CROATIA

Economic Freedom Score

25

World Rank:

103

Regional Rank:

38

Least
free 0

ired in recession, Croatias economy continues to

M
face waning competitiveness and bureaucratic difficulties in the investment environment. Few meaningful

50

75
Most

100 free

59.1

Freedom Trend
63

steps have been taken to reduce or control government

spending, and the bloated public sector severely undermines private-sector dynamism, prolonging the economic downturn in the absence of needed reforms.
ECONOMIC FREEDOM SNAPSHOT
2016 Economic Freedom Score: 59.1 (down 2.4 points)
Economic Freedom Status: Mostly Unfree
Global Ranking: 103rd
Regional Ranking: 38th in Europe
Notable Successes: Trade Freedom and Monetary Freedom
Concerns: Rule of Law and Management of Public Finance
Overall Score Change Since 2012: 1.8

Pervasive corruption still erodes public trust in government. State ownership in such key sectors as transport,
natural resources, and banking remains considerable. A
new labor law was passed in July 2014 to make the labor
market flexible and dynamic, but given the lack of progress in other critical areas, its impact is doubtful.
BACKGROUND: Croatia declared its independence in 1991,
contributing to the breakup of Yugoslavia along ethnic and
religious lines. Years of Croat/Serb conflict ended formally in
1995 with the Dayton Peace Accords. Croatia joined NATO in
2009 and the European Union in 2013. No party won a majority of seats in the November 2014 elections. The conservative Croatian Democratic Union won three more seats than
the incumbent center-left Social Democrats, and the centrist
Bridge of Independent Lists was third. Coalition talks are
ongoing. The global financial crisis and overreliance on tourism have hurt growth. Domestic demand is weak. The economy contracted for the sixth consecutive year in 2014, and
the slow pace of privatization, high indebtedness, and a weak
export base have exacerbated this weakness.

How Do We Measure Economic Freedom?

See page 467 for an explanation of the methodology

or visit the Index Web site at heritage.org/index.

62
61
60
59
58

2012

2013

2014

2015

2016

Country Comparisons
Country

59.1

World
Average

60.7

Regional
Average

66.9

Free
Economies

83.9
0

20

40

60

80

100

Quick Facts
Population: 4.2 million
GDP (PPP): $88.5 billion
0.4% growth in 2014
5-year compound annual growth 1.1%
$20,889 per capita
Unemployment: 16.7%
Inflation (CPI): 0.2%
FDI Inflow: $3.5 billion
Public Debt: 80.9% of GDP
2014 data unless otherwise noted.
Data compiled as of September 2015.

169

CROATIA (continued)
THE TEN ECONOMIC FREEDOMS
Score

RULE OF
LAW

Property Rights
Freedom from Corruption

Country

World Average

35.0
48.0
0

20

40

60

80

Rank

1Year
Change

86th
63rd

5.0
0

100

The 2013 criminal code enforces stiffer penalties for corruption, although more effort is needed to clean up public procurement. Judicial independence is generally respected, and a new
judicial appointments system has increased professionalism, but the case backlog in courts
remains above the EU average. Private property rights are well established, but there can be
ambiguous and conflicting claims in some title cases.
Fiscal Freedom 70.8
GOVERNMENT
Government Spending 33.7
SIZE

138th
159th
0

20

40

60

80

4.1
12.8

100

The top personal income tax rate is 40 percent, and the top corporate tax rate is 20 percent.
Other taxes include a value-added tax and excise taxes. The overall tax burden equals 30.4
percent of GDP. Government spending amounts to 47 percent of total domestic output. Management of public finance has deteriorated significantly, with the deficit averaging around 5
percent during the past three years. Public debt equals over 80 percent of GDP.

REGULATORY
EFFICIENCY

Business Freedom
Labor Freedom
Monetary Freedom

60.3
42.4
78.7

115th
166th
74th
0

20

40

60

80

+4.5
0.4
1.3

100

Reform measures have streamlined the procedures for establishing a business, but the overall
regulatory environment remains burdensome and inefficient. Labor regulations remain rigid.
The government made little progress in 2015 on structural reforms to reduce expenditures
and subsidies as required by the European Commissions Excessive Deficit Procedure before
Croatia can enter the eurozone.

OPEN
MARKETS

Trade Freedom
Investment Freedom
Financial Freedom

87.4
75.0
60.0

38th
34th
38th
0

20

40

60

80

+0.2
5.0
0

100

EU members have a 1 percent average tariff rate. Trade agreements are currently being negotiated with countries that include the United States and Japan. State-owned enterprises operate in several sectors of the economy. The consolidated banking sector is relatively sound and
efficient, but the number of non-performing loans has risen significantly. Securities markets
are open to foreign investors.

Long-Term Score Change (since 1996)

RULE OF LAW
Property Rights
Freedom from
Corruption

170

15.0
+18.0

GOVERNMENT
SIZE
Fiscal Freedom
Government
Spending

6.6
16.8

REGULATORY
EFFICIENCY

OPEN MARKETS

Business Freedom
+5.3
Labor Freedom
1.9
Monetary Freedom +78.7

Trade Freedom
+18.4
Investment Freedom +25.0
Financial Freedom +10.0

2016 Index of Economic Freedom