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Croatia’s EU Entry to Force Fiscal-Policy Prudence, Sosic Says

Croatia’s European Union entry this year will fuel investment and force the government to stick to prudent fiscal policies, central bank Deputy Governor Vedran Sosic said.

The Balkan country is set to emerge from a recession this year, with gross domestic product probably expanding 0.3 percent, Sosic said. Even as the external environment remains risky because of Europe’s debt crisis, the economy is showing signs of rebalancing with exports picking up, he said.

EU entry “will help put fiscal policy on a sustainable path,” he said in an interview while attending a Euromoney conference in Vienna today. Accession should also lead “to a new wave of greenfield investment.”

The Adriatic Sea nation, which is set to become the bloc’s 28th member in July, is struggling to return to economic growth. Its credit rating was cut to junk on Dec. 14 by Standard & Poor’s, which cited delays by the government in implementing structural and fiscal changes. The ratings company said the economy will contract 2 percent in 2012 and stagnate in 2013.

It’s up to the government to carry out the overhaul as the central bank’s scope to stimulate growth is “narrow,” Sosic said.

“The central bank has been pursuing a loose monetary policy since the crisis broke out,” he said. “Monetary policy has purchased time for structural reforms.”

The International Monetary Fund on Nov. 13 said Croatia’s economy will shrink 1.5 percent this year. The Washington-based lender has urged the government to remove barriers to investment and employment in order to return to growth in 2013.

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