The Council concurred with the Commission's view that Croatia does not meet the EU's deficit and debt criteria. According to data notified by the Croatian authorities, Croatia's government deficit for 2013 was significantly above the EU's 3 per cent of GDP reference value and is set to increase in 2014 and 2015. The Commission's 2013 autumn forecast projects the deficit to rise to above 6 per cent of GDP in the 2013-2015 period if corrective measures are not taken.
This is partly due to a severe economic downturn, with economic activity estimated to have contracted by almost 12 per cent since the peak it reached in 2008. The Council considers that although the projected excess over the reference value is exceptional, it cannot be considered temporary.
The Commission's autumn forecast projects Croatia's general government debt to have reached 59.7 per cent of GDP in 2013. In an unchanged policy scenario, it is expected in 2014 to rise above the EU's 60 per cent of GDP reference value for government debt.
Forecasts of both the Croatian authorities and of the Commission services confirm this upward trend, which is attributable to continuing high deficits and weak economic activity, and it is expected to continue over the forecast horizon. Hence the EU debt criterion is not fulfilled.
The Council in its recommendation calls on Croatia to correct the deficit by 2016. It sets deficit targets of 4.6 per cent of GDP for 2014, 3.5 per cent of GDP for 2015 and 2.7 per cent of GDP for 2016, consistent with an annual improvement in the structural balance of 0.5 per cent of GDP in 2014, 0.9 per cent of GDP in 2015 and 0.7 per cent of GDP in 2016.
The Council sets a deadline of 30 April 2014 for Croatia to take effective action and to report in detail on the consolidation strategy it envisages in order to achieve these targets. Furthermore, the Council invites the Croatian authorities to carry out a thorough expenditure review, to improve tax compliance and increase the efficiency of its tax administration, and to improve the institutional framework of its public finances. It calls on the Croatian authorities to implement structural reforms, in particular to address labour market rigidities and an unfavourable business environment and to improve the quality of public administration, with a view to promoting potential GDP growth.
Press release
Speaking at the ECOFIN press conference, VP Rehn said: "With today’s adoption by the Council of a Recommendation to correct the excessive deficit by 2016, a clear path is set out for restoring sustainability to Croatia’s public finances.
It will be essential for Croatia to take decisive action to achieve this, in order to restore confidence in the economy and create the conditions for a sustainable recovery in growth and job creation. This means that, by April, Croatia is asked to undertake adequate and sufficiently specified and quantified measures to ensure progress towards the correction of its excessive deficit and debt. The Commission will assess whether effective action has been taken by Croatia later on, in the course of this spring, as part of the process under the European Semester.
I want to underline to the Croatian people that this process is a partnership; a partnership between Croatia and the European Union. The Commission will work closely with Croatian authorities to support their efforts to address the challenges the economy is facing and to build a strong basis for economic recovery, based on sound public finances."
Full speech
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