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World Bank Group (WBG) Country Partnership Framework (CPF) for Croatia: FY19-FY24 Summary

1. Introduction and Context

• Duration: The CPF period covers Fiscal Years 2019-2024.
• Key Objectives: Focused on enhancing public sector performance, strengthening environmental sustainability, and boosting market institutions to drive inclusive and resilient growth.
• Recent Progress: Croatia demonstrated strong economic growth, living standard improvements, and effective crisis response during the CPF period, including recovery from COVID-19 and the earthquakes of 2020.
• Partnership: Collaborated closely with the European Commission (EC) and other international financial institutions (IFIs) to leverage resources and knowledge.

2. Progress and Challenges

• Economic Growth: Croatia's GDP growth accelerated, driven by tourism and EU funds. The country reached 76.8% of the EU27 income level (PPP), up from 67.3% in 2019.
• Poverty and Inequality: Poverty reduction remains a challenge, with 19.3% of the population at risk of poverty. Addressing institutional gaps and labor shortages is critical.
• Environmental Sustainability: Progress in waste management and water loss reduction achieved. Environmental degradation remains a concern, with the potential to account for 2-3% of GDP.
• Institutional Strengthening: Key reforms included public sector wage reform, digitalization of public services, and circular economy initiatives. Challenges include regulatory barriers and weak coordination.

3. CPF Outcomes and Implementation

• Outcomes:
  • Increased investment and productive jobs
  • Enhanced environmental resilience
  • Strengthened institutions across justice, land administration, and education sectors
• Instruments: Combined IBRD lending, IFC financings, and extensive Reimbursable Advisory Services (RAS) to support reforms and knowledge transfer.
• Impact:
  • Justice reforms reduced procedural delays by up to 80%.
  • Education reform (Whole Day School model) increased instructional time and improved learning outcomes.
  • Waste management recycling rate improved from 29% to 36% (2020-2023).

4. Risk Management

• Overall Risk: Rated Moderate, stemming from institutional capacity constraints, political stability (minimal political risk due to stability), and economic volatility.
• Key Risks:
  • Institutional Capacity: Ongoing challenge requiring sustained programmatic engagement.
  • Macroeconomic: Sensitivity to external shocks (energy prices, EU funds reductions).
  • Sectoral Challenges: Complex reform navigation in areas like energy and waste management.

5. Lessons Learned

1. Adaptive Programming: Strong results focus combined with evidence-based adjustments during implementation proved effective.
2. Leveraging EU Funds: Success in unlocking EU cohesion funds through reform milestones.
3. Knowledge Generation: RAS and Trust Funds generated global knowledge spillovers relevant to high-income countries.
4. One WBG Approach: Ensured complementarity between IBRD lending, IFC advisory, and MIGA guarantees.
5. Stakeholder Engagement: Essential for reform ownership, especially in lagging regions.

6. Forward-Looking Recommendations

• New CPF (FY25-FY30): Aimed at unlocking frontier private capital and generating knowledge on sustainable development in aging societies.
• Innovative Instruments: Continued use of results-based financing, green bonds, and digital platforms.
• Policy Integration: Deepening collaboration with EC and aligning reforms with EU climate and digital transition agendas.

This summary highlights the CPF's achievements in fostering resilient growth, institutional reform, and environmental progress under a collaborative framework.