Croatia and the World Bank

Croatia joined the World Bank in 1993, two years after declaring independence from the SFR Yugoslavia in 1991. World Bank projects from the mid-1990s to the mid-2000s primarily focused on infrastructure and environmental projects.

Logo of the World Bank

Beginning with the rise of the global recession and the Eurozone crisis in 2008, Croatia entered an economic recession that lasted until 2016. Croatia officially became the 28th member state of the European Union (EU) on July 1, 2013 in the midst of the recession. Croatia's entrance into the EU, combined with the recession, shifted the World Bank's primary focus away from infrastructure and towards institutional financial restructuring. The World Bank financed lending projects to help Croatia converge with the EU and help the Croatian National Bank develop a financial policy that would pull Croatia out of recession. Following Croatia's emergence from recession, lending from the International Bank for Reconstruction and Development (IBRD) and International Finance Corporation (IFC) fell sharply to $22 million in 2016, compared to $279 million the previous year. However, World Bank commitments rose to a new high of $394 million in 2017.

Financing Summary

Croatia has relationships with three branches of the World Bank Group: the IBRD, the IFC, and the Multilateral Investment Guarantee Agency (MIGA).

IBRD

Since the beginning of its relationship with Croatia in 1993, the World Bank has financed a total of 77 projects with Croatia through the IBRD. Of these, 65 were closed, five were dropped, one is in the pipeline, and six are active as of June 8, 2019. Of the six active projects, five are loans totaling $369 million, and the sixth is a $370 million road guarantee. Historically, the themes of these projects remained largely focused on issues such as public expenditure, financial management and procurement, services and infrastructure for both private and public sector, and environmental policies and institutions. More recently, IBRD projects have begun to work more closely with funding from MIGA and IBD to achieve the Country Partnership Strategy goals. Transitioning from infrastructure, the IBRD focuses on sectors of the business environment, as well as on facilitating international development for Croatian companies.

IFC

As of June 7, 2019, the total value of IFC loans starting from FY2001 is approximately $608.39 million; the total value of equity is approximately $35.37 million; the total value of guarantees is $0; and the total value of risk management is $0.

MIGA

In FY2010 and FY2012, MIGA issued a total of seven project guarantees in Croatia, totaling approximately $955 million.

World Bank Strategy in Croatia

The United Nations classifies Croatia as a developed economy, and Croatia is considered a high-income country, making it one of the richest borrowers of the World Bank. Primary education enrollment, although dipping to a historic low at 91% in 2010, hovers on average at 95% as of 2016. Life expectancy at birth has steadily increased since 1960 to reach a high of 78.022 years in 2016. As such, Croatia's lending from the World Bank Group is now primarily focused on promoting growth using financial and economic lending instruments, focusing efforts in aiding private infrastructure and financial sectors to ensure growth in the long run.

Real GDP growth in Croatia has been historically low since the 2008-2016 recession. GDP growth decreased slightly to 2.7% in 2018, down from 2.9% in 2017. While real GDP began to increase after the end of the recession, change may not be quick enough to offset the growth of public debt, and further contribute to poverty in the long term. The country's unemployment rate peaked from 2013 to 2014 at 17.3% and has gradually decreased, with projections of unemployment dropping lower than 12.5% by 2018, but there are worries that the stagnated decrease in national poverty may be a long-term trend resulting from the recession, and has implications that will continue to slow economic growth in the long run. As of 2018, the poverty rate has seen a slight decrease to 4.6% but GDP has only had moderate growth. A projected government deficit, decrease in private investment, slow structural labor reforms, and slow absorption of EU funds have contributed to an overall concern for Croatia's lower-income population's poverty rates.

Country Partnership Strategy 2014-2017

The primary goal of the World Bank's Croatia Country Partnership Strategy FY14-17 was to facilitate Croatia's addition to the EU by implementing structural financial reforms to aid convergence. With Croatia's entry to the EU, grants increased sevenfold to €290 million in 2013.

The World Bank planned to help Croatia achieve effective EU membership by emphasizing strong economic fundamentals, based on a combination of three “pillars" that would be interdependent on grants from the EU while simultaneously enacting reforms to carry out policy goals of the EU.

Pillar 1: Public Finance

The first pillar was public finance, which emphasized the need for fiscal consolidation in government budgets and health to keep growth steady in the medium-term and long-term. The Bank planned to improve relations with the Croatian National Bank (CNB) and Ministry of Finance, and oversee the utilization of financial instruments to complement development policy loans (DPL). The first pillar focused on the need for fiscal adjustment while continuing to make policy-based loans to support structural reform.

Pillar 2: Competitiveness

The second pillar was competitiveness, which aimed to increase Croatia's private-sector share of the economy, which was 70% at the time, low compared to other members of the EU. Goals included strengthening public infrastructures like railways, transit, and other enterprises, improving market oversight by introducing red tape reforms to an inefficient administrative system, and encouraging a private sector-led transition to a knowledge economy for investment and post-privatization financing.

Pillar 3: EU Membership

The third pillar was EU membership, which targeted both reforms to align with the Europe 2020 Strategy using EU funds and reforms to accommodate the expansion of the public sector to better absorb and utilize EU funds. The strategy identified Croatia's natural geography along the coast of the Adriatic Sea as an opportunity for improved regional cooperative relationships with nearby countries and trading partners Bosnia and Herzegovina, Hungary, and Austria. The strategy anticipated that reform goals might be both lending (financial) and non-lending (institutional) in nature, primarily focusing on a closer adherence to EU standards of gender parity in employment.

Country Partnership Framework FY2019-FY2024

The World Bank Group disclosed its Croatia Country Partnership Framework for FY19-FY24 on May 7, 2019. The overarching objective of the Country Partnership Framework is to support capacity building needed for Croatia's EU convergence and eventual World Bank donor status. The FY19-FY24 Country Partnership Framework also identifies three "focus areas": (i) enhancing public sector performance and institutions, (ii) preserving and leveraging natural capital to ensure low carbon growth, and (iii) strengthening market institutions to enable a dynamic enterprise sector.

Notable Projects

Second Rijeka Gateway Project (ongoing)

A railway bridge in the port of Rijeka (circa 2009), the primary seaport in Croatia, before the completion of the Second Rijeka Gateway Project.

Begun in 2008 and slated to finish by December 2018, the second Rijeka Gateway Project has been a massive infrastructure project to revitalize and modernize the port of Rijeka. As the largest and primary seaport in Croatia, with a historically favorable geographic location on the Adriatic Sea, the second Rijeka Gateway project will improve infrastructure that builds a better connection with the port and highways, improve quality of service for private sector investments, and increase capacity in the port of Rijeka. Specifically, the improved quality of services will include increased Rijeka port container capacity, increased container traffic, and increased container terminal efficiency. Port service enhancement and terminal development are the target goals to increase private sector involvement, by increasing the portion of dry cargo port activities operated by a private majority ownership sector from a baseline of 29% in 2007 to the end target of 65% in 2018. The project also targets improved financial performance in the public sector by reducing subsidies for interest as a percentage of operating revenues, from a baseline of 46% in 2007 down to an end target of 10% by 2018.