October 5, 2016 / 11:47 AM / 10 months ago

World Bank urges Croatia to focus on budget, restructuring

ZAGREB, Oct 5 (Reuters) - The World Bank on Wednesday urged Croatia's new cabinet, likely to be formed this month, to act quickly to tackle fiscal imbalances and restructure public spending so as to draw more investment and boost persistent low growth.

The international lender said growth over the next two years was unlikely to surpass this year's forecast 2.4 percent. Next year the bank expects it to fall to 2.0 percent before recovering to 2.4 percent in 2018.

"Next year we expect a major effort in fiscal consolidation to affect growth ... Croatia's large refinancing needs require a credible fiscal consolidation programme," said Sanja Madzarevic Sujster, the World Bank's chief economist for Croatia.

Croatia's budget gap is seen coming in at 2.7 percent of gross domestic product this year, falling to 2.1 percent in 2017 when it will need to refinance some 30 billion kuna ($4.49 billion) in maturing bonds and interest payments alone.

"Croatia has a good probability to exit the (European Union's) excessive deficit procedure next year, which would strengthen investors' confidence," Madzarevic Sujster said.

The European Commission has put Zagreb under strict monitoring for macro-economic imbalances and deficits. Croatia's public debt is now at around 85 percent of GDP.

The conservative HDZ and a small centre-right reformist party, Most ("Bridge"), are in talks on forming a new cabinet, and leaders have said they hope to strike a deal within days.

The World Bank also said that Croatia should strive to achieve higher growth levels for which, besides addressing fiscal and debt drags, a new government will have to strongly improve the investment climate.

The main efforts, it said, should be focused on simplifying regulatory framework, reducing non-taxation fees and improving court efficiency, in particular related to land registries and bankruptcy framework.

Reporting by Igor Ilic; Editing by Thomas Escritt/Mark Heinrich

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