The Croatian National Bank welcomes the adoption of the Economic Recovery Programme, representing a major step toward formulating a comprehensive economic policy concept aimed at restoring Croatia's economic growth.

The global crisis has revealed structural weaknesses of the Croatian economy, primarily consisting in a high external debt level arising from huge current account deficits. These economic problems stem from a previously implemented growth model based on fast domestic consumption growth, which has been exhausted and its continuation under the new circumstances becomes unsustainable even in the short run.

Finding a quick way out of the crisis and economic activity revival are impossible if the same patterns are followed that have led to the said deficits. Sustainable growth can only be achieved if it is based, to a much greater extent, on goods and services exports. Such a concept requires radical structural reforms, taxation changes and relieving the tax burden, as well as any other measures creating conditions for lower unit labour costs and better international competitiveness of Croatian products.

The Government's programme correctly pints to many structural economic problems of the Croatian economy, such as the dependence of a major part of the economy on subsidies and public procurement, incomplete privatisation process, poor state property management, low labour force activity rate and unfavourable investment climate, as well as risks which might arise from further deterioration of public finance and unemployment growth.

As provided in the document, it is highly important that the proposed measures should be elaborated in detail and then put into operation without delay. Basically, any measures aimed at fiscal relaxation can be considered as measures in the right direction. Relieving the tax burden, particularly that of direct taxes, should play an important role in enhancing the competitiveness and export performance of the Croatian economy. In view of this, the CNB holds it desirable, for the programme to succeed, that the Government should implement the proposed reduction of the tax burden and expenditure by 3 percentage points of GDP much before 2020. This is necessary for a quick economic trend change and economic recovery. With respect to the Programme measures which the Government intends to apply promptly, it would be useful to specify them in greater detail and to estimate their net effects on the budget and public sector financing needs, especially within the 2010 budget framework.

For its part, the CNB will continue its monetary policy based on the adopted projections for 2010 in order to ensure, as before, the prerequisites for a stable and consistent macroeconomic policy, providing a solid framework for fiscal and structural reforms.