by three-fourths
Maternal mortality ratio (per 100,000 live births)
Births attended by skilled health staff (% of total)
11
..
12
..
7
100
7
100
Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases
Prevalence of HIV (% of population ages 15-49)
Contraceptive prevalence (% of women ages 15-49)
Incidence of tuberculosis (per 100,000 people)
Tuberculosis cases detected under DOTS (%)
..
..
55
..
..
..
44
..
0.0
69
36
..
0.0
..
29
..
Goal 7: halve the proportion of people without sustainable access to basic needs
Access to an improved water source (% of population)
Access to improved sanitation facilities (% of population)
Forest area (% of total land area)
Nationally protected areas (% of total land area)
CO2 emissions (metric tons per capita)
GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent)
100
100
31.5
..
5.2
5.0
..
..
36.9
6.5
3.8
4.9
..
..
35.0
10.4
4.5
5.4
76
100
35.1
10.4
4.7
5.6
Goal 8: develop a global partnership for development
Fixed line and mobile phone subscribers (per 1,000 people)
Internet users (per 1,000 people)
Personal computers (per 1,000 people)
Youth unemployment (% of total labor force ages 15-24)
172
0
16
..
283
5
21
26.9
640
68
114
38.4
1,018
293
190
33.4
Goal 2: ensure that children are able to complete primary schooling
Primary school enrollment (net, %)
Primary completion rate (% of relevant age group)
Secondary school enrollment (gross, %)
Youth literacy rate (% of people ages 15-24)
Education indicators (%)
Measles immunization (% of 1-year olds)
125
100
100
75
ICT indicators (per 1,000 people)
1,500
1,000
50
75
500
25
50
1998
2000
2002
2004
0
0
1990
1995
2000
2004
2000
2002
2004
Primary net enrollment ratio
Ratio of girls to boys in primary &
secondary education
Croatia
Europe & Central Asia
Note: Figures in italics are for years other than those specified. .. indicates data are not available.
Development Economics, Development Data Group (DECDG).
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Internet users
8/12/06
Annex B2
CAS Annex B2 - Croatia
Selected Indicators* of Bank Portfolio Performance and Management
Indicator
Portfolio Assessment
Number of Projects Under Implementation a
b
Average Implementation Period (years)
a, c
Percent of Problem Projects by Number
a, c
Percent of Problem Projects by Amount
Percent of Projects at Risk by Number a, d
Percent of Projects at Risk by Amount a, d
Disbursement Ratio (%) e
Portfolio Management
CPPR during the year (yes/no)
Supervision Resources (total US$)
Average Supervision (US$/project)
Memorandum Item
Proj Eval by OED by Number
Proj Eval by OED by Amt (US$ millions)
% of OED Projects Rated U or HU by Number
% of OED Projects Rated U or HU by Amt
a.
b.
c.
d.
e.
2004
2005
2006
2007
13
3.3
38.5
37.1
38.5
37.1
41.5
13
3.0
0.0
0.0
0.0
0.0
27.3
15
2.7
6.7
7.7
6.7
7.7
19.3
15
3.1
0.0
0.0
0.0
0.0
9.0
yes
828
80
no
1004
71
yes
1176
82
yes
1260
84
Since FY 80 Last Five FYs
17
8
899.5
452.5
29.4
12.5
21.9
5.8
As shown in the Annual Report on Portfolio Performance (except for current FY).
Average age of projects in the Bank's country portfolio.
Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).
As defined under the Portfolio Improvement Program.
Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the
beginning of the year: Investment projects only.
* All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,
which includes all active projects as well as projects which exited during the fiscal year.
Annex B3
Page 1 of 4
CAS Annex B3 - IBRD/GEF Program Summary - Croatia
FY 2005 - FY 2008
CAS Progress Report Base Case Lending Program
Fiscal year
2005 (actual):
Low Case
Project ID
US$(M)
Strategic Rewards
(H/M/L)
Implementation
Risks (H/M/L)
H
H
M
H
H
L
Social and Economic Recovery
Social Welfare Development
Subtotal IBRD
Renewable Energy (GEF)
45.68
40.00
85.68
5.50
2006 (actual):
Base Case
Agriculture Acquis Cohesion
District Heating
Education Sector Development
Science and Technology
PAL I
Subtotal IBRD
30.14
29.80
85.00
40.00
184.90
369.84
H
H
H
H
H
L
H
M
H
H
2007 (plan):
Base Case
Trade and Transport Integration1
PAL II
Inland Waters
Rijeka Gateway I Additional Financing
Subtotal IBRD
Agriculture Pollution Control (GEF)
Neretva & Trebisnjica River Basin Management (GEF)
75.30
197.40
133.41
48.03
454.14
5.00
2.00
H
H
H
H
L
H
M
M
H
H
L
H
Revenue Admin. Modernization
Rijeka Gateway II
Judicial Reform
Sustainable Health Systems
Subtotal IBRD
67.00
100.00
35.00
25.00
227.00
H
H
H
H
M
M
2008 (plan):
Base Case
Total FY05-FY08 IBRD
Original CAS: FY05 Low Case + FY06-FY08 Base
Case IBRD
Original CAS: FY05-FY08 Base Case IBRD
1
Port of Ploce; approved November 14, 2006.
1,136.66
829.00
1,064.00
M
H
Annex B3
Page 2 of 4
CAS Annex B3 - IBRD/GEF Program Summary - Croatia
FY 2005 - FY 2008
CAS Progress Report High Case Lending Program
Fiscal year
2005 (actual):
Low Case
Project ID
US$(M)
Strategic Rewards
(H/M/L)
Implementation
Risks (H/M/L)
H
H
M
H
H
L
Social and Economic Recovery
Social Welfare Development
Subtotal IBRD
Renewable Energy (GEF)
45.68
40.00
85.68
5.50
2006 (actual):
Base Case
Agriculture Acquis Cohesion
District Heating
Education Sector Development
Science and Technology
PAL I
Subtotal IBRD
30.14
29.80
85.00
40.00
184.90
369.84
H
H
H
H
H
L
H
M
H
H
2007 (plan):
High Case
Trade and Transport Integration1
PAL II
Inland Waters
Rijeka Gateway I Additional Financing
Revenue Admin. Modernization
Subtotal IBRD
Agriculture Pollution Control (GEF)
Neretva & Trebisnjica River Basin Management (GEF)
75.30
197.40
133.41
48.03
67.00
521.14
5.00
2.00
H
H
H
H
H
L
H
M
M
M
H
H
L
H
Rijeka Gateway II
Judicial Reform
PAL III
155.00
35.00
150.00
75.00
35.00
25.00
475.00
2008 (plan):
High Case
Energy/Environment2
Coastal Cities Pollution Control APL II
Sustainable Health Systems
Subtotal IBRD
Total FY05-FY08 IBRD
1,451.66
Original CAS: FY05 Low Case + FY06 Base Case
+ FY07-FY08 High Case IBRD
1,104.00
Original CAS: FY07-FY08 High Case IBRD
1,514.00
1
2
Port of Ploce; approved November 14, 2006.
Either Energy or Environment.
H
M
H
M
H
H
H
H
M
M
L
H
Annex B3
Page 3 of 4
CAS Annex B3 - IBRD/GEF Program Summary - Croatia
FY 2005 - FY 2008
CAS Progress Report Low Case Lending Program
Fiscal year
2005 (actual):
Low Case
Project ID
US$(M)
Strategic Rewards
(H/M/L)
Implementation
Risks (H/M/L)
H
H
M
H
H
L
Social and Economic Recovery
Social Welfare Development
Subtotal IBRD
Renewable Energy (GEF)
45.68
40.00
85.68
5.50
2006 (actual):
Base Case
Agriculture Acquis Cohesion
District Heating
Education Sector Development
Science and Technology
PAL I
Subtotal IBRD
30.14
29.80
85.00
40.00
184.90
369.84
H
H
H
H
H
L
H
M
H
H
2007 (plan):
Trade and Transport Integration1
Rijeka Gateway I Additional Financing
Subtotal IBRD
Agriculture Pollution Control (GEF)
Neretva & Trebisnjica River Basin Management (GEF)
75.30
48.03
123.33
5.00
2.00
H
H
L
M
H
H
L
H
Revenue Admininstration Modernization
Judicial Reform
Subtotal IBRD
67.00
35.00
102.00
H
H
M
M
Total FY05-FY08 IBRD
680.85
Original CAS: FY05 Low Case + FY06 Base Case
+ FY07-FY08 Low Case IBRD
454.00
Original CAS: FY07-FY08 Low Case IBRD
314.00
Low Case
2008 (plan):
Low Case
1
Port of Ploce; approved November 14, 2006.
Annex B3
Page 4 of 4
CAS Annex B3 (IFC & MIGA) for Croatia
Croatia - IFC and MIGA Program, FY 2004-2007
2004
IFC approvals (US$m)
2005 2006 2007
54.42 102.05 49.26
Sector (%)
Finance & Insurance
Food & Beverages
Industrial & Consum
Wholesale and Retai
Total
100
100
11
89
100
100
100
0
Investment instrument(%)
Loans
Equity
Quasi-Equity
Other
100
0
0
100
100
Total
100
100
100
MIGA guarantees (US$m)
146.13
0.00 0.00
0
Annex B4
CAS Annex B4 - Summary of IBRD Nonlending Services - Croatia
FY 2005 - FY 2008
Product
Audience
a/
Objective
b/
Completion FY
Cost (US$000)
05
05
06
06
06
06
06
07
119
36
80
275
160
200
72
48
G/D/B
G/D/B/PD
G/D/B/PD
G/D/B/PD
G/D/B
G/D/B/PD
G/D/B
B
KG/PS
KG/PD/PS
KG/PD/PS
KG/PD/PS
KG/PS
KG/PD/PS
KG/PS
KG/PS
07
07
350
368
G
G
KG/PS
KG/PS
Underway e/
Environment TA
Public Finance Review
ROSC Accounting and Auditing Update
ROSC Corporate Governance
IDF Grant: Enhancing Corporate Financial Reporting
Fiduciary Monitoring
Statistical Capacity Building
07
07
07
07
10
07
08
75
220
47
29
350
62
100f/
G/D/B
G/D/B
G/D/B
G/D/B
G/PD
G/D/B
G/D/B
KG/PS
KG/PS
KG/PS
KG/PS
KG/PS
KG/PS
KG/PS
Planned e/
EU Convergence Study
FSAP
Other TBD
08
08
08
250
TBD
TBD
G/D/B/PD
G/D/B/PD
TBD
KG/PD/PS
KG/PD/PS
TBD
Completions To Date During CAS Period
Fiduciary Country Systems Development
for EU Integration TA/IFA c/
Energy Reforms and Regional Integration
Private Sector Participation Options in Roads (PPIAF)
Regional Development & Living Standards
Environmental Management Strategy
d/
Reform and EU Accession Policy Notes/Workshops
Shipyards SOE Restructuring PSIA
Independent Procurement Review
IDF Grant: Capacity Building for Monitoring
Judicial Efficiency
IDF Grant: Strengthening Budget Management
a/ Government (G), Donor (D), Bank (B), Public Dissemination (PD).
b/ Knowledge Generation (KG), Public Debate (PD), Problem-Solving (PS).
c/ Institutional Fiduciary Assessments (IFAs) to focus in particular on the social sector and environment
ministries and agencies.
d/ To assess impact of policy option implemented elsewhere (e.g., EU8, other MICs, and OECD countries) in policy
areas such as Public Administration Reform, Health, Railways, Public-Private Partnership for Municipal Services,
Judicial Reform, Education, Decentralization, and Cost of Doing Business.
e/ Costs shown for these tasks are estimates.
f/ Of which US$ 90,000 from trust fund.
Annex B6
CAS Annex B6 - Key Economic Indicators - Croatia
Actual
2003
National Accounts (as % of GDP)
a)
Gross domestic product
Agriculture
Industry
Services
2004
Preliminary
2005
2006
Projections Base Case
2007
2008
Projections Low Case
2009
2007
2008
Projections High Case
2009
2007
2008
2009
100
7
30
62
100
8
31
61
100
8
32
61
100
7
32
61
100
7
32
60
100
7
32
61
100
6
33
61
100
6
31
63
100
6
30
63
100
6
30
64
100
6
29
66
100
6
30
64
100
6
30
65
80
31
6
25
78
31
6
24
77
31
5
26
76
33
5
28
75
33
5
28
73
33
5
29
73
34
4
29
79
32
5
27
79
31
5
26
80
31
4
26
75
32
5
27
74
32
5
28
72
33
4
29
Exports GNFS
Imports GNFSb)
47
58
47
56
47
56
48
57
51
58
50
56
48
55
50
61
50
61
49
60
48
56
48
53
47
51
Gross domestic savings
c)
Gross national savings
20
21
22
24
23
23
24
24
25
26
27
28
27
28
21
22
21
21
20
20
25
26
26
27
28
30
29,596
5,490
35,645
7,020
38,883
8,000
42,915
8,880
44,667
9,510
47,851
10,060
51,240
10,860
42,984
9,356
45,091
9,776
47,685
10,485
45,948
9,664
49,319
10,348
53,719
11,244
5.3
14.1
4.3
4.8
4.3
6.3
4.8
10.5
4.6
7.9
4.0
6.9
4.0
7.1
3.1
5.3
3.4
4.9
3.5
6.1
4.8
7.9
4.8
7.7
4.9
7.2
4.3
3.5
4.9
4.2
2.7
3.4
4.6
3.0
3.3
4.6
2.8
3.0
4.1
2.9
3.1
4.2
2.9
3.2
3.1
4.5
5.2
3.5
4.3
4.8
3.7
4.2
4.8
4.8
3.0
3.2
5.0
3.3
3.7
5.1
3.4
3.8
Total Consumption
Gross domestic investment
Government investment
Private investment (incl. increase in stocks)
b)
Memorandum items
Gross domestic product (US$ mill at current prices)
GNP per capita (US$, Atlas method)
Real annual growth rates (%, calculated from previous years prices)
Gross domestic product at market prices
Gross domestic investment
Real annual per capita growth rates (%, calculated from previous years prices)
Gross domestic product at market prices
5.4
Total consumption
3.7
Private consumption
4.6
Balance of Payments (US$ millions)
b)
Exports GNFS
Merchandise FOB
Imports GNFSb)
Merchandise FOB
Resource balance
Net current transfers
Current account balance
14,877
6,308
17,198
14,216
-2,321
1,407
-2,132
17,583
8,210
20,126
16,560
-2,543
1,486
-1,841
18,876
8,955
21,702
18,301
-2,825
1,475
-2,576
21,413
10,606
24,658
21,117
-3,245
1,386
-3,175
22,588
11,349
26,084
22,437
-3,496
1,483
-3,131
23,720
12,143
26,981
23,559
-3,261
1,531
-2,787
24,674
12,750
28,159
24,737
-3,485
1,586
-2,893
21,620
10,847
26,140
22,530
-4,521
1,521
-4,343
22,702
11,552
27,388
23,995
-4,686
1,571
-4,615
23,556
12,072
28,576
25,386
-5,020
1,627
-4,858
22,251
11,267
25,592
22,006
-3,341
1,589
-2,931
23,594
12,281
26,309
22,886
-2,714
1,646
-2,190
25,100
13,447
27,224
23,802
-2,124
1,711
-1,474
Net private foreign direct investment
Net portfolio investments
Long-term loans (net)
Other capital (net, incl. errors & ommissions)
Change in reservesd)
1926
964
2,719
- 2,161
- 1,401
877
261
2,547
- 1,804
- 68
1550
- 1,345
2,000
1,333
- 1,022
3343
- 208
3,017
- 1,076
- 1,727
2665
- 1,470
2,753
- 136
- 721
1565
- 1,017
2,655
480
- 895
1200
- 691
2,582
307
- 505
1270
0
3,713
- 31
- 663
826
533
3,554
- 20
- 335
1016
563
3,635
- 212
- 205
2465
- 785
2,074
- 102
- 721
1865
- 800
1,899
- 79
- 695
1680
- 650
964
- 165
- 355
-7.8
-7.2
-7.1
-5.2
-7.3
-6.6
-7.6
-7.4
-7.8
-7.0
-6.8
-5.8
-6.8
-5.6
-10.5
-10.1
-10.4
-10.2
-10.5
-10.2
-7.3
-6.4
-5.5
-4.4
-4.0
-2.7
26.1
33.5
30.2
16.5
9.1
10.5
18.4
15.4
7.0
6.3
7.0
5.0
5.0
5.0
5.9
7.5
6.5
6.5
4.5
5.8
10.0
5.0
9.0
4.0
9.5
4.0
Public finance (as % of GDP at market prices)
Overall surplus (+)/ deficit (-) (without capital revenue)
Current revenues
Current expenditures
Current surplus (+) /deficit (-)
Capital expenditure
Foreign financing
-6.4
45.0
42.6
2.3
8.7
3.0
-4.8
45.1
41.1
4.1
8.9
2.0
-3.9
44.9
41.1
3.8
7.7
-1.8
-3.1
45.1
40.1
4.9
8.0
-1.1
-3.0
44.1
39.4
4.7
7.7
-0.8
-2.8
42.6
38.0
4.5
7.4
-0.5
-2.6
41.7
37.3
4.5
7.1
-1.7
-4.7
44.2
40.9
3.3
8.0
-0.8
-5.1
42.9
40.3
2.6
7.7
-0.6
-5.1
42.3
39.9
2.4
7.4
-1.8
-2.6
43.7
38.7
5.0
7.6
-0.8
-2.1
41.8
36.7
5.1
7.2
-0.5
-1.4
40.7
35.3
5.4
6.8
-1.6
Monetary indicators
M4/GDP
Growth of M4(%)
Private sector credit growth (%)
Domestic credit / GDP (%)
65.0
11.0
14.6
56.3
65.1
8.6
14.0
59.2
66.8
10.5
17.2
64.5
72.8
18.0
22.9
73.2
77.3
13.5
19.3
81.6
78.7
10.0
13.9
86.0
79.4
8.0
11.9
89.9
81.8
17.6
20.7
84.4
88.4
15.2
17.8
93.3
92.9
12.0
16.4
101.8
75.1
11.6
12.6
76.2
74.3
8.0
8.9
76.0
72.3
6.0
7.0
74.6
102.2
6.1
9.8
1.8
3.9
99.0
5.6
9.4
2.1
3.9
96.6
6.2
6.5
3.3
3.2
103.7
5.6
6.0
3.2
3.4
106.5
6.0
7.1
2.7
3.4
107.4
6.1
6.8
2.5
3.2
107.4
6.1
6.3
2.5
3.1
99.4
6.1
7.4
3.2
3.5
101.0
6.2
7.0
3.1
3.3
101.8
6.3
6.6
2.6
3.2
96.1
5.9
7.0
2.5
3.0
97.7
6.0
6.7
2.3
2.9
97.7
6.0
6.2
2.2
2.7
Memorandum items
Resource balance (% of GDP)
Current account balance (% of GDP)
Annual value growth rates (%)
Merchandise exports (FOB)
Merchandise imports (FOB)
e)
Price developments
f
Real exchange rate (1995=100)
f
Exchange rate at end year (LCU/US$)
Real interest rates
Consumer price index (% change)g
GDP deflator (% change)
a) GDP at factor cost
b) 'GNFS" denotes "goods and nonfactor services"
c) Includes net unrequired transfers excluding official capital grants.
d) Includes use of IMF resources.
e) Consolidated general government.
Annex B7
CAS Annex B7 - Key Exposure Indicators - Croatia
Indicator
Actual
2004
2003
Total debt outstanding and
Estimate
2006
2005
Projections Base Case
2007
2008
2009
Projections Low Case
2007
2008
2009
Projections High Case
2007
2008
2009
24759
31002
30220
38181
38598
40554
42475
40023
43232
46368
38608
40333
41893
6383
4093
2966
4952
2648
2592
2857
3573
3845
4071
2558
2261
2396
3254
4476
5129
5095
5507
5610
5317
5632
5747
5458
5397
5498
5118
166.4
83.7
21.9
0.0
2.6
176.3
87.0
25.5
0.0
3.7
160.1
77.7
27.2
0.0
3.3
178.3
89.0
23.8
0.0
3.0
170.9
86.4
24.4
0
2.9
171.0
84.8
23.7
0
2.7
172.1
82.9
21.5
0
2.5
185.1
93.1
26.0
0
3.3
190.4
95.9
25.3
0
3.1
196.8
97.2
23.2
0
2.9
173.5
84.0
24.3
0
2.6
170.9
81.8
23.3
0
2.4
166.9
78.0
20.4
0
2.1
disbursed (TDO) (US$m)a
Net disbursements (US$m)
a
Total debt service (TDS)
(US$m)
a
Debt and debt service indicators
(%)
TDO/XGSb
TDO/GDP
TDS/XGS
Concessional/TDO
Interest payments/GDP
IBRD exposure indicators (%)
IBRD DS/public DS
5.7
4.7
5.6
6.4
6.5
6.7
8.8
5.6
5.8
7.4
6.9
6.9
9.3
Preferred creditor DS/public DS (%)c
12.2
9.3
10.0
10.0
10.0
10.3
12.6
8.8
8.9
10.3
10.8
11.0
14.6
IBRD DS/XGS
IBRD TDO (US$m)d
0.5
782
0.5
851
0.5
809
0.5
969
0.4
1101
0.4
1128
0.5
1138
0.5
947
0.5
913
0.5
873
0.5
1262
0.4
1294
0.4
1321
a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net shortterm capital.
b. "XGS" denotes exports of goods and services, including workers' remittances.
c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the
Bank for International Settlements.
d. Includes present value of guarantees.
e. Includes equity and quasi-equity types of both loan and equity instruments.
Annex B8
Page 1 of 2
CAS Annex B8 - Croatia
Operations Portfolio (IBRD/IDA and Grants)
Closed Projects
19
IBRD/IDA *
Total Disbursed (Active)
of which has been repaid
Total Disbursed (Closed)
of which has been repaid
Total Disbursed (Active + Closed)
of which has been repaid
182.90
14.34
1,092.22
333.24
1,275.12
347.59
Total Undisbursed (Active)
493.41
Total Undisbursed (Closed)
0.52
Total Undisbursed (Active + Closed)
493.93
Active Projects
Difference Between
Last PSR
Expected and Actual
Supervision Rating
Development
Objectives
Project ID
Project Name
P091715
P065416
P095389
P086671
P079978
P071461
P042014
P043444
P063546
P067149
P071464
P043195
P080258
P076730
P069937
P093767
AGRIC ACQUIS COHESION
#
COAST CITIES POLLUT'N CONTROL
S (APL #1)
District Heating Project
#
EDUC SECTOR DEV PROGRAM (CRL)
MS
ENERGY EFF
S
ENERGY EFF (GEF)
MS
KARST ECOSYS CONSV (GEF)
S
MUN ENV INFRA
MS
PENSION SYS INVST
S
REAL PROP REG & CADASTRE S
RENEW ENERGY RES (GEF)
S
RIJEKA GATEWAY
S
SCI & TECH
MS
SOC & ECON REC
MS
SOC WELF DEVT
S
TRADE & TRANS INTEG
#
Overall Result
Disbursements a/
Original Amount in US$ Millions
Implementation
Progress
Fiscal Year
IBRD
#
S
#
MS
MS
MS
S
MS
S
S
S
S
MS
MS
S
#
2006
2004
2006
2006
2004
2004
2002
1998
2003
2003
2005
2004
2006
2005
2005
2007
30.1
47.5
29.8
85.0
5.0
GRANT
7.0
5.1
36.3
27.3
25.7
5.5
156.5
40.0
45.7
40.0
75.3
644.3
17.6
Cancel.
Undisb.
Orig.
33.0
42.9
31.4
80.4
4.9
5.5
1.2
11.8
13.0
15.2
5.0
65.9
39.0
40.4
38.4
77.0
36.1
0.0
9.7
3.0
3.8
0.5
10.2
13.0
0.2
-0.1
33.1
3.5
7.5
3.2
505.1
123.6
Annex B8
Page 2 of 2
CAS Annex B8 (IFC) for Croatia
Croatia
Statement of IFC's
Committed and Outstanding Portfolio
As of 02/28/2007
(In US Dollars Millions)
Committed
Approval FiscalCompany
Year
1973/81/98/02 Belisce
2006
Belje
1999
Croatia Capital
1999/ 2002 E&S Bank
2005
PBZ
2004
Schwarz Group
2000
Viktor Lenac
Total Portfolio:
Outstanding
Loan Equity Quasi Partic Loan Equity Partic
15.6
6.0
0.0
8.5
15.6
6.0
8.5
52.6
0.0
0.0
0.0
52.6
0.0
0.0
0.0
2.3
0.0
0.0
0.0
2.0
0.0
19.3
0.0
0.0
0.0
19.3
0.0
0.0
98.7
0.0
0.0
0.0
98.7
0.0
0.0
47.7
0.0
0.0
0.0
47.7
0.0
0.0
0.1
0.0
0.0
0.0
0.1
0.0
0.0
233.9
8.3
0.0
8.5 233.9
8.0
8.5
Annex B9
Page 1 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
I.
CAS Outcomes
Milestones
Progress Against Milestones
WBG CAS Program and
Partners
COUNTRY DEVELOPMENT GOAL: MACROECONOMIC SUSTAINABILITY
Unsustainable
levels of public
spending

Fiscally sustainable
public wage bill

Rationalization of government
administration


Fiscally sustainable
level of subsidies to
public and state-owned
enterprises

Implementation of plan to reduce
enterprise subsidies from US$980
million in 2003 to US$850-900
million in 2006 and US$760
million in 2008

Adoption and implementation of a
Railways Restructuring and
Modernization Strategy agreed
with the Bank



Steady reduction in HZ working
ratio from 240 percent in 2003 to
150 –170 percent in 2008

Government prepared new Decrees on
Organizational Setting for county offices
and the Ministry of Health and Social
Welfare, aimed at the rationalization of
staffing based on functional review results.
The 2005 enterprise subsidies were at 2.77
percent of GDP as per the Subsidies
Reduction Plan. The 2006 target at 2.44
percent of GDP was reached. The overall
level was reduced to USD 902.2 million (at
2003 US$ exchange rate).
Strategy adopted under PAL I but regarding
implementation, Bank has provided
extensive comments on HZ’s subsequent
mid-term 2006-2010 Business Plan,
including on its proposed heavy investment
in railways. The Bank’s comments will
likely be taken into account in the National
Railways Infrastructure Program, currently
under preparation. HZ is also
implementing a Local Lines Rationalization
Program as agreed with the Bank.
The working ratio was reduced from 243
percent at end-2004 to 190 percent in
December 2006. In addition, HZ met the
staff retrenchment target of 2006 of 501
staff leaving the company. Measures to
reach 170 percent target in 2007 agreed
with HZ and the Government.
Lending:
 PALs I-III
 Sustainable Health Systems
 Pension System Investment
 Railways Modernization and
Restructuring
AAA:
 Public Finance Review
 EU Convergence Study
 Private Sector Participation
Options in Roads (PPIAF)
 Railways Policy Note
 Health Policy Note/
Workshop
Partners:
 EU
 SIDA
 DFID
 EBRD
Annex B9
Page 2 of 15
Issues and
Obstacles
CAS Outcomes

Fiscally sustainable
road sector investment
Milestones
Progress Against Milestones

Adoption of a Highway Network
Expenditure and Financing
Strategy agreed with the Bank

Program for Construction and Maintenance
of Public Roads 2005-2008 agreed with the
Bank adopted by the Government in
January 2005.

Reduction in total spending in the
roads sector, and increase in the
share of maintenance and
rehabilitation expenditure
consistent with the agreed
Highway Network Expenditure
and Financing Strategy

Total roads expenditures in 2005 and 2006
were significantly lower (19 percent and 20
percent lower, respectively) than 2004
(beginning of CAS period); and while the
share of maintenance and rehabilitation in
2005 and 2006 (27 percent and 28 percent,
respectively) was below the 2004 share of
30 percent, it is projected to increase to 35
percent in 2007 and 38 percent in 2008.

Fiscally sustainable
health sector
expenditure

Steady reduction in prescription
drugs’ share of HZZO’s total
expenditure, from 21 percent in
2003 to 17 percent in 2008

Stagnation in prescription drugs’ share of
HZZO’s total expenditure, at 21 percent in
2003 to 2006

Rationalized cash
social benefits

Consolidation of cash social
benefits programs and reduction in
share of GDP

Medium-term social benefit expenditure
data show a decline in overall social
spending from 4.1 percent of GDP in 2004
to 3.9 percent of GDP in 2005 and 3.8
percent in 2006. Share of best-targeted and
means-tested social support allowance has
stagnated (0.395 percent of GDP in 2005
vs. 0.387 percent of GDP in 2004). The
reform strategy that seeks consolidation of
benefits was adopted on April 12, 2007.
However, the National Population Policy
adopted in September 2006, which is
inconsistent with the reform strategy, is
projected to increase social benefit
spending by net 0.2 percent of GDP in
2007.
WBG CAS Program and
Partners
Annex B9
Page 3 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
Weak public
expenditure
management
CAS Outcomes

Strengthened budget
management and
execution capacity
Milestones

Implementation of forthcoming
Public Finance Review
recommendations
Progress Against Milestones



Weak debt
management


Sustainable level of
external debt
Management of
currency risk

Development and implementation
of a debt management strategy


Strengthening of debt management
office’s capacity in Ministry of

WBG CAS Program and
Partners
Single Treasury Account: Starting with
January 1st, 2006, the coverage of the
Single Treasury Account has been
expanded to include the two roads
companies (Croatian Roads - HC and
Croatian Motorways- HAC). The additional
accounts of the majority of ministries and
other public administration bodies were
closed by June 2006, while for other
budgetary users they were closed by
January 1, 2007. This will contribute to the
strengthening of the control framework
related to state treasury.
State budget: Starting with 2006, the state
budget has expanded coverage (included
also lottery revenues, road charges, own
revenues of budgetary users, revenues
under special regulations, EU grants). With
2007, the state budget also incorporated the
social security funds, which will increase
the transparency and will contribute to
better control on budget execution.
Draft Public Finance Review has been
internally reviewed and is to be discussed
with Government in mid-May 2007 (FY07
delivery).
Lending:
 PALs I-III
Medium-term debt management strategy
approved by the Government and being
implemented
Debt management office in the Ministry of
Finance split into back, middle and front
AAA:
 Joint World Bank/IMF Public
Debt Management and
Domestic Debt Market
Development Program
AAA:
 Public Finance Review
 Decentralization Policy
Note/Workshop
Trust Fund:
 IDF Grant for Strengthening
Budget Management
Partners:
 EU
 SIDA
 DFID
Annex B9
Page 4 of 15
Issues and
Obstacles
CAS Outcomes

Milestones
Progress Against Milestones
Finance
Management of
rollover risk
office; EC provided assistance for
strengthening capacity
WBG CAS Program and
Partners

FSAP
Partner:
 IMF
II.
COUNTRY DEVELOPMENT GOAL: SUSTAINABLE PRIVATE SECTOR-LED GROWTH
Inefficient and
loss-making
enterprise
sector

Enforcement of
financial discipline and
competitive conditions
in enterprise sector

Progress toward divestiture by
end-2006 of 600-800 SOEs held
by CPF, and 1,130 SOEs by end2008
Progress toward divestiture of half
of the asset value of 10
subsidiaries of Croatian Railways
by end-2006, and completion of
divestiture in 2008

State shares in 838 enterprises were
privatized or liquidated between 2004 and
January 2007.


Implementation of plan to reduce
enterprise subsidies from US$980
million in 2003 to US$850-900
million in 2006 and US$760
million in 2008

HZ entered into contracts with Croatian
Privatization Fund (CPF) over privatization
of the first three subsidiaries on February
17, 2006. Parliament approved an
exemption of subsidiaries’ assets from the
public domain in mid-January 2007. HZ
submitted to CPF documentation for
privatization of three daughter companies,
and CPF issued the tender on March 31,
2007.
The 2005 enterprise subsidies were at 2.77
percent of GDP as per the Subsidies
Reduction Plan. In 2006, subsidies were at
2.33 percent of GDP. The overall level was
reduced to US$ 867 million (at 2003 US$
exchange rate).

Establishment of autonomous and
functional transmission system
operator (TSO)
Establishment of autonomous and
functional distribution system
operator(s) (DSO)
Liberalization of electricity market
in accordance with Athens



Energy infrastructure
linked to EU market



As required in the Energy Market Act, from
2004 HEP has established four new
companies: TSO, DSO, Market Operator
(HROTE) and HEP Supply. The TSO,
DSO and Supply remain part of HEP (legal
and functional unbundling).
Gradual liberalization of energy market
continues according to schedule defined in
Lending:
 PALs I-III
 Energy/Environment
AAA:
 Public Finance Review
 EU Convergence Study
 Railways Policy Note
 Sources of Growth Workshop
 Energy Reforms and Regional
Integration
 Shipyards SOE Restructuring
Poverty and Social Impact
Assessment (PSIA)
IFC:
 Loans for post-privatization
restructuring in tourism,
agribusiness, retail, and
construction and construction
material sectors
 PEP-SE Infrastructure to
facilitate PPP
Partners:
 EU
 EBRD
 Austria
Annex B9
Page 5 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
Memorandum on South East
Europe Regional Energy Market

Private participation in power
generation infrastructure



Modernized district heating system


High cost of
doing business
and
uncompetitive
investment
climate

Significant reduction in
administrative and
regulatory barriers and
processing time

Enactment of amendments to the
Laws on Physical Planning,
Construction, and Utility Services


Market-oriented R&D
system

Reform of R&D institutes

Energy Market Act. Treaty establishing
Energy Community became effective in
July 2006, and market is liberalized for all
Croatia customers with annual consumption
> 9 GWh.
No private participation in power
generation infrastructure
The Law on Production, Distribution and
Supply of Thermal Energy adopted in
March 2005.
District heating tariff methodology,
including cost recovery tariffs, put in place
in 2006.
District Heating Strategy with policy and
institutional reforms adopted by the
Government in May 2006.
MEPPPC prepared draft of the new unified
law on spatial planning and construction at
end-March 2007.
After a slow start, some progress: Science
and Technology Action Plan completed and
to be adopted by Government in first half of
2007; Brodarski Institute’s restructuring has
started but is progressing more slowly than
expected due to internal difficulties; RBI's
company Rudjer Innovations established
and staffed and preparing launch of its
business operations; BICRO’s subfinancing business programs officially
launched in February 2007; and Unity
Through Knowledge Fund’s programs,
financing activities involving Croatian
WBG CAS Program and
Partners





Italy
The Netherlands
Norway
Switzerland
USA
Lending:
 PALs I-III
 Science and Technology
 Trade and Transport
Integration
 Rijeka Gateway I-II
 Trade and Transport in South
East Europe
 Real Property Registration
and Cadastre
 TA for Institutional and
Regulatory Reform for PSD
AAA:
 EU Convergence Study
 FSAP
 ROSC Accounting and
Auditing Update
Annex B9
Page 6 of 15
Issues and
Obstacles
CAS Outcomes

Increase in volume of
transit trade
Milestones

Strengthened inter-modal
connectivity of Rijeka Gateway to
Northeast Corridor and of the Port
of Ploce to Corridor Vc.
Progress Against Milestones

WBG CAS Program and
Partners
diaspora, expected to be launched in Spring
2007.


Widening of Eastern Rijeka bypass
completed; construction of Eastern Rijeka
access half-completed; Trade and Transport
Integration Project due to become effective
in Spring 2007.

ROSC Corporate Governance
Cost of Doing Business Policy
Note/Workshop
Sources of Growth Workshop
Trust Fund:
 IDF for Enhancing Corporate
Financial Reporting
IFC:
 Assistance to local companies
to enhance their regional
competitiveness
 PEP-SE Infrastructure to
facilitate PPP
 In financial sector, structured
finance products, leasing, and
support to non-Bank financial
institutions
 FIAS to reduce the cost of
doing business
Inefficient
public
administration

Reduction in public
wage bill’s share from
11 to 9.5 percent of
GDP by 2008

Enactment of Civil Service Law
and implementation of merit-based
hiring and pay system

Civil Service Law satisfactory to the Bank
enacted by Parliament on July 15, 2005.
Depoliticization of public administration
reflected in amendments of the Laws on
Transfer of Power, Government Officials,
Partners:
 EU
 EBRD
 Austria
 Italy
 The Netherlands
 Norway
 Switzerland
 USA
Lending:
 PALs I-III
 Judicial Reform
 Education Sector
Development
Annex B9
Page 7 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes




Milestones
Progress Against Milestones
Increased public
satisfaction with
transparency,
accountability, and
efficiency of civil
servants based on
surveys

Rationalization of government
administration

Majority of legislative
proposals to parliament
with a robust socioeconomic analysis

Strengthening of the policymaking process

Revenue administration
modernization program
under way, with early
indications of enhanced
voluntary taxpayer
compliance

Public financial
management systems
and controls and public
procurement

Consolidation of database
structure and revenue
administration capacity building
activities launched

Steady progress in implementation
of upgrading national fiduciary
systems agreed with the Bank for
alignment with the EU


and Conflict of Interest by mid-February
2007, while the amendments to the Law on
Systems of State Administration will be
adopted by early May 2007. HR
management units created in all line
ministries and administrative units
employing more than 50 staff. Civil
Service Salaries Law and decree on job
classification system drafted.
Government prepared new Decrees on
Organizational Setting for county offices
and one for the Ministry of Health and
Social Welfare, aimed at the rationalization
of staffing based on functional review
results.
Fiscal impact assessment implemented, and
methodologies for social, regulatory, and
environmental impact assessment prepared
and piloted (WB, UNDP, FIAS/USAID and
EC were providing technical assistance).
Social impact assessment adopted by
Government on April 5, 2007.
Preparation of Revenue Administration
Modernization Project launched.
The Croatian Tax Administration begins to
adopt a strategic framework for a long-term
tax modernization.
Public procurement: Croatia's initial plan to
adopt a new public procurement law by
end-2006 to finalize alignment of the
national public procurement system with
WBG CAS Program and
Partners




Sustainable Health Systems
Revenue Administration
Modernization
Energy/Environment
Court and Bankruptcy
AAA:
 Public Finance Review
 EU Convergence Study
 Decentralization Policy
Note/Workshop
 Fiduciary Country Systems
Development TA/IFA
Trust Fund:
 IDF for Monitoring Judicial
Efficiency
Partners:
 EU
 SIDA
 DFID
 USAID
Annex B9
Page 8 of 15
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
procedures aligned
with EU standards



Inefficient
judicial
system

50 percent reduction in
court case backlogs

Rationalization of the court
system, including restructuring of
responsibility for land registration

WBG CAS Program and
Partners
the EU acquis was delayed. Current target
is 2008. Subsequently, development of
implementing regulations, templates of
standard tender documents, and
development of e-procurement has been rescheduled for until the adoption of the new
law. Aside from the time factor, the country
is on the right track. The institutional
capacity of the public procurement office
and the State Commission has been
strengthened with assistance from the EU,
and both became the leaders of
procurement reform in Croatia.
Internal audit: Internal audit units were
established in all line ministries, reporting
directly to respective minister. Ministry of
Finance has developed a system of
education and certification of internal
auditors in public sector. Some internal
audit units benefited from twinning
programs with UK (e.g., Ministry of
Education).
Single Treasury Account: see page 3 of
Annex B9.
State budget: see page 3 of Annex B9.
Government reform strategy for the judicial
system and an action plan approved in July
2005. A working group on court system
rationalization has been established, and the
rationalization plan will be done in phases.
A rationalization plan for commercial and
county courts was prepared by end-2006,
and by April 2007 plans for municipal and
misdemeanor courts will be done. Mergers
of misdemeanor and municipal courts have
Lending:
 PALs I-III
 Judicial Reform
 Court and Bankruptcy
AAA:
 EU Convergence Study
 Judicial Reform Policy
Note/Workshop
Annex B9
Page 9 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
begun on pilot basis. Responsibility for
land registry decisions has been delegated
from judges to authorized clerks; more than
100 have taken the licensing exam.

Acceleration of court proceedings




Greater accountability
and professionalism of
judges

Strengthening of evaluation
system for judicial performance

Commercial registration simplified and
transferred to court clerks. Law on State
Electoral Commissions enacted in July
2006; relieved some judges from electoral
supervision tasks. Amendments to the
Enforcement Act transferring enforcement
to public notaries enacted in July 2005.
Ministry of Justice adopted new caseload
rates per judge. The backlog has been
reduced by 29 percent.
Modernization of courthouses planned with
support from Judicial Reform Project,
preparation of which has been launched.
The Integrated Case Management System
(ICMS) is fully developed and is being
installed in the courts with the largest
caseloads.
New methodology and system of collecting
and analyzing judicial statistics and data
has been developed and put in place; new
workload rates for judges have been
developed; Supreme Court has designed a
special system of monitoring of cases with
extended delays; new system of judicial
inspectors was introduced through
amendments to the Law on Courts.
WBG CAS Program and
Partners
Trust Fund:
 IDF for Monitoring Judicial
Efficiency
Partners:
 EU
 UK
 The Netherlands
 Germany
Annex B9
Page 10 of 15
Issues and
Obstacles
CAS Outcomes
Milestones

III.
Outdated
education
system

Judicial Academy has been revising the
curriculum and adding some new courses
for judges, with support from EU
WBG CAS Program and
Partners
COUNTRY DEVELOPMENT GOAL: BROAD PARTICIPATION IN GROWTH




Inefficient
social
assistance
system
Reform of training curriculum for
judges
Progress Against Milestones


Increase in secondary
education completion
rate from 78 percent in
2003 to 85 percent in
2008
Vocational schools
accounting for about
half of secondary
school enrollment
Decrease in proportion
of pupils studying in
multi-shift schools
from 90 percent to 50
percent
Student assessment
results in line with
international
comparators
Sustained increase in
labor force
participation rate from
50.2 percent in 2003

Modernization of curriculum

Nation-wide roll-out of Croatian National
Standards in primary education in 2006 as
the core element of curriculum reform

Introduction of external secondary
school leaving examinations

Introduction of national exams (all 9th
graders took national exam in 2006, i.e.
13,400 students)

Introduction of a professional
development system for teachers
and school principals

Some progress re. introduction of
professional development system for
teachers and school principals: Training for
new curriculum (for all primary teachers),
planned ESDP workshops on teacher and
principals training for 2007 focusing on the
development of a comprehensive
professional development system

Improved targeting through
means-testing for increased share
of social benefits

Medium-term social benefit expenditure
data show a small decline in overall social
spending to 3.9 percent of GDP in 2005 and
3.8 percent estimated for 2006. Share of
best-targeted and means-tested social
support allowance increased from 0.387
percent of GDP in 2004 to 0.395 percent of
GDP in 2005.
Some reduction in
poverty rates, absolute
(11.1 percent in 2001)

Mitigation of labor dislocation
resulting from SOE divestiture and
civil service rationalization

FY06 Poverty and Social Impact
Assessment (PSIA) examined expected
social impact of proposed SOE
Lending:
 Education Sector
Development
AAA:
 Education Policy Workshops
 Fiduciary Country Systems
Development TA/IFA
Lending:
 PALs I-III
 Revenue Administration
Modernization
 Social Welfare Development
 Pension System Investment
AAA:
 Living Standards Assessment
 Public Finance Review
Partner:
 EU
Annex B9
Page 11 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
and relative (16.9
percent in 2003)
Lagging
health
outcomes
Regional
disparities


Improved quality of
and access to health
care services
Rehabilitation of areas
affected by closure of
large enterprises

Steady progress toward increase in
share of primary health care
expenditure in total health
spending from around 16 percent
in 2003 to 18 percent in 2006 and
20 percent in 2008

restructuring of Brodotrogir and Kraljevica
shipyards. Using stakeholder and social
impact analyses to assess winners and
losers of proposed policies, and preferences
and priorities of workers and their possible
coping mechanisms.
According to the last PFR, the share of
spending devoted to primary health care
was 19 percent in 2004 (HZZO latest
available data) and was increased to 20
percent in 2005. Some of the new actions
added to the PAL II trigger could contribute
to shifting resources to the primary care
sector, specifically the implementation of
the initial DRG pilot and the initiation of
the first phase of hospital master planning.

Steady roll-out of performancebased contracts to 80 percent of
general practitioners by 2008

A small percentage of all GPs now comes
from performance-based contracts

Expansion of disease prevention
and public awareness programs
Implementation of regional
development strategy for
economically depressed areas in
line with EU requirements

Spending on public health remains
relatively modest
Diagnostic analysis of regional disparities
related to poverty and social indicators
completed.
The Regional Development Strategy
completed but not yet implemented.
A Law for Regional Development has been
drafted but awaits approval.
Integrated framework for National Strategy
for Regional Development (NSRD) 2007-





WBG CAS Program and
Partners
Lending:
 Sustainable Health Systems
 Health System
AAA:
 Health Policy Note/Workshop
Partner:
 DFID
Lending:
 Social and Economic
Recovery
 Agricultural Acquis Cohesion
 Education System
Development
 Inland Waters
 Coastal Cities Water Pollution
Control I-II
Annex B9
Page 12 of 15
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
2013 approved by inter-ministerial
coordination group in 2005. The principal
goal of the NSRD is to enable all parts of
the country to contribute to sustainable
national development and competitiveness,
and to reduce social and economic
disparities across the country. Three main
programs envisaged to achieve these
objectives: (i) a county and wider region
development program; (ii) a disadvantaged
areas development program; (iii) a crossborder and interregional cooperation
program.

Rehabilitation of
“disadvantaged and
war-affected areas”

Local capacity building to
implement regional development
strategy and absorb EC structural
funds for infrastructure,
environmental investment, and
economic diversification

Initial focus of government activities has
been on developing capacity at the countylevel to prepare and implement Regional
Operational Programs (ROPS). Living
Standards Assessment and Regional
Development study provided inputs to the
strategy formulation process by shedding
more light on regional disparities at the
county-level, and compiling a variety of
development indicators from diverse data
sources. Considerable progress in local
capacity building to absorb available EU
funds for regional development in 8 waraffected counties. The remaining counties
of Croatia are still at a very initial stage of
capacity for regional development
implementation, with the exception of some
wealthier counties such as Istria

Mine clearing in war-affected
areas and resolution of property
and social reintegration issues to
facilitate completion of refugee

Still 1100 square km to be demined; 300 sq
km are in areas relevant for
safety, socio - economic development and
WBG CAS Program and
Partners

Reconstruction Project for
Eastern Slavonia, Baranja,
and Western Srijem
AAA:
 Living Standards Assessment
 Shipyards SOE Restructuring
Poverty and Social Impact
Assessment (PSIA)
Partners:
 EU
 The Netherlands
 NGOs
Annex B9
Page 13 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes
Milestones
Progress Against Milestones
returns

IV.
Steady progress toward
more competitive
agriculture sector
aligned with EU acquis
communautaire
WBG CAS Program and
Partners
environment; during 1995-2006 only 290 sq
km were demined; Croatia’s target of
completion of demining by 2010 not likely
to be met.

Program focusing on areas of special state
concern, including de-mining in some
places, launched.

Improved targeting of agriculture
subsidies

Progress in alignment of legislation with
EU Agriculture acquis

Capacity building of Food Safety
Agency and agriculture extension
service

Capacity building of the Food Agency and
agriculture extension service initiated.
COUNTRY DEVELOPMENT GOAL: SUSTAINABLE NATURAL RESOURCE MANAGEMENT
Weak
environmental
management
capacity



Strengthened
legislative and
regulatory framework
Strengthened
institutional capacity at
national and local
levels
Strengthened technical
capacity for monitoring
and enforcement





Investment in environment
ministry staff training and
certification programs
Investment in networked
information systems
Investment in monitoring
equipment
Public-private partnerships in
waste management
Introduction of public awareness
programs





Screening of Environment Chapter
completed with EU to identify outstanding
issues
Awareness raising discussions on
environment capacity needs
Good progress in data management system
and monitoring equipment for Nature
Protection
Government has established an initial
program with the Environment and Energy
Efficiency Fund to help address pollution
hotspots/ contaminated sites.
Alignment to waste packaging legislation
and introduction of bottle return program.
Lending:
 Inland Waters
 Coastal Cities Pollution
Control I-II
 Energy/Environment
GEF:
 Agriculture Pollution Control
 Karst Ecosystem
Conservation
AAA:
 Environment TA
Annex B9
Page 14 of 15
Issues and
Obstacles
Inadequate
wastewater
management
and water
supply
CAS Outcomes


Energy
inefficiency

Milestones
Reduced water
pollution levels in
coastal areas near
Bank-financed project
sites

Increase in connections
to public water supply
and wastewater
treatment and sewage
in small municipalities

Progress toward
fulfillment of
international
obligations under the
Kyoto Protocol to
reduce greenhouse gas
emissions





Progress Against Milestones
Upgrading of aging wastewater
treatment plants to EU
environmental standards
Rehabilitation of water supply
infrastructure

Improved efficiency of water
utilities
Additional services to be provided
to population living in small
municipalities: from 63 percent to
66 percent for water; from 26
percent to 30 percent for sewage
connection; and from 10 percent to
15 percent for wastewater
treatment
Development of strategy for
meeting Kyoto Protocol
commitments, including use of
Kyoto flexibility mechanisms


Croatia is expected to ratify the Kyoto
Protocol in the beginning of 2007 after
having clarified baseline numbers with the
UNCCCF. After this Croatia will be able to
implement Joint Implementation projects.
Commercial development,
financing, and implementation of
energy efficiency projects by
engaging local firms as suppliers

Development of national policy
framework for renewable energy

After establishment of Croatia’s first fullfledged ESCO operation (HEP ESCO) a
method of sourcing commercial
development financing for energy
efficiency projects has been successfully
pioneered and local firms are engaged as
suppliers
Croatia’s Energy Law creates a framework
for development of renewable energy (RE)


Water Strategy drafted by Government, that
outlines improvements in the sector
Split wastewater treatment plan completed
and operational, benefiting about 250,000
people and improving the local
environment and wastewater discharge to
the Adriatic Sea
Municipalities with Croatian Waters are
implementing the annual investment plans
resulting in increase in population served
with water supply and wastewater services
(data for many dispersed, small
municipalities difficult to obtain)
Start of negotiations with the EU led to
ISPA financing activities (wastewater
treatment plant in Karlovac)
WBG CAS Program and
Partners
Partners:
 EU
 The Netherlands
Lending:
 Inland Waters
 Coastal Cities Pollution
Control I-II
 Municipal Environmental
Infrastructure
 Reconstruction Project for
Eastern Slavonia, Baranja,
and Western Srijem
GEF:

Neretva & Trebisnjica River
Basin Management
Partners :
 EU
 The Netherlands
 EBRD
Lending:
 Energy/Environment
 Energy Efficiency
 District Heating
GEF:
 Renewable Energy Resources
 Energy Efficiency
AAA:
 Energy Reforms and Regional
Integration
 Environment TA
 Energy Workshop
Partners :
Annex B9
Page 15 of 15
CROATIA: WORLD BANK GROUP COUNTRY ASSISTANCE STRATEGY
RESULTS MATRIX
Issues and
Obstacles
CAS Outcomes
Milestones

Creation of an equity finance
facility for renewable energy
investments
Progress Against Milestones

investments. However, the secondary
legislation which will establish feed-in
tariffs for a number of RE technologies has
still not been implemented (it is now
expected by end of December 2006).
There are several private equity facility
available on the Croatian RE market. The
WB and GEF therefore decided to change
their planned RE equity finance facility to a
contingent loan facility for RE project
preparation. This facility is being
implemented by HBOR.
WBG CAS Program and
Partners


EU
UNDP
Annex C1
Page 1 of 3
PROGRESS TOWARDS CAS OUTCOMES AND MILESTONES
EU Accession
1.
In November 2006 the European Commission issued its Croatia 2006 Progress Report
on Croatia’s performance in meeting political and economic criteria for EU membership. The
report stressed that Croatia needs to strengthen efforts in judicial, economic, and public
administration reform, and in combating corruption. It concluded that while Croatia can be regarded
as a functioning market economy, its macroeconomic stability is still at risk, implementation of
structural reform has been slow and state intervention in the economy and subsidies to loss-making
enterprises continue to be significant. Serious, sustained efforts will be needed on free movement of
capital, competition policy, public procurement, agriculture, the judiciary, environment, state aid, and
real estate markets.
Country Development Goals and MDGs
2.
Within the CAS results framework Croatia’s progress at the country level has been
strong. The framework includes four key country-level indicators to track progress against each of
the four country development goals. (See Table A.) Successes include a reduction in public and
publicly guaranteed debt as a share of GDP from 51.1 percent at end-2003 to 49.6 percent in
December 2006, outperforming the CAS goal of 51 percent; and FDI inflows in 2006 at 7.8 percent
of GDP, well above the CAS goal of 3.8 percent. Although the 2006 data is not yet confirmed, as
stated in the EU’s Croatia 2006 Progress Report, there is some evidence from available data (e.g.,
national accounts) that the private sector’s share of GDP has risen from 60 percent, possibly to 69
percent. On the other hand, inflation has thus far slightly exceeded the CAS goal of below 3 percent,
and the employed share of the working-age population has not increased. But overall progress
against the 16 country-level indicators has been quite strong, with eight of them exceeded or on
track, and progress against another five delayed but with a good trend and prospect of acceleration
with the momentum of Croatia’s EU accession agenda.
3.
Starting from a strong position vis-à-vis the Millennium Development Goals (MDGs) at
the beginning of the CAS period, Croatia has continued to make further progress, with
achievement of nearly all MDGs considered likely. For the three out of 14 MDG indicators that
show a deterioration since the beginning of the CAS period, the accuracy of the estimates at the time
of the CAS are now considered questionable, such that in all likelihood, Croatia has made progress
against all 14 MDGs since the beginning of the CAS period. (See Table B.)
4.
There has been progress in nearly all areas relative to the milestones in the CAS Results
Matrix, especially those supported by the PAL program. In those areas supported by investment
lending only, progress has been slower than anticipated in the CAS due to delayed implementation
(see paras. 4-5 in Annex C2), stemming mainly from institutional capacity constraints and systemic
loan effectiveness delays. CAS outcomes and milestones in the CAS Results Matrix have been
modified somewhat to take account of: (i) the addition of the Revenue Administration
Modernization Loan and the Judicial Reform Loan to the Bank program; (ii) the changed focus of the
Trade and Transport Integration loan (to the Port of Ploce); (iii) the decision to focus the Bank’s
lending for the water sector on small municipalities; (iv) the dropping of two GEF operations (see
para. 1 in Annex C2); and (v) IFC’s launch of PEP-SE Infrastructure. Although three IBRD
operations have been dropped, this did not require changes to the matrix for the following reasons:
(i) Regional Economic Rehabilitation – CAS outcomes and milestones also pertain to the ongoing
Social and Economic Recovery Loan; (ii) Growth Policy Support – post-PAL reforms were not yet
identified at the time of the CAS, such that effectively the CAS outcomes and milestones did not go
beyond PAL III; and (iii) Transport Sector Development – although the Government has chosen not
Annex C1
Page 2 of 3
Table A: Progress Against Achievement of Croatia CAS Country Development Goals
MACROECONOMIC
SUSTAINABILITY
Key CountryLevel
Indicators
 Annual
inflation rate
held below 3
percent
during CAS
period
Progress Against
Key Country-Level
Indicators
 NOT MET:
Annual inflation
at 3.3 percent in
2005 and at 3.2
percent in 2006
 Reduction of
public and
publicly
guaranteed
debt from 54
percent to 51
percent of
GDP by 2008
 EXCEEDED:
Public and
publicly
guaranteed debt
at 52.3 percent
in 2005 and at
49.5 percent in
December 2006
 Reduction of
primary fiscal
deficit from
3.7 percent to
below 0.4
percent of
GDP by 2008
 ON TRACK:
Primary fiscal
deficit at 1.6
percent of GDP
in 2005 and
primary surplus
of 0.5 percent in
JanuaryNovember 2006
 Reduction of
government
expenditure
from 50.5
percent of
GDP in 2003
to below 45
percent of
GDP by 2008
 DELAYED
BUT RIGHT
TREND:
Reduction of
government
expenditure at
48.8 percent of
GDP in 2005
and estimated at
48.4 percent of
GDP in 2006
SUSTAINABLE PRIVATE SECTORLED GROWTH
Key CountryLevel Indicators

Average
annual real
GDP growth
of 4.0 percent
to 4.5 percent
during CAS
period

Increased
private sector
share of GDP
from 60
percent in
2003 to 70
percent by
2008


Progress Against
Key Country-Level
Indicators
 ON TRACK:
Average annual
real GDP growth
at 4.3 percent in
2005 and at 4.78
percent in 2006
 LIKELY
NEARLY
ACHIEVED BUT
NOT YET
CONFIRMED:
EU’s Croatia 2006
Progress Report
notes there is some
evidence (e.g.,
from national
accounts data) that
the private sector’s
share of GDP has
risen towards 69
percent.
Average total
factor
productivity of
6 percent
during CAS
period
 DELAYED BUT
CATCHING UP:
Average total
factor productivity
at 3.6 percent in
2005 and 5.6
percent in 2006
Average
annual inflows
of FDI at 3.8
percent of
GDP during
CAS period
 EXCEEDED:
Average annual
inflows of FDI at
4.0 percent of GDP
in 2005 and 7.8
percent in 2006.
BROAD PARTICIPATION IN GROWTH
Key Country-Level
Indicators
Progress Against Key Country-Level
Indicators
 Increase in adult
population with secondary
education from less than
40 percent in 2003 to 44
percent in 2008, and
decrease in tertiary
education net dropout rate
from 70 percent in 2003 to
50 percent in 2008

TOO EARLY TO SEE RESULTS:
Adult population with secondary
education expected to increase as
indirect result of WB-financed
Education Sector Development
Project (ESDP); tertiary education
(not covered by ESDP) drop-out rate
is related to structural problems in
higher education, for which some
reforms under way but more needed
 Student achievement at
competitive European level

ON TRACK: First PISA
participation in 2006 (93 percent
coverage of relevant student
population), report will be issued in
2007
 Sustained increase in
employed share of
working-age population,
including in
“disadvantaged and waraffected areas,” from
national level of 43 percent
in 2003

 Health outcomes
approaching those of EU
averages for infant and
maternal mortality rates
and incidence of TB

NOT MET: Employed share of
working-age population at 43.3
percent in 2005 and 42.6 percent in
the first half of 2006
ON TRACK: Incidence of TB down
from 31.6 to 26 during 2001-2005
now lower than many new member
states (e.g., Estonia and Latvia);
infant mortality low (decreased from
7.4 in 2000 to 5.7 in 2005 per 1000
live births), similar to levels in new
member states but slightly higher
than EU15; maternal mortality low at
7 deaths per 100,000 live births vs.
Czech Republic (8.1) and Slovenia
(11.2)
SUSTAINABLE NATURAL
RESOURCE MANAGEMENT
Key CountryLevel Indicators
Progress Against Key
Country-Level
Indicators
 DELAYED BUT
RIGHT TREND:
Good progress
toward alignment
with EU acquis on
environment
(especially on air,
water, nature
protection, chemicals
and GMOs), but
administrative
capacity weak

Sustained
progress
toward
alignment
with EU
acquis on
environment

Improved
water quality
in coastal
areas and
Croatian
Danube River
Basin

ON TRACK:
Croatia collaborating
with the EC and IFIs
to upgrade water
supply schemes and
treat more wastewater

Increased
water service
delivery
coverage

DELAYED BUT
WILL
ACCELERATE
DUE TO EU
PROCESS: Access
to safe water at 76
percent in 2004

Reduced
dependence
on fossil fuels

ON TRACK: Croatia
ratified Kyoto
Protocol in March
2007.
Annex C1
Page 3 of 3
to seek Bank financing for road maintenance and railways modernization, the milestones are being
met. (See Annex B9.)
Table B: Croatia and the Millennium Development Goals
MDG Goal
1990
Estimate at
Most
ECA
Prospects of
value
time of CAS
recent
Average
Meeting
2.0 (2004)
3.6 (2003)
Likely
..
Selected Indicators
1. Eradicate Extreme
Population below US$1/day (%)
estimate
..
2.0 (2001)
MDG
Poverty and Hunger
% Income or Consumption by Poorest 20%
..
8.3 (2001)
9.0 (2004)
2. Achieve Universal
Net primary enrollment ratio (%)
78.8
95.4 (2002)1
92.8 (2004)
..
Primary Education
Youth literacy rate (% 15-24)
99.6
99.8 (2002)
99.8 (2002)
99.2
3. Promote Gender
Ratio of girls to boys in primary/secondary
95.8
97.2 (2002)
96.5 (2004)
97 (2002)
Equality
education (%)
Ratio young literate females to males (%)
100.0
100.0 (2002) 1
92.4 (2002)
..
Under five mortality (per 1000)
12.5
8.7 (2002)
7.0(2005)
36 (2003)
Infant mortality (per 1000)
10.7
7.0 (2002)
5.7 (2005)
24.8
Immunization, measles (% under 12 months of
91.5
94.7 (2002)
97.8 (2005)
95.3
10.8
9.9 (2002)
7.0 (2005)
58 (2000)
Likely
Likely
4. Reduce Child Mortality
Likely
Likely
Likely
age)
5. Improve Maternal
Maternal mortality ratio (per 100,000 live
Health
births)
6. HIV/AIDS and TB
Prevalence of HIV, female (percent ages 15-24)
..
0.0 (2002)
0.0 (2005)
0.39 (2003)
Incidence of TB (per 100,000)
55
33 (2002)
26 (2005)
82 (2003)
7. Ensure environmental
Forest area as percent of total land area
31.5
35.1 (2002)
35.1 (2004)
38.3
sustainability
Access to improved water source (%
63
76 (2004)2
76 (2004)
90.9 (2002)
Maybe
population)
Note: Prospect categories are Likely, Maybe, Unlikely, or No Data. Assessment for ECA average is based on Achieving the Human
Development Goals in ECA (2003) Mini Atlas of Millennium Development Goals: Building a Better World (2005),World Bank, 2006 Little Green
Data Book. Data for Croatia is most recent from the WDI prepared for the Bank’s Development Economics Group and Croatian Bureau of
Statistics. The UNDP supported consultative process in Croatia may lead to a revised and more nationally based assessment.
1
Accuracy of this figure now considered questionable. For example, correct figure for net primary enrollment ratio for 2002 is
91.8 (source: CROSTAT).
2
Correction to estimate in original CAS.
Annex C2
Page 1 of 2
CAS PROGRAM DELIVERY AND PORTFOLIO MANAGEMENT
CAS Program Delivery
1.
With the exception of the delay in launch of the PAL program from FY05 to FY06,
delivery of the CAS base case program is essentially on track. While completion of PAL I prior
actions was delayed during FY05, Bank lending was limited to the low case volume of two
investment loans totaling US$ 85 million. With Board approval of PAL I in FY06, Croatia
essentially met the base case triggers. Lending volume was therefore increased in FY06 to approach
base case levels. FY05-FY06 lending consisted of seven operations totaling US$ 456 million,
slightly less than the FY05-FY06 CAS base case program of seven operations totaling US$ 529
million, on account of the delay in the PAL program. (See Table 2 in main text.) Of the four GEF
operations envisioned in the CAS, two have been dropped (Zagreb Municipal Nutrient Reduction and
Sustainable Land Management), and the CAS Results Matrix has been modified accordingly.
2.
Although the pace of progress has been uneven, the PAL program (which continues to
be the centerpiece of the CAS program) is ongoing, with completion of PAL II prior actions
completed in time for Board consideration of the operation in May 2007. Several mid-course
adjustments have been made to the PAL II program to take account of relative progress in several
reform areas, including (i) the addition of privatization of three large loss-makers to make up for
slower than expected progress in reducing social benefit spending as a percentage of GDP, and (ii) an
increase of US$ 47.4 million in the loan amount and splitting the loan into two tranches, both of
which are to take account of the addition (at the Government’s request) of completion of
privatization of at least three railways subsidiaries and Uljanik Shipyard, as well as adoption of a new
job classification system for the civil service and enactment of the new Civil Service Salaries Law.
3.
As of February 2007, IFC’s committed portfolio was US$ 242 million allocated in the
financial markets (49 percent), general manufacturing (28 percent), agribusiness (22 percent),
and private equity funds (1 percent). (See Annex B8 – IFC.) During December 2004 – December
2006, IFC committed about US$ 150 million in projects in Croatia (see Annex B3 - IFC) and about
US$ 80 million in South East Europe (SEE) regional projects, including Croatia:

US$ 49 million loan to the large food and retail group, Agrokor, for post-privatization
investments in two meat production and processing companies, PIK Vrbovec and Belje;

US$ 99.4 million loan to Privredna Banka Zagreb, the second largest commercial bank in
Croatia, to enhance its long-term lending to retail mortgage customers and small
enterprises;

US$ 51 million to Mercator, the largest retailer in Slovenia, to support its expansion
program in South East Europe, including in Croatia; and

US$ 28 million to GED Fund and 7L Capital, two equity funds investing in SMEs in the
South East Europe region, including in Croatia.
Annex C2
Page 2 of 2
World Bank Portfolio Management
4.
The operations portfolio is composed of 15 active projects with total commitment value
of $661.8 million11 and an undisbursed balance of $507.6 million. (See Annex B8 – IBRD.) A
joint and proactive program between the Government and the Bank, initiated in 2004, reversed a
deteriorating portfolio quality trend signaled in the Bank’s FY04 Annual Review of Portfolio
Performance.12 (See Annex B2.) This collaborative approach, known as the Joint Portfolio Review
(JPR), was further strengthened in March 2006 when the Ministry of Finance took the lead in
portfolio monitoring by introducing a systematic review of all IFI portfolios for Government
consideration at the end of the first quarter of each year.
5.
In March 2007 the Bank introduced a more integrated approach that includes an
assessment of the loans and analytical work under preparation, as well as the portfolio. This
Quarterly CAS Implementation Progress Review (QPR) is aimed at sustaining a joint focus on CAS
implementation, with the objective of the achievement of CAS outcomes. Since the 2006 JPR, two
projects that were in problem status have been upgraded to satisfactory status as a result of agreed
corrective measures taken. The Bank and the Government also committed to work together on
addressing the issue of systemic delays in loan effectiveness and slow disbursements to ensure that
the investment loan portfolio remains generally healthy. Unfortunately, these systemic issues have
persisted over the past year, in part due to the large share of more recent loans in the portfolio which,
apart from repeater operations, have counterparts unfamiliar with Bank procedures which contributes
to a typically lower disbursement ratio than older loans, and in part due to mandated administrative
procedures related to authorization to negotiate loans (for which one month is mandated), and loan
approval by Government and ratification by Parliament. At the 2007 QPR it was agreed that these
issues would be addressed by: (i) the Bank’s sending draft loan packages earlier in the processing
cycle, when possible, as a basis for Government authorization to negotiate, in order to reduce the
delay in loan processing caused by the month required for such authorization; (ii) joint preparation by
the Bank and Ministry of Finance of a handbook, including templates, to expedite loan approval and
effectiveness, for use by new implementing agencies; and (iii) the Government’s making more use of
the PPF and retroactive financing instruments as well as bilateral grants, in order to jumpstart
implementation prior to loan effectiveness.
11
The operations portfolio numbers include three Global Environment Facility (GEF) Trust Fund projects: Karst Ecosystem
Conservation Project ($5.1 million), Energy Efficiency Project ($7 million), and Renewable Energy Resources Project ($5.5
million).
12 The ARPP listed the Croatia portfolio as one of the worst performers in the Bank with 37 percent of the Croatia commitments
at risk in June 2004.
Annex C3
Page 1 of 3
Planned FY07-FY08 IBRD and GEF Programs and Linkages to
EU’s Instrument for Pre-Accession Assistance (IPA)
Transition and Institution Building (IPA Component I)
1.
PAL II13 – This loan is the second in a series of three Programmatic Adjustment Loans
(PALs) which aim to support enhanced economic growth through improving the investment climate
and reducing the size and improving efficiency of the public sector. Fulfillment of EU accession
criteria and successful EU integration call for intensive structural and institutional reforms, and the
PAL series supports the Government in that effort. PAL II specifically supports: (i) improvements
in the investment climate by re-launching the privatization or liquidation of SOEs, improving
financial discipline of enterprises, reducing the cost of doing business, and strengthening the
judiciary; (ii) efforts to improve governance by rationalizing and improving efficiency of public
administration, and improving public expenditure management; and (iii) measures to enhance fiscal
sustainability of sector programs by addressing health financing, rationalizing social benefits,
improving fiscal and social sustainability of the pension system, and fiscal sustainability of railways
operations.
2.
PAL III14 – This loan will be the third in a series of three PALs. Its timing is uncertain due
to the November 2007 elections. It is therefore now included only in the high case for FY08. If PAL
III prior actions are not completed within this CAS period which ends in FY08, it is anticipated that
this operation would be included in the base case of the next CAS. PAL III would focus on reforms
critical to further fiscal consolidation in order to mitigate macroeconomic risks as well as to achieve
PAL outcome targets. Building on the reforms supported by PAL I and PAL II, the anticipated prior
actions for PAL III would focus on: (i) completion of the privatization process; (ii) further reduction
of enterprise state aid; (iii) consolidation of social benefit spending; (iv) reduction of health copayment exemptions; and (v) further reform of railways through reduction in HZ’s working ratio and
additional privatization of subsidiaries. In this regard, measurable actions were discussed at tPAL II
negotiations in January 2007 and would be reviewed and confirmed during pre-appraisal of PAL III.
3.
Revenue Administration Modernization15 – This loan would be aimed at increasing the
efficiency, transparency and accountability of revenue administration. This is proposed to be
achieved by enhancing voluntary taxpayer compliance, strengthening institutional and human
capacity, and promoting professional ethics, equity and fairness. The project would consolidate the
database structure and facilitate information sharing with various social insurance agencies, which
will help the social welfare system to become more focused in providing for those that need them the
most, by developing an income and wealth-based means test for a wide array of social benefits. To
this aim, a robust results-based monitoring framework and appropriate performance indicators would
be developed during project preparation.
4.
Judicial Reform15 – This loan would be aimed at supporting the implementation of the
Government’s Strategy of the Reform of the Judicial System, through the Action Plan. It would
support rationalization of the court network, increased efficiency of court proceedings and reduction
of case backlog through reform of court administration and court financing, and strengthening of the
judicial training system. The project would further assist Croatia in fulfilling the EU accession
requirements in judiciary through continued development of the Integrated Case Management
System and development of statistical and performance monitoring systems for courts.
13
14
15
Base and high case operation.
High case operation only.
Low, base, and high case operation.
Annex C3
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Cross-Border Cooperation (IPA Component II)
5.
Rijeka Gateway II13 – This loan would aim to stimulate economic growth and quality of life
in Rijeka by financing: (i) the development of the Rijeka Port into a financially self-sustained major
regional container port; (ii) the provision of adequate road connection to the Western part of the port;
(iii) a reduction in congestion on the Rijeka Bypass; and (iv) redevelopment of the Delta and Port of
Baros area for urban purpose. The project would also trigger needed railway infrastructure
modernization along Trans-European Network corridors. The project offers opportunities for
multilateral development bank cooperation, such as blending of funds and segmenting preparation by
different MDBs for different sub-components (e.g., port vs. roads), as well as opportunities for
public-private participation (PPP) in the ports component.
6.
Energy14,16 – This loan would support implementation of reforms required under the Energy
Community Treaty.17 These reforms include the further restructuring of HEP for market
liberalization. The loan would finance priority investments such as a load dispatch and
communication system, transmission interconnections with EU member countries and signatories to
the EC Treaty, and rehabilitation of thermal and hydro generation plants. These reforms have been
under discussion for some time and are relatively easy to prepare and implement. There also may be
scope for IFC engagement in the power sector, once HEP restructuring is further advanced.
7.
Neretva and Trebisnjica River Basin (NTRB) Management15 – This regional (Bosnia and
Herzegovina and Croatia) GEF project would aim to improve water resource management at the
Neretva and Trebisnjica river basins and the transboundary level, providing a mechanism for
efficient and equitable water allocation among the basins’ users and for improved health of the
ecosystems and biodiversity in the basins. The project would aim to (i) increase inter-state
cooperation and capacity for transboundary water resource management; (ii) maintain and conserve
water-dependent ecosystems and associated biodiversity according to the requirements of the EU
Water Framework Directive; (iii) reduce water pollution to the NTRB through high-priority
investments in three municipalities and one industrial sector in Bosnia and Herzegovina; and (iv)
increase participation of all society in the decision-making process for water resource management.
Regional Development (IPA Component III)
8.
Inland Waters13 – This loan would improve water supply services, wastewater services, and
flood protection measures in municipalities located in the inland part of Croatia, mainly from the
Sava and Drava river basins. The investments would help Croatia meet EU directives on water and
wastewater management. The project would include a technical assistance component to strengthen
institutional capacity to absorb EU funds, and to support operational improvements in utilities to
enable them to provide quality service at affordable tariffs. To help Croatia access grant funds from
the EU, the loan would also finance the development of an investment pipeline, including for flood
protection measures to reduce the risk of flood damage in the Sava river basin, to the benefit of
Croatia and other downstream riparian countries.
9.
Environment14,16 – This loan would support key environmental priorities in Croatia and help
prepare the country for EU integration through strengthening administrative capacity for
environmental management and enforcement, and helping to build an investment pipeline for EU
funds. Components would address: (i) contaminated lands/hot spot pollution, by financing
remediation and control of at least one of ten identified priority hot spots and development of a larger
16
FY08 high case program includes an investment operation in either energy or environment.
Croatia signed the Energy Community Treaty on October 25, 2005, thereby confirming its commitment to the development of
the Energy Community, which is de facto a condition for EU accession, calling for market liberalization to align with EU energy
policies.
17
Annex C3
Page 3 of 3
pipeline of investments for government, donor, and EU grant funding; (ii) industrial pollution, by
financing development of a government program to promote and support IPPC permitting and
investment incentives for industrial waste management at both public and private facilities; (iii) solid
waste management, by financing public investment in an integrated regional waste management
facility to promote early success of the model envisioned under the National Waste Management
Strategy; and (iv) strengthening regulatory framework implementation and capacity, especially at the
local level and in the environment inspectorate, by financing equipment, training, policy support, and
management tools to help fill gaps that EU pre-accession funds do not provide.
10.
Agriculture Pollution Control15 – This GEF project would aim to reduce the discharge of
nutrients into surface and groundwater in watersheds draining into the Danube River and Black Sea,
by supporting (i) promotion of improved watershed management practices aimed at reducing nutrient
loads to surface and ground water bodies of Croatia and thereby helping Croatia implement the EU
Nitrates Directive; (ii) implementation of select agri-environment measures related to on-farm
activities, thereby supporting harmonization of Croatia’s legislation with the EU Nitrates Directive as
well as strengthening its regulatory and enforcement capacity; (iii) dissemination of the benefits of
proposed project activities and replicability; and (iv) project management, with project preparation to
be the responsibility of the Project Implementation Unit (PIU) of the ongoing Agricultural Acquis
Cohesion Project.
11.
Rijeka Gateway II – see above.
12.
Neretva and Trebisnjica River Basin Management Project – see above.
Human Resources Development (IPA Component IV)
13.
Sustainable Health Systems13 – This loan would aim to help Croatia reduce the gap between
the performance of its health system and those of the EU member countries, both in terms of its
outcomes and its efficiency, and to ensure equitable access to quality care and the fiscal sustainability
of the health system. The project would support four priorities derived from the Croatian Health
Sector Strategy (2006-2011): (i) changing the financing system from input- to performance-based
payments; (ii) restructuring the delivery system to better meet the current needs of the Croatian
population; (iii) strengthening the capacity of the health system to govern effectively; and (iv)
increasing the health system focus on prevention. The project would have two phases. In the first
phase, the project would finance technical assistance for the four priority areas, and during the
second phase related investments could be financed based on the results from the first phase.
Rural Development (IPA Component V)
14.
Coastal Cities Pollution Control II14 – This loan would aim to further improve the quality of
Croatia's coastal waters to meet EU ambient quality standards, and support financial and operational
sustainability of municipalities. High coastal water quality is critical to the continued growth of
tourism and related economic activity (20 percent of GDP), and it supports the viability of the
fisheries and aquaculture sectors. The project would: (i) support wastewater collection and treatment
investments needed to meet Croatia’s EU accession requirements; (ii) strengthen the financing
mechanism for wastewater investments, establishing it as an effective conduit for EU financial
support; and (iii) provide technical assistance for sector development and to strengthen municipal
utilities to comply with the acquis.
15.
Inland Waters – see above.
16.
Agriculture Pollution Control – see above.