Crisis Response and Recovery Development Policy Operation

closed

The Crisis Response and Recovery Development Policy Financing (CRR-DPF) in the amount of US300 million dollars for the government of Croatia seeks to cushion the impact of the two external shocks that affected Croatia in early 2020, the COVID-19 pandemic and the earthquake, while supporting inclusive and sustainable economic recovery. This support is both urgent and critical: the economic crisis caused by the pandemic has been exacerbated by the devastating earthquake that hit Croatia’s capital in March 2020, with damages estimated at more than 20 percent of GDP. The earthquake is contributing to a widening the fiscal gap, both indirectly by through lowering growth and directly via increased budget spending. In this context, the Program Development Objective (PDO) of the CRR-DPF is to: (a) mitigate the economic and social impact of the COVID-19 pandemic (Pillar 1), and (b) advance inclusive and sustainable recovery (Pillar 2). The DPF is complemented by a parallel dedicated earthquake response operation, which seeks to normalize the provision of crucial public services, while offering essential support to the private sector. Both operations are helping support the authorities in responding to the combined health and natural disaster shocks, and their effect on the economy and the people in Croatia. The operation aims to support the authorities’ response to the crisis and help advance a more inclusive and sustainable recovery. The first pillar seeks to cushion the impact of the pandemic on the most vulnerable workers and firms. A set of measures temporarily subsidizes the income of permanent and temporary workers, the self-employed and seasonal workers, benefiting half a million workers in the most affected sectors of the economy. Low-income households will receive additional income support through increased coverage of complementary voluntary health insurance, benefiting up to 200,000 people. Another set of measures aims at supporting firms facing a liquidity squeeze, through a temporary reduction in the tax burden, working capital loans, and a temporary suspension of the obligation to file for bankruptcy. The second pillar supports inclusive and sustainable economic recovery by addressing key institutional bottlenecks. Income support to the elderly with no other sources of income addresses a gap in Croatia’s social protection. Establishment of a policy and accountability framework for low carbon development and resilience to climate change boosts the environmental sustainability of the recovery by mainstreaming climate action in line with EU targets. By supporting the improved functioning of the credit registry financial inclusion, especially for micro and small firms, is expected to increase. Finally, administrative improvements to the framework for the absorption of EU funds will allow for more efficient management of EU funds, thus increasing investment’s contribution to the recovery.