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Croatia Report 2020 Sustainable Governance Indicators

Since mid-2017, Croatia has been governed by a coalition of the center-right Croatian Democratic Union (HDZ) and the center-left Croatian People’s Party – Liberal Democrats (HNS). The coalition has been led by Prime Minister Andrej Plenković, the chairman of the HDZ. While HDZ and HNS directly control only 40% of parliamentary seats, the government has been in a relatively strong position. It can count on a number of ideologically amorphous members of parliament, many of whom do not stand much chance of being re-elect. The government has also benefited from the fact that the opposition parties are weak and disunited. The main opposition party, the social-democratic SDP went through a major crisis in 2018 and only began to recover in the second half of 2019. Of the other political parties, the most relevant are the populist Human Blockade (Živi zid) party and the still ideologically unprofiled Bridge of Independent Lists (Most-NL). For the time being, neither have any intention of linking themselves with the SDP. Threats to the stability of the Plenković government have thus come primarily from the HDZ’s right-wing and conservative non- governmental organizations that have continually challenged some of the policies advocated by Plenković. This was most evident in the first round of the 2019/20 presidential elections when Miroslav Škoro, an independent right-wing candidate, took almost 25% of the votes. At about 3%, real GDP growth in 2019 was slightly higher than in 2018. After five years of economic recovery, real GDP finally returned to its level before the 2009 – 2014 recession. In 2019, the European Commission also announced that Croatia no longer suffers from excessive macroeconomic imbalances, for the first time since Croatia’s accession to the European Union in 2013. Fiscal balance and current account deficits have been replaced by surpluses. Despite its relatively strong political position, the Plenković government has been rather slow in carrying out economic reforms. The improvements in the fiscal stance have largely originated from higher- than-expected GDP growth and a decline in interest payments on government debt, rather than from muchneeded expenditure reform. Given Croatia’s level of economic development and its quality of governance, general government expenditure relative to GDP remains rather high from a comparative perspective. By scrapping the previously agreed reduction in Croatia’s high VAT rate from 25% to 24%, the government has sacrificed tax reform for a revenue-based consolidation. It has not addressed weaknesses in R&I. Policy toward the private sector has been derailed by the economic problems of Agrokor (now Fortenova), the largest private company in Croatia and the Western Balkans. The company successfully reached an out-of-court settlement in July 2018, with Russian banks Sberbank and VTB banka gaining the largest share of ownership (approximately 47%). However, the crisis was reignited in December 2019 when the Slovenian competition agency announced the seizure of one of Agrokor’s prized assets, its shares in the Mercator retail group. The weakness of education policy was revealed when the results of the 2018 PISA were published in late 2019. The results showed a substantial decline in science education, and stagnation in reading and mathematics education. Poverty and social exclusion remain significant problem areas, but the situation has progressed since the economy began to recover in 2015. Attempts at pension reform have met strong resistance from trade unions, which led the government to shelve some its more ambitious proposals. While the increase in the healthcare insurance contribution rate from 15% to 16.5% as of January 2019 has provided additional resources, the functioning of the healthcare system has been left largely untouched. Despite various announcements, the Plenković government has done little to improve the quality of democracy and has failed to redress the large differences in the number of voters per constituency, a fundamental problem for the electoral system. The government has continued to exert substantial influence on the media. Strong vertical and horizontal fragmentation of the governance apparatus seriously curtails effective policymaking and the provision of public services.

Croatia, sustainability, governance, democracy, economy, steering capacity, executive accountability

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