Fiscal, Social and Financial Sector Development Policy Loan (DPL)

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The objective of the Fiscal, Social, and Financial Sector Development Policy Loan (DPL) Program for Croatia is to support the authorities' efforts in addressing the adverse impact of the global crisis through: (i) strengthened public finance; (ii) strengthened social sector resilience and targeting; and (iii) enhanced efficiency and stability of the financial sector. The Croatian authorities have been managing the impact of the global crisis relatively well through an appropriate mix of proactive policies. Due to declining tax revenues, the fiscal policy had to go through significant adjustments to protect macroeconomic stability and ensure regular debt service. Politically-challenging measures on both the revenue and spending sides had to be implemented, while protecting the effective part of the social safety net. Some of these measures, e.g., reduction of wages, suspension of pension indexation or the introduction of a solidarity tax, focused on the short term in order to maintain macroeconomic stability. Building on long-standing efforts in this area, the authorities have also taken necessary measures to safeguard financial intermediation. While the single-tranche DPL supports the authorities in these more immediate efforts, the engagement continues on the broader medium-term reform agenda. The Bank has for instance been providing analytical and financial assistance to Croatia in support of its medium-term competitiveness agenda, including through the recent European Union (EU) convergence report, investment operations in infrastructure and science and technology, and the forthcoming judicial reform project.