Key Challenges

Lagging behind
EU peers
For a number of years, Croatia has failed to find a proper way of coping with the fundamental challenges that have had a significant impact on the country’s socioeconomic development. Due to the inadequate policies of almost all of Croatia’s governments since the beginning of the country’s EU accession negotiations in 2005, the country lags behind most central and eastern EU member states in terms of socioeconomic development. This has created a strong feeling of hopelessness, which in turn has resulted in alarmingly high emigration rates in recent years. A 2019 survey found that 65% of respondents who had emigrated abroad stated that unsatisfactory material conditions were one of the key factors behind their decision to emigrate, while a staggering 53% of respondents pointed to corruption.
Serious need to improve competitiveness
Now that fiscal balance has been achieved – although public debt is still high – improving economic competitiveness is the key challenge facing the Plenković government and any government that might succeed it. Increasing the labor market participation of rate of the working-age population, particularly older workers, is needed to increase the rate of economic growth. However, no measures targeting older workers have yet been developed. Although the working-age population has fallen from 3.8 million in 2012 to 3.4 million in 2018, the active population has surpassed the inactive population by about 100,000 for the first time since 2013.
R&D a critical
In order to achieve higher rates of economic growth, Croatia needs to increase investment in research and development, which is far below the level required by the European Semester. Economic analyses suggest that GDP has been growing slower than in comparable countries due to slower growth in exports and a lower share of technologically complex products in total exports. Increasing the share of such products in exports, where salaries are higher than average, could also help retain part of the educated labor force in the country.
Exports, tourism
are strengths
Thanks to the recovery seen in euro zone economies in recent years, Croatia’s export demand has picked up, as has its rate of economic growth. The tourism sector has long been a mainstay of the economy and this is likely to continue to be so in the future. The success of tourism has to some extent relieved pressure on policymakers to improve the institutional and policy environment for the private sector. Consequently, the economy suffers from a long-term problem of low competitiveness. At the same time, public sector investment is low and heavily dependent on EU funds, reflecting the lack of public administration reform. The recent economic recovery, the improved labor market performance and the success in tackling public sector deficits provides an opportunity to recalibrate public policy across the whole spectrum.
Reforms to education
have been slow
There is also a need to improve the quality of human capital by improving the education and healthcare systems. Reforms to the education system have been launched, but the pace of change remains very slow. In addition, public spending should be better targeted at strengthening the education system’s capacity to provide young people with effective education. The healthcare system faces serious financial difficulties that lead to long patient waiting times and limited healthcare provision. For this reason, introducing more efficient policies to this sector, and boosting public and private expenditure on healthcare services will be one of the key challenges in the years to come.
Few governance
reforms introduced
The final challenge involves substantially reforming the judiciary and public administration. The lack of policy continuity is visible in the fact that only six ministers from the government sworn in in 2016 remain in office at the time of this writing. To date, few reforms have been introduced, even though improving the quality of governance is essential to addressing the above-mentioned challenges. As it stands, public administration in Croatia is simultaneously highly centralized and fragmented, often with a blurred division of competences between the central authority and local authorities.
Orešić, B. (2019) PRVO OZBILJNO ISTRAŽIVANJE ISELJENIČKOG VALA ‘Koliko je ljudi reklo da se nikad neće vratiti u Hrvatsku? Taj rezultat nas je najviše iznenadio’ (

Party Polarization

Party polarization weakening; grand coalition appearing possible
Until 2016, the political scene in Croatia was dominated by the center-right Croatian Democratic Union (HDZ) and the Social Democratic Party (SDP). Both parties largely campaigned on a set of symbolic and cultural values (traditional versus left-liberal), which exacerbated the polarization of the electorate, made cross-party policy cooperation difficult and resulted in a lack of policy continuity following changes in government. For some time, however, party polarization has weakened. As a growing number of citizens have become fed up with the traditional political options, new political parties have emerged. In the first round of the presidential elections in December 2019, the candidates of HDZ and SDP received only 55% of the popular vote. Under Andrej Plenković, who became chairman of the HDZ and prime minister in 2016, the HDZ has lost some its ideological edge and moved closer to the center. Plenković succeeded in forging government coalitions with the centrist Bridge of Independent Lists (Most-NL) (between December 2016 and May 2017) and the center-left Croatian People’s Party – Liberal Democrats (HNS) (since June 2017). After the 2020 parliamentary elections, even a grand coalition between HDZ and SDP might be on the cards. The fact that in recent years individual members of parliament have often changed their political allegiance due to pragmatic reasons also points to a lower salience of ideological questions as a dividing line between political parties in contemporary Croatia. (Score: 7)
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