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©1997 International Monetary Fund
May 1997
IMF Staff Country Report No. 97/35
Croatia—Selected Issues and Statistical Appendix
This selected issues and statistical appendix on Croatia was prepared by a staff team of theInternational Monetary Fund as background documentation for the periodic consultation withthis member country. As such, the views expressed in this document are those of the staffteam and do not necessarily reflect the views of the Government of Croatia or the ExecutiveBoard of the IMF.
Copies of this report are available to the public from
International Monetary Fund • Publication Services700 19th Street, N.W. • Washington, D.C. 20431
Telephone: (202) 623-7430 • Telefax: (202) 623-7201Telex (RCA): 248331 IMF URInternet: [email protected]
Price: $15.00 a copy
International Monetary FundWashington, D.C.
©International Monetary Fund. Not for Redistribution
INTERNATIONAL MONET ARY FUND
CROATIA
Selected Issues and Statistical Appendix
Prepared by Sonal Desai, Thomas Dorsey1, Robert A. Feldman, Christian Schiller,HeliodoroTemprano- Arroyo (all EU1) and Christian Mulder (PDR)
Approved by the European I Department
February 24, 1997
Contents
Preface
I. The Balance of Payments in Croatia: Recent Developments, DataInterpretation Problems, and Sustainability AnalysisA. Introduction and OverviewB How to Interpret the BOP DataC BOP Sustainability
Attachment: Estimation of the Permanent and Transitory PartsOf Net Foreign Exchange Inflows
II An Analysis of the Behavior of Monetary Aggregates in CroatiaA. IntroductionB Money Demand: Theoretical Motivation and Empirical EstimatesC. Concluding Remarks
Attachment: Alternative Specifications for M4 Demand
Ill Ownership, Competition, and Efficiency in the Croatian Banking SectorA IntroductionB. Competitive Structure and Financial Differences Among
Croatian BanksC. Relationships Between Profitability, Efficiency, Competition,
and OwnershipD. Empirical Examination of Competition, Scale Economies,
and Efficiency
Page
S
667
16
25
2626283638
4141
4?
48
49
lMr. Dorsey transferred to PDR in November 1996.
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E. Concluding Remarks
AnnexesI. Summary of the Croatian Exchange and Trade SystemII. Summary of the Croatian Pension System: Current Features
and Issues for ReformIII. Summary of the Croatian Tax System
ChartsAnnex II
1. Croatia: Old Age Dependency Ratio and Contribution Rate
Text TablesI. 1 . Difference Between ITRS and Customs Data on Trade in
Comparison with total Errors and Omissions. 19940-19962. Main Foreign Currency Flows, 1995-963. Impact of Alternative Allocations of Foreign Exchange Flows
on the External Current Account, 1995, 1996 HI4. Baseline Medium-Term Balance of Payments, 1995-20015. Alternative Medium-Term Balance of Payments Scenarios, 1996-20016. Regression Results for Non-Tourist Inflows
II. 1. Growth Rates of Monetary Aggregates
m. 1. Banking System Assets by Ownership and Region:end-1991 through end-1995
2. Number of Banks by Ownership and Region:end-1991 through end-1995
3. Capital and Employee Productivity at end-19944. Banking System Cost/Asset Ratios and Interest Rate Spreads
by Market Type, Age, and Ownership in 19955. 1994 Interest and Return on Assets Indicators6. Determinants of Profitability Dependent Variable: Profits/Assets7. Determinants of Profitability Dependent Variable: Profits/Capital8. Determinants of Non-Interest and Administrative Expenses9. Determinants of Interest Rate Spreads
(Dependent variable: interest rate spread)10. Determinants of 1995 Asset Growth
(Relative to the Average of end-1994 and end-1995 assets)
Annex n1. Percentage of the Population Over Sixtv
58
60
6579
70
913
162223
25a
27
.44
4445
4747515254
56
57
69
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Statistical Appendix1. Quarterly GDP at Constant 1990 Prices2. Gross Domestic Product at Current Prices
3. Gross Domestic Product at Constant 1994 Prices4. Gross Domestic Product Deflators5. Trends in Industrial Production6. Mining and Industry - Indices of Production, Stocks,
Consumption, Employees, and Productivity7. Agricultural Production8. Tourism Data - Overnight Stays9 Number of Nights Spent According to Accommodation10 Nights Spent by Tourists According to Country1 1 Composition of Employment12 Trends in Employment and Unemployment13 Trends in Wage Bills and Nonwage Compensation14 Trends in Average Monthly Net Wages and Salaries15 Average Gross Monthly Pay per Employee16. Indices of Nominal Net Wages and Salaries per Employee17. Indices of Real Net Wages and Salaries per Employee18. Health Insurance of Workers19. Child Care Supplements20. Disability and Retirement Insurance21. Price Developments22. Retail Inflation Rates23. Indices of Prices24. Electro-Energy Balance Sheet25. Energy Balance Sheet26. National Public Enterprises27. Number of Enterprises in the Economic Sector
and Number of Legal Entities Undergoing Bankruptcy28. Number of Employees in Enterprises Undergoing
Bankruptcy29. Government Employment30. Budgetary Central Government Revenues31. Budgetary Central Government Expenditures
and Net Lending32. Budgetary Central Government Expenditure by Function33. Consolidated Fiscal Accounts34. Monetary Survey35. Monetary Authorities Balance Sheet36. Deposit Money Banks' Accounts37. Interest Rates of the National Bank of Croatia
8586
878889
90919293949596979899
100101102103104105106107108109110
Ill
112113114
115116117118119120121
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38. Deposit Money Bank Interest Rates - DomesticCurrency Rates
39. Deposit Money Bank Interest Rates - ForeignCurrency Rates
40. Balance of Payments41. Merchandise Exports and Imports, 1993-9642. Composition of Exports (SITC)43. Composition of Imports (SITC)44. Exports by Destination45. Imports by Origin46. Exchange Rates and International Reserves47. External Debt Stock and Principal Repayments
122
123124125126127128129130131
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PREFACE
Preceding the statistical appendix, this background document starts with three papers and thencontains three summary annexes.
In Chapter I, the first paper deals with the data interpretation problems in the Croatian balanceof payments and discusses in detail the overestimation of the size of the external currentaccount deficit in the official statistics. The papa* reflects the staffs discussions with theauthorities over the past year, and it has therefore been in the works for a while. It alsoresponds to comments from Executive Directors during the Executive Board's considerationof the last Article IV consultation.
In Chapter n, the second paper tries for the first time to examine the behavior of the monetaryaggregates in Croatian using econometric methods. The inherent problems encountered inestimating correctly the behavior of the demand for money comes out clearly from theanalysis. Because of these problems, it would have been difficult to pursue a money-basedapproach to stabilization policy. The analysis also .provides empirical support for the notionthat "dollarization" in the sense of the currency substitution literature is not a major concern,notwithstanding the large share of broad money held in the form of foreign currency deposits.
In Chapter m, the structure and performance of the banking sector is analyzed, including theeffects of competition and ownership structure on profitability and interest rate spreads so far.It would appear from this analysis that more would be required in the banking sector than thenew entrants and privatization experienced so far to bring about a reduction in interest ratespreads (and by implication interest rates on lending). Bank rehabilitation efforts and entry byforeign banks that are only now starting to enter the Croatian market are hopeful avenues. Anearlier version of this paper was prepared in June 1996, as part of a larger study with authorsfrom the National Bank of Croatia for the Second Dubrovnik Conference on Economies inTransition, which focussed on capital markets and banking sector reform in these economies.
The authorities were keenly interested in these three subjects. The content of the papersinformed well the policy discussions as the main findings of the papers could be drawn ceven while work was in progress.
on
The three annexes contain the usual summaries of the tax system and the exchange and tradesystem. In addition, an annex on Croatia's pension system summarizes both the operations ofthe current system and issues for reform. Reform would seem to be unavoidable, although themost serious pressures from demographic trends are unlikely to arise until the next decade.Care will need to be taken to ensure that the transition costs incurred by the budget because ofmoving from a pay-as-you-go to a funded pension system are manageable.
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L THE BALANCE OF PAYMENTS IN CROATIA: RECENT DEVELOPMENTS,DATA INTERPRETATIONPROBLEMS, AND SUSTAINABIUTY ANALYSIS2
A. Introduction and Overview
1. This chapter aims to shed some light on balance of payments (BOP) data problems andtrends with a view to helping better interpret and analyze external sector developments and toevaluate against this background external sustainability.
2. Important conclusions from the first part of the chapter are that: 0) the size of thecurrent account deficit—which surged from near balance in 1994 to over 10 percent of GDPin 1995 before declining to about 7 percent in 1996—has likely been overestimated in theofficial statistics by significant margins; and (ii) errors and omissions, which jumped to8 percent of GDP in 1995, are likely to have peaked in that year.
3. Two main reasons are offered for the overestimation of the current account deficit.The first is that part of errors and omissions have likely reflected sustainable current earnings.It is estimated that this factor contributed at least 1V£ percentage points of GDP to theoverstatement of the current account deficit in 1995. The second reason is that most of theforeign exchange inflows of unknown origin have been recorded as capital inflows when moreof these inflows should in fact have been registered as current receipts. It is estimated that thiscould have resulted in biasing upward the 1995 current account deficit by aboutll/2 percentage points of GDP, although the extent of overestimation could be as high as3 percentage points of GDP.3 This overestimation is likely to continue until data from acomprehensive package of surveys become available to replace those on unidentified foreignexchange inflows in the compilation of the BOP.
4. The main identified components of errors and omissions are expected to declinerapidly due to a mixture of exogenous developments (such as increased use of the bankingsystem for remittances and a diminution of unregistered trade credit) and statisticalimprovements (especially regarding the measurement of foreign direct investment (FDI). Thedecline in errors and omissions as shown in the most recent available data (through September1996) is in line with these expectations. Declining errors and omissions on account ofimproved measurement of current earnings will tend to reduce the corresponding overestimateof the current account deficit.
5. The key conclusion of the second part of the chapter is that reasonably plausiblemedium-term projections and various alternative scenarios point to a sustainable balance ofpayments in Croatia, notwithstanding the high current account deficit and negative export
Prepared by Christian Mulder.
Estimates for the first half of 1996 indicate somewhat higher numbers.
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growth registered in the official statistics in 1996. In addition to the overestimation of thecurrent account deficit, this conclusion mainly reflects favorable prospects in the tourismsector, which should more than offset any expansion in the trade deficit.4 It is also importantto note that export performance in 1996 was, for several special reasons, significantly betterthan the data on face value would indicate. The various alternative scenarios suggest that theBOP could remain manageable in the presence of adverse shocks, including resumption oflimited regional hostilities that would severely impact tourism and private capital inflows.
6. The rest of the chapter is organized as follows. The first part discusses the main datainterpretation problems related to errors and omissions and the arbitrary allocation of foreignexchange inflows. The second part focuses on interpreting important recent developments andprospects in key BOP components and presents alternative external sector scenarios.
B. How to Interpret the BOP Data5
7. The extraordinary size of net errors and omissions makes the Croatian BOP unusuallyhard to interpret. From a relatively modest US$0.1 billion in 1994, errors and omissionsincreased sharply in 1995 to reach US$1.3 billion, equivalent to about 20 percent of importsor 8 percent of GDP. This increase coincided with a sharp deterioration in the officially-recorded current account from near balance in 1994 to a deficit of over 10 percent of GDP in1995, and therefore served to "finance" a large part of the recorded current account deficit inthe latter year. Significant problems also arise in interpreting the BOP because of thesomewhat arbitrary approach to assigning the large flows of foreign exchange cash and checkssold and deposited by residents to various categories of the current and capital accounts forpurposes of estimating line items. Gross inflows into these foreign currency accountsamounted to about US$4 billion in 1995, with net inflows totaling about US$0.8 billion.
Errors and omissions
8. An important data source for the BOP is the International Transactions ReportingSystem (TTRS). Transactions involving international payments are recorded comprehensivelyby all banks and compiled in the ITRS. If the ITRS were the only data source used, errors and
4Some of the financing for higher imports of consumer durables and investment goods in 1995and for sustaining them in 1996 appeared to be in errors and omissions and resulted from adrawdown of foreign savings held abroad. As declines in this form of capital inflows could beexpected to be associated with an offsetting decline in imports, there may also be aself-correcting element to BOP adjustment.
5This section builds on the "Report on the Balance of Payments Statistics Mission, February15-29, 1996" by Ricardo Puig and Elizabeth Sumar (June 3,1996) and on "Republic ofCroatia Balance of Payments Compilation Manual/' draft version and non-official translation(April 5, 1996).
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omissions would by definition not arise because the balance sheets of banks must always be inbalance. However, the balance of payments relies on other sources of information for anumber of important categories, notably for trade, transportation, and short-term credit.
9. As shown in Table 1, the discrepancy in net import data between (i) payments datafrom the ITRS and (ii) the customs data compiled by the Central Bureau of Statistics (CBS)and used for the BOP, coincides markedly with the direction of movement in errors andomissions in the period 1994-1996. Note that the difference reported by the two sources inexport data has gradually narrowed, but ballooned in import data by about US$1.2 billion in1995. The substantially higher imports from customs data than from payments data point tounrecorded import financing as one of the main reasons for errors and omissions.6 Suchsources of finance that are inadequately captured with existing statistical systems couldinclude unregistered trade credit, unregistered foreign direct investment, and underreportedworkers' remittances (including income earned abroad that is not repatriated but instead usedto pay for imports by drawing down balances held abroad). Accordingly, four main potentialsources of errors and omissions have been identified and are discussed below.
• Unrecorded trade financing in the form of delayed payments for imports and tradecredit wUh a maturity of under 3 months
10. In view of security risks, trading partners often required advanced payments forexports to Croatia in its early years (1992-94). When the situation normalized, exportersgradually allowed the usual practice of requiring payment within a short period (mainly 30days) after receipt of the product. To provide an indication of the significance of thesedevelopments, one month of delayed payments for imports amounts to US$625 million oftrade credit. A rough estimate based on parameters derived from surveys is that unrecorded
6Customs data are quite comprehensive and appear to be well recorded-with the exception ofsmall scale trade-and thus the main source of errors and omissions relating to the use ofcustoms data must be sought in the financing of imports. One indication of the sizableunderestimation of small scale exports is that the number of passenger cars entering Croatiafar exceeds the number of cars exiting (CBS, transportation and communications survey).
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Table 1. Croatia: Diflference Between ITRS and Customs Data on Trade in Comparison with Total Errors and Omissions, 1994-1996(In millions of U. S. Dollars)
ITRSExports Imports
QI94QH94Qm94QIV94
Total 1994
QI95QII95QHI95QIV95
Total 1995
QI96QH96
594687771786
2,838
848938925987
3,698
950982
620795
1,0591,0583,532
1,0841,1821,2181,1464,630
1,1631,113
CustomsExports Imports
627932
1,3641,3374,260
1,1661,1991,1771,0904,633
1,0821,080
7291,1221,4321,9465,229
1,7351,9781,9061,8917,510
1,6621,893
Exports
33245593552
1,423
318261252104935
13298
DifferenceImports
109327373888
1,698
651795688745
2,880
499780
Total
7782
-220337275
333535435641
1,945
367682
Errors dudOmissions
-17-14-157289101
387340231343
1,301
387340
Sources: Customs Office and National Bank of Croatia
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trade credit increased by US$300 million in 1995 and a further US$100 million in 1996, andthus contributed these amounts to errors and omissions.7 8
• Underestimation of FDI
11. An improved ITRS was introduced on July 1, 1996, which has provided more accuratedata and has indicated that FDI has been underestimated. For July, August, and September1996 (the first three months for which improved data are available), FDI is reported to havebeen US$138 million, compared with US$111 million for the first six months of 1996 andUS$81 million for 199S. While the high inflows in the first half of 1996 are in line withexpectations (reflecting the flotation of shares in Pliva and Zagrebacka Banka on the LondonStock Exchange),9 the surge under the improved ITRS suggests, along with anecdotalevidence, that there have been large numbers of small-scale FDI transactions which werepreviously misreported or underreported.
• Payments made from foreign accounts, using hoarded cash, and from unreportedforeign earnings
12. There is ample evidence that Croatians hold large savings abroad. A1994 survey ofAustrian banks put these savings at about US$2 billion in Austria alone. Hoarding hadreportedly become widespread during the period of hyperinflation. Foreign earnings that donot flow though the banking system also appear very sizable. Noteworthy in this respect is thesurge in workers' remittances in 1996 by an estimated US$230 million (or 1% percentagepoints of 1995 GDP) which cannot be explained by an increase in the number of foreignworkers, and therefore points to increased use of the banking system for formerly nonreportedcash remittances. These pools of money may constitute important sources of funds to financeimports for which payments are not registered.10 In so far as such imports are measured by
7A survey conducted for the first eight months of 1995 indicated an average payment delay ofabout 30 days for imports that accounted for over two thirds of total imports. A repeat surveyfor the first six months of 1996 indicated a further increase in the share of imports for whichdelayed payment was allowed to 72 percent in the first quarter of 1996 and to 75 percent inthe second quarter of that year.
8 The amount of trade credit extended for less than three months, which is not registered withthe National Bank of Croatia and thus not part of the reported short-term financing, is alsoestimated to have increased rapidly—broadly in line with the increase in trade credit extendedfor three months or more but less than one year.
*Pliva is a large pharmaceutical concern; Zagrebacka Banka is a large commercial bank.
10With retail margins in Croatia still relatively high, import taxes substantive, and distances(continued...)
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customs officials, this could explain a substantial part of the residual errors and omissions.This explanation is in line with the surge in errors and omissions in 1995, which saw anincreased demand for consumer durables and investment goods following an improvement inthe economic and security outlook and enhanced confidence that the government and thebanks would ensure that frozen foreign exchange savings accounts held in Croatia would beprotected.11
• Advance payments for exports
13. It is likely that payments for exports have been advanced as confidence in Croatia'sability to deliver contracted exports has increased in line with the unproved security situation.This could explain why payments for exports have grown more rapidly than actual exports.Especially in the shipbuilding sector, advance payments play an important role and contributeto positive errors and omissions when orders result in advance payments that outpace actualexports. Thus, for example, customs records in the first half of 1996 show exports ofUS$101 million. With payments in the first half more in line with annual exports ofUS$400 million—consistent with the customs data stowing exports of ships of aboutUS$200 million in the second half of the year—this factor may have contributed aboutUS$100 million to errors and omissions in the first half of 1996.
14. In sum, these four sources of errors and omissions all point to underestimation ofcapital inflows. In addition, evidence suggestive of unreported foreign earnings used tofinance recorded imports points to an underestimation of current inflows, perhaps on the orderof ll/2 percent of GDP in 1995 because of unrecorded workers' remittances alone.Importantly, it is not expected that errors and omissions will continue at the pace registered in1995 and the first half of 1996. According to survey results, the float from delayed importpayments and the stock of credit with an under three-month maturity appears to have reacheda more normal size, implying that these sources of finance can now be expected to staybroadly in line with imports and therefore contribute only about US$50 million annually tofuture errors and omissions. The earlier improvements and the results from an EDI survey tobe introduced in the first quarter of 1997 should also help to significantly reduce errors andomissions from underreported FDI. In addition, the payments for imports from foreign savingaccounts will decline to the extent that this source of fimds is being depleted and that thedemand to restore stocks of durable consumer and investment goods has been satisfied.Finally, workers' remittances through the banking system seem to be replacing previouslyunderreported remittances in cash. Data for the third quarter of 1996 and estimates for the
10(...continued)short, there is substantial cross-border shopping. About 55,000 cars crossed the variousborders per day in 1995, carrying a total of about 28 million passengers round-trip (6 timesthe population).
11 Foreign currency savings accounts were frozen in 1992.
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remainder of the year already suggest that errors and omissions will continue to decline fromthe very high level recorded in 1995.
15. If errors and omissions nevertheless persist at a high level and in line with a continuedlarge difference between registered payments for and actual imports, the source of unrecordedpayments is likely to be a more continuous one, such as import financing from workers'remittances and small scale exports that go unrecorded. Additional survey work in these areaswould need to be undertaken.
Foreign Currency Inflows
16. In addition to the issue of errors and omissions, the other key factor that complicatesthe interpretation of the Croatian BOP concerns the arbitrary allocation in the presentmethodology of large foreign currency inflows and outflows in the form of cash and checkssold to/bought from and deposited at/taken out of Croatian banks (Table 2). The primarysource of inflows consists of deposits in the foreign exchange accounts of residents, followedby purchases of cash and checks from residents, remittances from abroad to resident accounts,and purchases of cash and checks from nonresidents. The gross inflows, at a sizableUS$2.8 billion in the first half of 1996, exceeded export earnings over this period. Foreigncurrency outflows were also large, with cash and check withdrawals the main item, followedby purchases of foreign currency and travelers' checks, for a total of US$1.9 billion over thesame period. Nevertheless, the net flows were quite significant: annualized about 11 percentofGDP.
17. As the origin of and underlying reason for most of these inflows is not well known,they are somewhat arbitrarily allocated under the methodology currently used to construct theBOP: about a quarter of the cash, check, and deposit inflows from residents are allocated tocurrent services (travel credits or tourist earnings), and the rest to capital inflows. Remittancesfrom abroad to residents' accounts and cash and checks purchased from nonresidents are follytreated as current earnings. Circumstantial information and some survey evidence supports thenotion that the sizable net inflows reflect in particular the five sources discussed below.
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Table2. Main Foreign Currency Flows, 1995-96
ITRS Description Allocation to current Amounts in millions ofcode account in official dollars
methodology
1995 I-VI1996
78 1 Forex remittances from abroad
701 Forex cadi and checks soldby residents to banks 25% tourism 1061 480
797 Deposits of forex cash to forexaccounts of residents 25% tourism 2955 1930
700 Forex cash and travel checkssale to residents 25% tourism -746 -345
897 Forex cash/check withdrawals fromforex accounts of residents 20% tourism -2426 -1519
Memorandum item:796 Purchased forex and checks
from nonresidents 100% tourism 391 147
Source: National Bank of Croatia
• Nonresident spending in foreign currency
18. Nonresidents (notably embassies, aid agencies, UNPROFOR, UNHCR and IFOR andtheir stationed personnel) undertake part of their expenditure in foreign currency cash, whichis likely to show up in foreign currency deposits or foreign currency sales by residents.Expenditure by the U.N. alone is estimated to have been US$180 million in 1995, withamounts declining sharply in 1996. Preliminary data on changes in the stocks of nonresidentaccounts for 1996 indicate annual payments of about $600 million, many of which wereprobably for goods and services but were reflected in the capital account in the officialstatistics.12
12The balance of payments would greatly benefit if payments made from non-resident accountsto residents accounts and cash withdrawals by nonresidents were more accurately measuredand recorded under service inflows. Refining procedures to this effect should be relativelystraightforward and be accorded a high priority.
to resident forex accunts 100% workers remit tances 486 343
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• Tourist earnings
19. Based on overnight stays and survey data on tourist expenditure—which unfortunatelyis confined to the main tourist season and the traditional tourist resorts—overall expenditure isestimated to have been about US$700 million in 1994, falling to US$444 million in 1995 andrising again to about US$859 million in 1996.
• Unidentified export and transportation earnings
20. With the open borders, notably to Bosnia and Herzegovina, it is likely that Croatiancitizens earn substantial sums in unrecorded trade with this area. The main incentive toundenreport export earnings is the significant income taxes in Croatia. The current BOPmethodology also underestimates the earnings potential of the transport sector. At present,about 10,000 transport companies operate in Croatia, of which only about 100 are captured inthe present transportation survey. Very crude estimates indicate that this sector generatesUS$200 million more in service earnings than reported.
• Workers'remittances in cash
21. Croatia has a very large expatriate community, and workers often bring part of theirearnings home in the form of cash during holidays, or more frequently for daily or weeklycommuters. Some of the seasonality (notably during the Easter, Christmas, and summerseasons) in sales of cash by nonresidents and deposits of foreign exchange by residents is dueto this factor. Workers' remittances through the banking system have increased rapidly fromUS$243 million in the first half 1995 to US$343 million in the first half of 1996. This trend isexpected to continue, with the result that there should be a further reduction in (unrecorded)remittances in cash.
• Repatriation of foreign savings
22. Finally, as discussed above, there is ample evidence that suggests that Croatians holdlarge amounts of savings abroad, including evidence from a survey of Austrian banks. Part ofthese savings may be repatriated because of the slightly more favorable terms offered inCroatia. Total foreign currency deposits in Croatia (including declining frozen foreignexchange deposits) increased at a very rapid pace, by about US$0.7 billion in 1995 and
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US$0.8 billion in 1996, with banks placing about two-thirds of the increment with foreignbanks.13 M
23. The current BOP methodology records foreign currency inflows (summarized inTable 2) by treating 75 percent of the foreign exchange cadi and checks purchased fromresidents (TTRS No. 701) and 75 percent of deposits into foreign currency accounts ofresidents (TTRS no. 797) as a capital account item (i.e., as "other capital inflows'"). Theremaining 25 percent of these receipts are treated as travel credits or tourism inflows. Foreignexchange remittances to resident accounts (TTRS no. 781) are fully treated as currenttransfers. Similarly, on the debit side, 75 percent of the foreign exchange sales (TTRS no. 700)and 80 percent of the foreign exchange withdrawals (TTRS no. 897) are treated as capitalaccount items (that is, "other capital outflows"). The remaining 25 percent and 20 percentrespectively, are treated as travel debits or tourism outflows.
24. There would appear to be two main problems with this methodology. First, the netinflows recorded as tourism receipts clearly reflect inflows other than those from touristearnings. This issue came rather to the forefront in 1995, which was a poor year for tourismwith a virtual halving in overnight stays by foreigners, although official statistics show a mere11 percent decline in net tourism receipts. Secondly, the fixed percentages have a significantimpact on the size of the officially-reported current account deficit, but make it very arbitrary.As Table 3 indicates, if all cash and check remittances (TTRS No. 701 and 797 on the creditside and 700 and 897 on the debit side) were regarded as current account items, the deficitwould be about 3 percentage points of GDP smaller in 1995, and nearly 4 percent of GDP(annualized) smaller in the first half of 1996. With the trend in these cash and check itemsshowing a gradual increase, they would appear to reflect mostly sustainable current earnings,rather than a finite repatriation of foreign-held savings in which case a hump or bell-shapedpattern would be expected.15
13The sizable and mostly regulated net foreign assets of the banking system provides animportant cushion against not only short-term outflows, but also against diminished inflowsfrom the repatriation of savings held abroad.
14Croatians residing abroad for over 1 year are still usually registered as residents. A moreexact registration for banking purposes would be helpful in order to assess appropriately therisks associated with the build-up of large short-torn non-resident deposits. This is especiallyrelevant because the community of foreign Croatians is large and relatively well to do.
Notwithstanding some concentration in the summer and holiday seasons and a downturnduring "Operation Storm" in the late summer of 1995, the monthly pattern of foreign currencyinflows has been is remarkably stable. This also suggests substantial continuity in these flows,which could be explained by a constant earnings stream, rather than one-off events.
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25. Estimates have been made (see attachment) to derive the trend part of the flows as away of estimating the relative size of current earnings in the overall foreign exchange inflows.The results indicate that a larger part of inflows should be classified as current flows than inthe methodology now used and imply that the current account defidt in 1995 is overestimatedby about 1V4 percent of GDP on this account
TableS. Impact of Alternative Allocations of Foreign Exchange Flowscm the External Current Account, 1995,1996 HI
_ 1996HI
Inclusion of resident cash and deposits items in the current account in the (In millions of dollars)following proportions: I/
50 percent 90 6075 percent 301 197
100 percent 512 333Inclusion of resident cash and deposits items in the current account in the (In percent of period GDP)following proportions: I/
50 percent 0.5 0.775 percent 1.8 2.3
100 percent 3.1 3.8
I/ The allocation under the existing BOP methodology is 20-25 percent The allocation is tothe category tourism (credits and debits).
26. A fundamental solution for these statistical problems would be to replace the data onthe foreign exchange flows by estimates based on survey information on the five main itemsidentified above, with the information on overall foreign exchange flows functioning as acheck on overall accuracy. As a first step, and in line with recommendations by the Fund'sStatistics Department, a more extensive tourism survey and extended transportation surveyswill be undertaken, starting in early 1997. These will be used to provide more accurateestimates for tourism and transport income. Simultaneously, and making use of ITRS andbanking sector information, more accurate estimates of non-resident expenditure bynon-tourists need to be made, and improved criteria for non-resident accounts need to bedeveloped. However, before more comprehensive information becomes available, it will bedifficult to abandon foreign exchange flows as the core source of data.
C. BOP Sustainability
27. Medium-term projections for the BOP point to external Sustainability. A first keyreason is the solid prospect for growing tourist income since income from this source atpresent is still only a fraction of past income. A second key reason is that performance and
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prospects of the export sector are better than they appear on the basis of U.S. dollar-denominated customs data for 1996. Finally, as noted above, the current account deficit islikely to have been overestimated by a substantial margin. This is reflected in a relativelymodest debt build-up. And while the debt-to-GDP and debt service ratios are projected toincrease again during the reconstruction phase, they do so after a recent decline and they areexpected to remain well within reasonable bounds in the baseline outlook. Thus, externalsustainability when evaluated in the context of the overall BOP, and not the trade sectoralone, appears good. Following a brief discussion of the prospects for the main balance ofpayments categories (trade, tourism, current transfers, and capital flows), various scenariosindicate that Croatia's BOP is manageable in the presence of adverse shocks.
Merchandise trade
28. Export performance in 1996 was disappointing, with exports as measured by customsdata declining by 2.6 percent in U.S. dollar terms. Several special factors contributed to thisperformance. First, the valuation effects of exchange rate movements, which tended to reduceexport growth substantially when measured in the U.S. currency. The deutsche mark is a morerepresentative unit of account for Croatian trade, and exports measured on that basis actuallyincreased by 2.4 percent. Second, export shipments through customs have been substantiallyweaker than payments received for exports, with export payments rising by 8 percent in thefirst half of 1996 over the same period in 1995, in contrast to an 8 percent decline forcustoms-cleared exports. About one third of this difference reflects advance payments forships, whose export in 1997 will therefore rise considerably. The remainder could reflect thesubstantive decline in reexports of processed goods observed in the data.16 As there is noindication in the price data that profit margins have declined, re-exports may very well pick upin 1997. The relatively poor export performance in 1996 also reflected the slow growth inCroatia's export markets. According to data from the WHO, Croatia's export marketexpanded by only l.S percent in terms of U.S. dollars in 1996.17
29. It is anticipated that export performance will pick up over time, supported by thepositive effects of structural reforms on competitiveness. In addition, the growth in Croatia'sexport market is expected to pick up significantly in 1997, reaching 6.6 percent based on
16 The customs office collects data on imports for processing, as well as data on thecorresponding reexports. While imports for processing were unchanged, reexports fell by3.5 percentage points of overall exports in the first ten months of 1996 compared to 1995.
17 This figure is based on the export-weighted growth of imports of goods and services incountries that account for at least 95 percent of Croatia's trade.
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WEO data. Exports should be raised further in 1997 by growing re-exports as well as theorders-indicated rise in exports of ships.18
30. Despite buoyant economic growth, imports increased only moderately in 1996,although growth was higher when imports are measured in deutsche mark instead ofU.S. dollars. Imports of investment goods rose by IS percent, while imports of intermediateand consumer goods combined inched ahead at about 2 percent. A key explanation behind themoderate import growth appears to be that the surge in imports experienced in 1995 (whenimports jumped by 44 percent) satisfied at least part of the demand for replenishing stocks ofretail and durable goods. This explanation is consistent with the observed decline in 1996 inshort-term trade financing associated with stock building, and the decline in errors andomissions in the first nine months of the year which may have been associated with lowerimports for consumer durables financed by drawing down savings held abroad.
31. Over the medium term, imports are assumed to resume growth in line with nominalGDP, with an elasticity modestly above unity. Meanwhile, export growth, which is assumed tobe two percentage points below import growth in 1997, picks up only modestly thereafter,thus allowing for a widening trade deficit in the medium-term baseline projections.
Tourism
32. After a dismal and disappointing performance for tourism in 1995 following theshelling of Zagreb and the coast, and "Operation Storm" in late summer, tourism nearlydoubled in 1996 to 16.5 million overnight stays by foreign tourists. This number is still a farcry from the pre-war peak of 60 million overnight stays and, with its renowned coast,Croatia's potential tourism growth is surely substantial. The baseline projection is forCroatia's tourism to grow at a rate which declines from about 30 percent in 1996 to 15percent in 1997 and afterward, reaching about 80 percent of its former size over a period of 5years. The upside potential mainly comes from the possibility of attracting more high-payingtourists; the downside risk steins from too-slow restructuring of partly state-owned touristcompanies, and regional security difficulties.
Private and government transfers
33. At ll/2 percent of GDP in 1995, Croatia received a relatively large inflow ofGovernment transfers for a country with its per capita income. The main reason is cosmetic: inthe official BOP classification, about sixty percent of the Government transfers in 1995 were
"The restructuring of several industries (for example, finished textiles, textile fabrics, steel,and paper products) may also have had a negative effect on exports in 1996. Thisrestructuring was partly in response to increased competition from the lifting of the economicembargo against the Republic of Yugoslavia, and the performance of these exports in 1997 ismore uncertain.
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actualty pension payments received by Croatian residents who had worked abroad and whichshould thus be classified as private transfers. With the Croatian work force in other countriessubstantial and relatively old, such pensions are likely to continue to grow. In line with thetrend, growth in real terms is projected at 5 percent. This contrasts sharply with the outlookfor genuine government transfers, to aid the reconstruction of Croatia and to deal with therefugee problems. These transfers have diminished rapidly in 1996, and are expected to dry upafter the reintegration of Eastern Slavonia has been completed, now scheduled for 1997.
34. The bulk of overall transfers consists of workers' remittances, which have beenincreasing rapidly and may continue to do so as a result of an improved banking network andconfidence in the Croatia banking system. With unemployment high, with ongoingrestructuring and the lay-offs it implies, and wages in several neighboring countries a multipleof those in Croatia, there is added reason to believe that the number of Croatians workingabroad and their remittances will continue growing. Conservatively, the overall real growth isprojected at a rate of 2 percent, giving very little weight to the unknown impact of a possiblefurther increase in the use of the banking system to remit earnings.
Prospects for capital flows
35. Until recently, Croatia's access to international capital markets was very limited. Up to1995, disbursements of medium- and long-term loans net of scheduled amortization werenegative. Access then improved rapidly, but initially only with both the government andcommercial banks taking loans from foreign banks at relatively short maturities (up to2 years). The assessment of an investment grade rating for Croatia by three rating agencies(Moody's, Standard & Poor, and IBCA) in January 1997 paved the way for borrowing atmore desirable maturities. Indeed, in February 1997, Croatia was able to tap the eurobondmarket with an oversubscribed issue of US$300 million in 5-year bonds, and a favorablespread of 80 basis points over comparable U.S. Treasury securities.
36. With access thus established, the overall size of foreign borrowing from privatemarkets over the medium term should be primarily driven by the demand for foreign loans bythe Government and the banking sector, provided the overall borrowing stays withinreasonable limits, the macroeconomic and political situation remains stable, and the regionalsituation peaceful. Thus, following the successful Eurodollar bond issue, recourse to theinternational capital markets is set to increase markedly in 1997, with the budget deficitfinanced entirely through foreign loans (including those from the IBRD). This is projected tocontinue for a number of years, when reconstruction demands are still high. However, itwould be desirable if foreign borrowing tapered off over the medium term in order to avoid asignificant increase in the external debt burden.
37. Regarding other sources of foreign inflows, the prospects for FDI are also good. Forexample, discussions for major investments in oil and gas exploration are well underway,while plans for large scale investment in infrastructure (notably roads) have been developed.In addition there is further scope for portfolio investment in several large
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enterprises—however, at this juncture, data on portfolio investment are not separatelyrecorded.
38. With the pipeline of approved loans, especially from the EBRD and IBRD increasing,the scope for multilateral lending, including through fast disbursing structural adjustmentcredits, is set to increase further. The increase may taper off, however, once the need foradjustment credits diminishes. Suppliers' credits, guaranteed and non-guaranteed, alsoincreased rapidly in 1995 and especially 1996 and have become an important source offinancing. This latter source is not likely to fall as long as imports are growing and regionalsecurity risks remain within acceptable limits.
Sustainability analysis
39. In line with the prospects highlighted above, the baseline medium-term outlook ispresented in Table 4. This outlook assumes an unchanged method of compiling the BOP, andprojects a marked decline in the current account deficit over the medium term to about3 percent of GDP by the year 2001. While the baseline allows for a further deterioration in thetrade balance in absolute terms, this is more than offset by a growing service sector, notablyon account of tourism. Errors and omissions are conservatively projected to fall to zero in1997 (and stay there), and this drop is assumed to have only a minimal impact on eithercurrent earnings or imports. At the same time, net non-loan inflows are expected tomoderate.19 Reflecting these trends and those in other capital flows discussed above,financing is expected to shift from net non-loan claims to FDI and net medium- and long-termloan disbursements. The emphasis is initially on loans and gradually shifts to FDI.
40. In the baseline scenario, the ratio of total external debt to GDP peaks at about30 percent, a figure well within a sustainable range. The debt service ratio is projected toincrease to about 12 percent in 2001, as the average maturity is seen to decline withrescheduled Paris and London Club obligations being refinanced with loans of a shorter
"One of the most difficult and largest items to project in the Croatian BOP is the foreigninflows in the form of cash and deposits by residents, which under current methodology areallocated to both tourism earnings (25 percent) and other sector non-loan inflows(75 percent). The impact on the overall BOP is, however, diminished by the large fraction ofdeposits which is redeposited abroad by banks. It is assumed in the baseline projection that thegross inflows remain broadly unchanged—thus the growth in tourism is only driven by theincrease in nonresident inflows, in line with overnight stays as discussed above, and not by anincrease in resident flows—but that net inflows decline as the percentage which banksredeposit abroad is conservatively projected to increase somewhat from the already high levelestimated for 1996. It should be noted that an equivalent effect for the overall BOP can resultif gross inflows decline and banks do not increase the percentage redeposited abroad.
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maturity.20 With exports of goods and non-factor services amounting to just over 40 percentof GDP, a stable debt service ratio of IS percent would be achieved if the average maturity ofloans were 5 years.
41. It is clear that there are substantial upside and downside risks in Croatia'smedium-term balance of payments outlook. At the same time, there are a number of factorsthat cushion the impact of these risks. The downside risks relate to the speed in the responseof the export and tourism sector to structural reforms and regional security. The upside risksinclude the considerable potential for tourism and uncertainties regarding the assumed drop tozero in errors and omissions since they may turn out to continue to be positive. The foreignexchange flows in the form of cash and deposits by residents pose both an upside anddownside risk, which the baseline tries to evenly balance. An important cushion is the reserveposition banks maintain abroad.
42. Below, two alternative scenarios are developed to illustrate the downside risk(Table 5). The first scenario features a delayed pick-up of export growth to 4 percent in 1997,climbing only gradually to the projected growth rate of 8 percent in 2001. This is offset in thescenario by a modest reduction in imports of on average 1% percentage points during thecoming 4 years. This reduction in imports is less than half the envisaged build-up in reservesover these years and the situation would be quite manageable through appropriate demandmanagement. To ensure the eventual pick up of export growth there would be need for asignificant strengthening of enterprise restructuring and labor market adjustment.
43. A second alternative scenario assumes a resumption of hostilities in the region, withthe negative impact falling primarily on tourism and capital inflows. With tourism revenuesfalling back to the low levels experienced in 199S, gross inflows of loans drying up, netnon-loan inflows unchanged, foreign direct investment Ming back to about US$250 million,short-term trade financing declining, a substantial adjustment in the economy would berequired. The budget deficit would need to be scaled back drastically in the absence offoreign financing. Imports would have to fall by about 18 percent before resuming growth tokeep reserves unchanged from their 1996 level. However, imports would still remain about22 percent above the levels observed in 1994. The required drastic adjustment in importswould come about mainly because of reduced income induced by lower tourism income andhigher taxes (and possibly exchange rate adjustment). While the import compression underthis scenario is manageable, moderation in foreign borrowing and prudence regarding thematurity structure of the foreign borrowing—notably the avoidance of short maturities—remains advisable as long as a scenario of regional insecurities can not be ruled out.
20The debt service ratio projection is rather sensitive to the maturity structure assumed fornew loans, especially the percentage of short-term loans.
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Table 4. Baseline Medium-Term Balance of Payments, 1995-2001(In millions of U.S. Dollars)
Merchandise trade balance
Exports (f. o.b.)(in percent change)
Imports (c.i.f. )(in percent change)
Services and transfers
TransportationTourismOther servicesInterest income (scheduled, net) 11Government transfersPrivate transfers
Current account balance
Capital account
Foreign direct investmentMedium and long term loansNet non-loan claimsNet short-term lending
Errors and omissions
Overall balance
Gross reserves (US$m) (- = increase)Arrears (+ = increase)Exceptional financing
Memorandum items:Current account as percent of GDPGross reserves (US$m)Reserves in months of imports
of goods and nonfinancial servicesOutstanding debt (US$m) I/ 21Debt/GDP ratio 11 21Debt service paid/exports of goods
and nonfinancial services 21GDP(US$m)Exchange rate (end of period)
1995
-2877
4633(8.7)
-7510(43.6)
1165
60813
-260-94280366
-1712
491
81-137
50497
1300
78
-49031598
-10.31895
2.3380222.0
8.2166305.316
1996Est.
-3277
4511(-2.6)
-7788(3.7)
2013
1181313-186-50222596
-1263
1054
28731040949
595
386
-418-14051436
-7.22313
2.6412422.7
10.1174315.535
1997
-3662
4827(7.0)
-8489(9.0)
2359
1271611-208-18215632
-1303
1544
33794123136
0
241
-4000
159
-6.92713
2.9512124.6
9.418898
1998
-3955
5213(8.0)
-9168(8.0)
2713
1371960-225-34209666
-1242
1461
38786877
130
0
219
-3600
141
-6.13073
3.0598927.2
8.520415
1999Projections
-4271
5630(8.0)
-9901(S.O)
3122
1482323-243-36227702
-1149
1401
437827
-4142
0
252
-3660
114
-5.23439
3.1681629.0
8.522053
2000
-4613
6080(8.0)
-10693(8.0)
3611
1592777-263-50248740
-1002
1369
487774-46154
0
367
-37306
-4.23812
3.2759030.2
10.523823
2001
-4982
6567(8.0)
-11549(8.0)
4110
1723223-284-50269779
-872
1289
537643-56165
0
417
-3800
-37
-3.44192
3.3823330.7
11.925735
Sources: Croatian authorities and staff estimates.
I/ Does not include debt that was excluded from London Club agreement, and claims on international reserves of theformer Socialist Federal Republic of Yugoslavia.
21 Excludes short-term trade related debt.
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Table 5. Alternative Medium-Term Balance of Payments Scenarios, 1996-2001(In millions of U.S. Dollars)
1996Est
1997 1998 1999 2000Projections
2001
Scenario ISlower export growth
Exports in percent changeImports in percent changeCurrent account as percent of GDPReserves in months of imports
of goods and nonfinancial servicesOutstanding debt (US$m) I/ 21Debt/GDP ratio II21Debt service paid/exports of goods
and nonfinancial services 2/
Scenario HRegional secutrity problems
Exports in percent changeImports in percent changeCurrent account as percent of GDPReserves in months of imports
of goods and nonfinancial servicesOutstanding debt (USSm) I/ 21Debt/GDP ratio II21Debt service paid/exports of goods
and nonfinancial services 21
-2.63.7-7.2
2.7412422.7
4.06.8-6.8
2.7512124.6
5.06.1-6.0
3.0598927.2
6.06.8-5.1
3.1681629.0
7.07.4-4.2
3.3759030.2
8.08.1-3.4
3.4823330.7
10.1 9.6 8.8 8.9 11.1
10.1 9.6 7.6 5.2 5.1
Sources: Croatian authorities and staff estimates.
I/ Does not include debt that was excluded from London Club agreement, and claims oninternational reserves of the former Socialist Federal Republic of Yugoslavia.
21 Excludes short-term trade related debt.
12.6
-2.63.7-7.2
3.3412422.7
8.0-18.00.9
3.3370020.9
8.09.30.4
3.2329617.1
8.08.80.1
3.1303314.3
8.06.20.5
3.1271812.1
8.07.80.4
2.9242810.0
4.2
Scenario HIErrors and omissions continue to be largeExports in percent changeImports in percent changeCurrent account as percent of GDPReserves in months of imports
of goods and nonfinancial servicesOutstanding debt (US$m) I/ 21Debt/GDP ratio 11 21Debt service paid/exports of goods
and nonfinancial services 21
Baseline outlookExports in percent changeImports in percent changeCurrent account as percent of GDPReserves in months of imports
of goods and nonfinancial servicesOutstanding debt (US$m) I/ 21Debt/GDP ratio It 21Debt service paid/exports of goods
and nonfinancial services 21
-2.63.7
-7.2
2.6412422.7
10.1
-2.63.7
-7.2
2.6412422.7
10.1
7.010.9-7.6
2.6512124.6
9.4
7.09.0
-6.9
2.6512124.6
9.4
8.07.9
-6.7
3.0598927.2
8.5
8.08.0
-6.1
2.9598927.2
8.5
8.07.9
-5.8
3.3681629.0
8.5
8.08.0
-5.2
3.0681629.0
8.5
8.07.9
-4.7
3.6759030.2
10.5
8.08.0
-4.2
3.1759030.2
10.5
8.07.9
-3.8
3.8823330.7
11.9
8.08.0
-3.4
3.2823330.7
11.9
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44. A third scenario illustrates the upside risk that errors and omissions do not fall to zeroby assuming this item will continue at about US$300 million annually and reflect in large partunrecorded current earnings. Higher errors and omissions on this latter account would implyincome levels that are higher than envisaged in the baseline outlook, and thus also implysomewhat higher-than-projected imports. Assuming a high average propensity to import withroughly half of the initial impact leaking out, this would lead to an additional reserve build-upof about US$150 million annually. Alternatively, the program of impon liberalization could beaccelerated.
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ATTACHMENT
Estimation of the Permanent and Transitory Parts of Net Foreign Exchange Inflows
45. For the estimation below, a series of "non- tourism inflows" has been constructedwhich consists of monthly foreign exchange inflows in the form of resident cash and deposits,and non-resident sales of foreign currency minus an estimate of tourism inflows. This estimateof tourism inflows is constructed by multiplying the number of overnight stays of foreigntourists with an estimate of their expenditure based on survey information from 1994, andadjusted for the movement in the price level. It is assumed that expenditure by the first100,000 stays—a minimum registered in virtually every month and outside the standard touristseason—is double the expenditure indicated by the survey. The motivation for this adjustmentis that the survey evidence relates mainly to normal tourists, whereas the year round numberreflects high expenditure businessmen, and U.N. and other officials.
46. The inflows show a relatively steady trend except for the period from late May toAugust of 1995, when the shelling of Zagreb and the coast occurred and "Operation Storm"was initiated. This is confirmed by regressing the non-tourism inflows on a combination oflinear and non-linear trends, and a dummy for "Operation Storm" (Table 6). The trendcomponent is, on average, US$69 million higher in the first half of 1996 compared with thewhole of 1995. Similar specifications explain about 70 to 80 percent of the variation in theinflows. Such a percentage of the non-tourism inflows could be regarded as reflecting flows ofa permanent nature, notably current earnings.
47. On this basis, it can be calculated that about 50 percent of cash and check purchasedfrom and deposited by residents could represent current earnings that are over and above theshare of inflows identified in the existing methodology for compiling current earnings in theBOP. Thus, about 75 percent of such flows should be registered as current earnings. Asindicated in Table 3, this would entail an overestimation of the current deficit of aboutl!/2 percent of GDP in 1995, and 2 percent in 1996 on this account.
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Table 6. Regression Results for Non-Tourist Inflows
Coefficients Standard t RatioError
Intercept"Operation storm"lime trend1/Ln trendI/time trendI/time trend squared
-2237.8-50.021.1
7504.8-9721.41196.7
14291415
43595462612
-1.57-3.481.431.72
-1.781.96
Dependent variable: Non-tourist inflowsRegression period: January 1995, through June 1996.Regresion method: Ordinary Least SquaresRegression Statistics:R square 0.63Adjusted R square 0.48Standard error 27.79Observations 18Source: staff estimates
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n. AN ANALYSIS or THE BEHAVIOR OF MONETARY AGGREGATES IN CROATIA21
A. Introduction
48. The monetary aggregates in Croatia have grown enormously in the period sinceend-1993 (Table 1). Nevertheless, inflation has stayed below 4 percent and the exchange ratehas been fairly stable, trading between 3.5 and 3.8 kuna per deutsche mark since then. Anadditional point of interest is the high share of foreign currency in Croatian broad money, withforeign currency inflows so far showing only slight signs of abating. At first glance this highshare of foreign currency might suggest that some form of "currency substitution" is takingplace in Croatia. In fact, foreign currency appears to be held mainly as an asset (albeit an assetwhose value has been depreciating over most of the period considered here), in anenvironment where there are few other options available for portfolio diversification.
49. In an effort to understand better the behavior of various monetary aggregates inCroatia, and to investigate their usefulness as intermediate targets for program purposes, thispaper estimates various money demand functions. The main conclusion is that the monetaryaggregates have not grown in a way that is predicted by standard theories of money demandwith respect to the effects of changes in economic activity (the scale variable) or theopportunity cost of holding money (the interest rate). Demand equations with these variablesdo not appear to be satisfactory because of two main findings. First, although estimates of theelasticity of demand for real money balances with respect to activity are roughly consistentwith evidence for other industrial countries, in general the results with respect to the interestrate elasticity are of the wrong sign—that is, the estimated demand for money is positivelycorrelated with the opportunity cost of holding it. Second, deviations of estimated moneydemand from actual observations are highly serially correlated. This suggests that some other,perhaps unobservable, factor is driving movement in money demand.
50. A possible explanation, consistent with both findings, is that a substantial andsustained remonetization has been, and appears to still be, taking place in Croatia in the wakeof decades of high and hyper-inflationary conditions. In such a situation, money demand couldrise without a drop in the interest rate or a rise in the level of economic activity, resulting inspurious estimates of the output and interest rate elasticities. With poorly estimated andunderstood money demand, the usefulness of the corresponding monetary aggregates asintermediate targets is severely diminished.
51. The extremely short time period for which consistent data series are availableunfortunately limits the econometric procedures which can reasonably be applied andnecessitates the use of parsimonious time series models with fairly strong restrictions on the
21Prepared by Sonal Desai.
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Table 1. Croatia: Growth rates of monetary aggregates
1994 1995 1996
(percent change on an end-of-period basis, unless otherwise indicated)
Monetary aggregates II 21Reserve moneyNarrow money (Ml)Kuna-denominated broad money (M2)Foreign currency denominated depositsBroad money (M4)
110112876274
4325206140
1728334942
Memorandum items
Retail price inflationExchange rate (Kuna/DM, end-of-period level)Percentage share of foreign currency in M4
-3.03.632
51
3.83.710
58
3.43.560
60
Sources: National Bank of Croatia
I/ Reserve money consists of the reserves of the National Bank of Croatia and currency.Narrow money (Ml) consists of kuna-denominated demand deposits and currency.Kuna-denominated broad money (M2) consists of Ml plus kuna-denominated time and savings deposits (quasi money).Broad money (M4) consists of M2 plus foreign currency denominated quasi money. Required reserves against
foreign currency deposits are held abroad.21 Data for 1996 are for the first 11 months of the year.
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lag structure.22 Thus, this paper does not pursue the error-correction approach, which hasbeen a popular model in the empirical money demand literature since it identifies both thelong-run and short-run dynamics of money demand. On a priori grounds, it would bereasonable to expect that a long-run trend, as opposed to a cycle, could not be isolated withonly two and a half years of data. In addition, application of this model requires that astationary error term be obtained, but this was only the case in the empirical work undertakenwhen the parameters of the long-run money demand function were theoretically implausible.
52. In the second part to this paper, the sensitivity of the shares of various components inbroad money (A/4) to interest rate differentials is investigated directly and the results indicatethat some fraction of their variation can be explained by changes in the relevant interest ratedifferentials. The findings do, however, also throw into question the validity of includingforeign currency-denominated deposits in a measure of broad money. Including such depositswould be reasonable if they were a close substitute for similar deposits denominated in kuna.If this were the case, then the share of kuna deposits in M4 would be highly responsive to theinterest rate differential between kuna- and foreign currency-denominated deposits, lit fact thisis not the case, suggesting that foreign currency deposits may be held primarily for assetdiversification.
B. Money Demand: Theoretical Motivation and Empirical Estimates
53. The demand for real money balances is often modeled as a function of: (i) somemeasure of economic activity or a scale variable; (ii) the nominal interest rate or some measureof the opportunity cost of holding money; and (iii) exogenous shocks to money demand.When money balances bear no interest, the opportunity cost of holding money is given by thenominal interest rate on an alternative asset, say bonds.23
54. In Croatia, there are several factors which complicate the interest rate part of thestory. First, almost all deposits are interest bearing, so only the opportunity cost of holdingcurrency can be correctly modeled as a function of just nominal interest rates on other assetsand activity. The opportunity cost of holding demand deposits is the differential between theinterest rate on a less liquid asset, say savings deposits, and the interest rate on checkingaccounts. The opportunity cost of holding time or savings deposits, similarly, is the differentialbetween the interest rate on those deposits and an even less liquid asset. In addition, a largefraction of the broad money aggregate is held in foreign currency, bearing different interestrates than kuna holdings. To compare these interest rates, those on foreign currency depositsmust be converted into ex ante kuna interest rates. This involves computing expected
22Monthly data is available for all series starting in June 1994 and ending in November 1996.
^Such an approach is often motivated by the Baumol-Tobin model of the transactions demandfor money.
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exchange rate changes against a basket which reflects the currency composition of the foreignexchange deposits.
55. An even more fundamental question to be interpreted in the context of the empiricalresults is whether the foreign currency component of what is called broad money in Croatiashould be regarded as money at all, given that the characteristics of this component may bemore like those of a financial asset. Even though foreign currency deposits satisfy the store ofvalue role of money, the transactions role is far less certain. However, foreign currencydeposits are only marginally less liquid than similar kuna-denominated deposits and they canbe easily converted to liquid kuna, if desired.
56. Broad money (M4) is divided into four components for empirical analysis:(i) currency (C); (ii) demand deposits (Z2D); (iii) kuna-denominated savings and time depositsor kuna quasi-money (£/)); and, (iv) foreign exchange time and savings deposits, or foreigncurrency-denominated quasi-money, (£D). The empirical analysis itself is divided in twoparts: (a) an estimation of the money demand functions for three of the monetary aggregates;and (b) an estimation of the how the components of broad money demand are individuallyaffected by interest rate differentials.
Estimating the demand for M4
57. Starting with the broadest monetary aggregate (M4), the basic model is:
58. The 6's are weights, computed as the respective shares of each component of broadmoney in the total; ic , iD , iK , and iF are the interest rates on currency (trivially 0), demanddeposits, kuna-denominated time and savings deposits, and foreign currency-denominatedtime and savings deposits respectively.
59. The opportunity cost of holding M4 instead of some alternative asset is measuredusing the return differential against the interest rate on borrowed funds (ix, the bank lendingrate) as the return on the alternate asset. This is justified in two ways: (i) the fact that themarket for bonds and other financial instruments is so small and still sufficiently undevelopedthat the interest rates on these instruments probably do not represent a good benchmark; and(ii) if firms (or households) which borrow fbnds fulfil the marginal condition that the return to
where A/4= C+ DD+S, D+SJD, P is the price level, Y is a scale variable, e is an exogenousshock to money demand, it is the bank lending rate, and IM is a weighted average of theinterest rates on the components of M4, calculated as
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capital (or durables) is equated to the borrowing rate, then the bank lending rate representsthe return to capital (durables) which is an alternate asset to holding broad money. However,rather than using the return differential itself as an explanatory variable, the individualcomponents are allowed to enter the estimated equations separately. This is because thelending rate is only a proxy and imposing the restriction of equal coefficients on each interestrate generally gave a poorer fit, as well as less plausible parameter estimates.
60. The expected exchange rate depreciation that is needed to construct a proxy for theexpected return on foreign currency deposits is calculated using a purely statistical, backwardlooking, time series model of the exchange rate. Such a model should do better than thetheoretical restriction implied by uncovered interest parity, since, in the case of Croatia, thisrestriction implies that systematic and persistent forecast errors have been made over longperiods of time: the differential between Croatian and foreign interest rates has consistentlybeen positive, yet the kuna has rarely depreciated. The model that was eventually usedmeasured the value of the kuna against a basket of dollars and deutsche mark assumed to bepurchased at the average exchange rates of 1995, where dollars represent 30 percent of thebasket at the time of purchase.24 The forecasting model projected the current depreciation rateof the kuna on the lagged depreciation rate and one lag of the inflation rate. Further lags ofthese variables and lags of various nominal interest rates were found to have no additionalforecasting power. Rather than factor the estimate of the expected depreciation directly intothe interest rate on foreign currency deposits (iF) , it too was allowed to enter separately in theregression that follows. Specifications where the estimated expected depreciation wasfactored directly into the interest rate generally gave worse results overall.
61. In estimation, it is assumed that the money demand function is in log-linear form (sothat coefficients on quantities represent elasticities and the coefficients on interest ratesrepresent semi-elasticities), and that various lags of the left- and right-hand side variables maybe important in explaining the current demand for money. Specifically, ignoring constants, andpossible linear trends, it is assumed that
where a(L), b(L\ c(L\ d(L), and e(L) are polynomials in the lag operator, and dep is theestimated expected depreciation.
62. An important empirical question is whether the money demand functions, so estimated,are stable. In this context, stability is not taken to mean parameter constancy but the existenceof a stationary error term in the money demand function. The implication of such stabilitywould be that as long as some linear combination of all the variables in the money demandequation were found to be stationary—even if not stationary individually—then a statistically
"This split between deutsche mark and dollars has been roughly stable for several years.
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reliable forecast of real balances could be obtained, based on independent forecasts of theright hand side variables.
63. In the event that the error terms from the estimated equation appear to be stationaryand thus a stable money demand function can be estimated, a second question is whether theestimates are theoretically plausible. Plausibility affects the extent to which forecasts from themoney demand equation can be considered reliable and use&l.
M4 Demand—Empirical Results
64. Estimation of the demand function for M4 did not yield plausible results. Severaldifferent models were estimated, but the essence of the results was robust to these differentspecifications, and generally cast doubt on the existence of a stable and predictable demandfunction for M4. The basic problems with all the estimates can be illustrated by consideringthe simplest OLS specification that was used: the dependent variable was the log-level of realbalances (M4/P\ while the right-hand side variables wore a scale variable (measured by anaverage of the indices of industrial production and real retail transactions), the relevantinterest rates for A/4 deposits and bank credit, and the expected depreciation of the exchangerate.
65. The results were as follows:
Variable Coefficient Standard Error T-StatisticConstant -1.21 1.55 -0.78Activity 1.41 0.29 4.85 **iL 0.041 0.005 8.61 **iM4 -0.17 0.08 -2.13 *Expected depreciation 0.001 0.006 0.84
R2=0.87* significant at the 5% level** significant at the 1% level
66., The elasticity .with respect to activity (1.41) was vary large and of the expected sign butit exceeded estimates typically found in other money demand studies. On the other hand, theinterest rate elasticities on the alternate asset (/L) and on M4 itself had the wrong sign andwere significant, suggesting that the demand for M4 goes up when it becomes more costly tohold it and when the reward to holding it falls (a theoretically implausible finding). A furtherproblem with this specification was that the estimated residuals were highly serially correlated.
67. Several alternative specifications were tried as summarized in the attachment to thischapter. However, the implausible finding vis-a-vis the interest rate on the alternate asset wasrobust across these specifications. The conclusion drawn from the regressions was that ifbroad money demand was a standard function of activity and interest rates, the results using
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data in levels could be rationalized either by significant measurement error in the activity databeing used, or by large, persistent, shocks to money demand (which would favor thefirst-differenced specification discussed in the attachment). With regard to the latter, thefluctuations in activity and interest rates have been relatively minor over the sample period inrelation to the large observed changes in real balances. Absent autonomous shocks to moneydemand, and in the presence of plausible output and interest rate elasticities, thesedevelopments would be difficult to explain. Without such shocks, the price level would haveneeded to rise much faster than has been observed to achieve equilibrium in the moneymarket.
68. Once we accept the notion of large autonomous shocks to money demand, it is naturalto work with a trend, or a model in first differences. Unfortunately, the results using detrendedand first-differenced data suggested insufficient high frequency variation in output and interestrates for identification of the demand function. Another possible source of misspecificationacross both types of models of A/4 is that using the interest rate on bank lending may not bethe best measure of the opportunity cost of money. In the case of broad money, however, analternate measure is not obvious, given the lack of developed financial markets.
69. It would not appear that the underlying model driving the behavior of M4 can bestylized into a simple money demand framework. More complicated influences related toportfolio balance considerations are likely to be at play.
M2 Demand—Empirical Results
70. Next, kuna-denominated broad money (M2) demand was estimated using similarspecifications. The variables were the same as those used in the estimation of demand for M4,except with respect to the choice of an interest rate on a reasonable alternate asset, which inthe case of M2 was assumed to be holdings of foreign exchange denominated time and savingsdeposits. The empirical estimates for M2 were more in line with the money demand modelthan the results for M4: the own-interest rate elasticity had the correct sign and wasstatistically significant; the point estimate for the alternate asset-interest rate elasticity had theright sign, although it was small and insignificant.
Variable Coefficient Standard Error T-StatisticConstant -2.9 1.1 -2.65**Activity 1.5 0.21 7.1 **im 0.12 0.03 4.0 *IF -0,01 0.065 -0.17Expected depreciation 0.008 0.006 1.4
R2=0.74* significant at the 5% level** significant at the 1%
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However, once again, serial correlation of the error t^m was a problem, which alternatespecifications consistent with the model could not solve. In addition, the results wereextremely sensitive to the precise time series representation of the right hand side variableswith respect to lags, with neither the signs or the significance of coefficients being robust.Thus while more plausible than for M4, the results for M2 also presented a number ofstatistical difficulties.
Ml Demand — Empirical Results
71 . The last aggregate to be considered was narrow money. In this case the alternate assetswere considered to be kuna time and savings deposits and foreign currency deposits (i.e., allquasi-money). The return on quasi-money was calculated as a weighted average of interestrates on the two denominations. Here, as in the case of M4, the sign on the coefficient on theown-interest rate was of the wrong sign; however, it was not significant. The variables ofsignificance were activity and the return on kuna-denominated quasi-money. The latter,however, also had the wrong sign.
Variable Coefficient Standard Error T-StatisticConstant -0.99 1.42 -0.69Activity 1.1 0.27 4.04**im -0.09 0.08 -1.07i* 0.04 0.009 4.9**ip -0.004 0.06 -0.06Expected depreciation 0.009 0.006 1.58
RHX80'significant at the 5% level"'significant at the 1%
Estimating component shares in broad money
72. An alternative approach is tried in the second part of the analysis, which investigatesthe breakdown of M4 into its various components by modeling this breakdown as a functionof the component-wise interest rate differentials. It is convenient to assume a recursivestructure in how the different components of M4 produce liquidity services, that is, functionalseparability.25 An example would be if liquidity services were generated by a recursive series
2SIn very general settings the relative demand for two goods cannot always be characterized asa function of only their relative price. For example, to model the relative demand for twocomponents of a consumer's expenditure it is often necessary to assume some kind ofseparability in the utility function: either Hicksian or functional. For further discussion of thisissue see Varian (19%4), Microeconomic Analysis. New York: W.W. Norton and Co.
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of constant elasticity of substitution (CES) functions of currency, demand deposits, kuna timeand savings deposits, and foreign exchange deposits of the form:
where each of the functions fp is CES in its two arguments. This kind of structure motivatesthe following models of the breakdown of A/4 into its components.
73. The fraction of A/4 held as currency is modeled as a function of the average interestrate on noncurrency:
76. This recursive structure is restrictive in the sense that the demands for each componentof M4 may, in reality, be unrestricted functions of the corresponding interest rates on all othercomponents as well as the bank lending rate (/,). However, given limited data (and, thereforedegrees of freedom) some strong restrictions are needed. It is also true that the overalldemand for money could be a function of all the separate interest rates on the variousmonetary aggregates, as well as the credit rate, but also because of data limitations, it isconvenient and standard to assume that the specification above is adequate.26 Sahay and Vegh(1996) construct a continuous time model in which the rate of "dollarization," which theydefine as the fraction of interest bearing assets held in foreign currency, is a similar function ofthe differential between nominal interest rates in the two currencies, and the rate ofdevaluation of the local currency.27
26If the chosen model is misspecified the parameter estimates are likely to be inconsistent, asthe coefficient on the interest differential will capture the covariance between that differentialand the omitted variable.27Ratna Sahay and Carlos A. Vegh (1996) "Dollarization in Transition Economies: Evidence
(continued...)
74. The fraction of A/4 minus currency held as demand deposits is modeled as a function ofthe differential between the interest rate on demand deposits and the average interest rate onM4 minus currency and demand deposits (i.e. total quasi-money):
75. Similarly the fraction of A/4 minus A/1 (quasi-money) held as kuna savings and timedeposits is modeled as a function of the differential between the interest rate on these depositsand the interest rate on other quasi-money, namely foreign exchange deposits:
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77. The first regression run was of the share of M4 held as currency on theweighted-average interest rate on non-currency. This regression is motivated by theassumption that the demand for currency relative to the other components of M4 should beinversely related to the interest premium on holding those components.28 The coefficient in theestimated equation was significant and of the right sign: as the interest rate on demanddeposits and quasi-money (in kuna and foreign currency) increased the share of currency inM4 declined.
Variable Coefficient Standard Error T-StatisticConstant 0.14 0.005 29.9 **i^ -0.001 0.0007 -1.96 *
RMU4* significant at the 5% level** significant at the 1%
78. Second, a regression was run of the share of demand deposits in interest-bearing M4(i.e. demand deposits plus quasi-money) as a function of die difference between the interestrate on quasi-money and the interest rate on demand deposits. Again the results show asignificant coefficient on the interest rate premium which has the correct sign.
Variable Coefficient Standard Error T-StatisticConstant 0.28 0.006 43.24**i -i,. -0.004 0.001 -3.32*
R*=0.32* significant at the 5% level** significant at the 1%
79. Third, the share of kima-denominated time and savings deposits in M4 was modeled asa function of the differential between the interest rates on foreign currency- andkuna-denominated quasi monies. The coefficient on the interest rate differential is notsignificant, though it is of the correct, negative, sign.
27(...continued)and Policy Implications/' in P. Mizen and EJ. Pentecost, eds., The Macroeconomics ofInternational Currencies: Theory, Policy and Evidence. Cheltenham, U.K.: Edward Elgar.
2'In this part of the empirical analysis, the interest rate on any monetary aggregate whichforeign currency deposits is denominated in kuna and includes implicitly the constructedmeasure of expected kuna depreciation. Allowing expected depreciation to enter separatelyfrom the pure interest rate differential did not significantly improve the results.
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Variable Coefficient Standard Error T-StatisticConstant 0.15 0.009 16.77**I*M»O«-/.D -0.0006 0.001 -0.43
R^.OOl* significant at the 5% level** significant at the 1%
80. If agents regarded kuna- and foreign currency-denominated deposits as goodsubstitutes for one another this result would be surprising. One would expect that the share ofkuna-denominated deposits would be significantly related, and highly sensitive, to the interestdifferential. The fact that neither of these features is present lends support to the view thatagents do not hold foreign exchange primarily for transactions purposes, but rather as an assetfor purposes of diversification.
C. Concluding Remarks
81. This study had two main parts. First, it estimated demand functions for variousmonetary aggregates which, had they been stable and theoretically plausible, would have beenuseful for understanding their behavior and for gauging monetary policy. Of the threeaggregates, both the estimated demand for the broadest (M4) and the narrowest (Ml)aggregate yielded implausible results. The only monetary aggregate which displayed some ofthe expected properties was the domestic component of broad money (M2), but even herestatistical problems were present and the results obtained were not especially robust. Onepossible explanation for the relative implausibility of the results for A/4 is that demand forforeign currency deposits are not transactions based as in a standard money demandframework, bearing out the notion that the main Sanction of such deposits relates more toportfolio diversification.
82. The second part of the study investigated the behavior of the relative shares of thedifferent components of broad money. In this regard, the relative shares of some of itscomponents are related in a statistically significant way to interest rates. The exception, thelack of sensitivity in the share of kuna deposits to the interest rate on these deposits relativeto that on foreign exchange deposits, suggests that these two kinds of deposits may not beclose substitutes. This argues against the presence of any kind of pervasive "currencysubstitution" in the sense of a movement away from domestic currency into foreign currencyfor the purpose of transacting. Indeed, while the demand for foreign currency has beengrowing, the demand for domestic currency has also been growing, in a non-inflationarymanner.
83. Avenues for further research are severalfold. This chapter has focused on the demandfor money, and has assumed that comovements among real balances, output and interest ratescan be attributed to, or identified with, the money demand function. However, absent
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monetary policy which exogenously targets the money supply, some of these comovementsare due to the nature of the money supply rule and money supply shocks. To formally dealwith this problem, a structural vector autoregression (VAR) approach might be useful. TheVAR would separately identify money demand, and money supply, and would facilitate anassessment of how monetary policy's effectiveness in offsetting autonomous shocks to moneydemand, but such an approach must await a longer data series. A second, interesting,extension of this work would be an assessment of money demand more along the lines ofCagan's analysis of hyperinflations, in which the expected inflation rate is taken to be the maindeterminant of money demand. This would be especially relevant to studying the historicalperiod that predates the sample used in this chapter.
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ATTACHMENT
where a(L\ b(L\ c(L\ d(L\ and e(L) are polynomials in the lag operator, and dep is theestimated expected depreciation.
85. First, the equation above was estimated using two-stage least squares, and laggedvalues of real balances, activity, and the interest rates, as well as a constant and a trend asinstruments. This might be preferred to the method presented in the main text, given thatmoney demand shocks (the errors in the equation) are likely to be correlated with output andinterest rates if they have real effects. Only if the shocks are stationary and these lattervariables are nonstationary can OLS yield consistent estimates. Of course, the instrument setdescribed above, may be misspecified, if there is correlation between the money demandshocks and lagged right-hand side variables. The results were similar to those obtained usingOLS. For example, the estimated semi-elasticity with respect to the bank lending rate usingthis method was 0.041 (again positive) and was significant at the 1 percent level. Furthermore,the residuals from this equation were not highly serially correlated.
VariableConstantActivityJL*M4Expected depreciation
Coefficient-5.812.290.041
-0.040.017
Standard Error3.130.570.0070.140.027
T-Statistic-1.854.02 **5.64**
-0.30.67
R .77* significant at the 5 percent level** significant at the 1 percent level
86. The second specification included the lag of real balances on the right-hand side, butthe results were, for the most part, qualitatively and quantitatively unchanged. The impliedelasticity with respect to activity became insignificant, while the credit rate elasticity wasrobustly positive and the deposit rate elasticity was negative. This specification led to a verygood fit, since real balances resemble a unit root process: the coefficient on lagged realbalances was 0.91 with a standard error of 0.04.
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Alternative Specifications of M4 Demand
84. This attachment details results for estimating M4 using four alternate specifications.The equation estimated is the same basic money demand equation presented in the main text:
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ATTACHMENT
Variable CoefficientConstant 1.26Activity -0.10Lagged Activity 0.91jL 0.0054« -0.08Expected depreciation 0.001RMX99* significant at the 5 percent level** significant at the 1 percent level
Standard Error0.40.10.040.0020.020.001
T-Statistic3.16**
-1.020.8 **2.48 *
-3.9 **1.03
* significant at the 5 percent level** significant at the 1 percent level
88. A further possibility is that the money demand shocks are trend stationary. Thismotivated the inclusion of a trend in the levels regression in the fourth specification used, butdid not change the sign of the coefficients on the interest rates while leaving the credit rateinsignificant. It also drove activity out of the equation. The trend appeared to explain almostall of the significant movement in money demand, the deposit rate being the only othervariable with a significant coefficient (robustly of the wrong sign). Thus, deviations from trendwere found to have little useful informational content.
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VariableConstantActivityA/£A/j«AExpected depreciationRM).21
Coefficient0.031
-0.14-0.00-0.0590.0017
Standard Error0.0050.10.0040.0040.0011
T-Statistic5.96 **
-1.36-.13
-1.381.55
87. The above specifications were motivated by the possibility that the error term in themoney demand equation might be stationary, even though real balances and activity might benonstationary or close to non-stationary. Another possibility is that the money demand shock,is, in fact, nonstationary, in which case the money demand equation should be estimated infirst differences. When this third specification was used, log first-differences of real balanceswere found to closely resemble a random walk with drift: none of the differenced variablesentered significantly into the equation. Adding lags of the dependent and right hand sidevariables to the specification did not significantly alter the fit or the point estimates. Putdifferently, there is insufficient information in the high frequency components of the data toidentify money demand functions.
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ATTACHMENT
VariableConstantActivity*Lh«
Expected depreciationTrendRMJ.99
Coefficient5.1
-0.0180.001
-0.050.0030.03
Standard Error0.60.120.0030.0240.0020.002
T-Statistic8.56 **
-0.150.49
-2.21 *1.99
17.86**
* significant at the 5 percent level** significant at the 1 percent level
89. All these specifications confirmed the basic implausibility of the earlier results obtainedin the main text with respect to M4.
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m. OWNERSHIP, COMPETITION, AND EFFICIENCY IN THE CROATIAN BANKING SECTOR29
A. Introduction
90. This paper attempts to assess the relationship between the nature of bank ownership,age, conditions of competition, and bank size on interest rate spreads, bank profitability, andmeasures of bank operating costs and bank asset growth. The specific issues to be examinedare (i) the extent to which privatized banks are distinct in their behavior from either newprivate banks or the remaining state-owned banks and (ii) whether regional differences incompetition conditions are a significant determinant of overhead cost or bank interest ratespreads. Finally, the paper will briefly review the implications of its findings for the likelyresults of continued banking system entry by new private banks and for policies to lowerinterest rate spreads in Croatia.
91. Descriptive statistics on the variables used in this study are presented in a discussion ofgeneral trends and measurement issues in Section B. This is followed by some cross sectionregression estimates that attempt to test narrower hypotheses of bank behavior throughexamination of the relationships among these variables. The hypotheses are laid out in SectionC and the empirical results appear in Section D. The paper concludes with a brief discussionof the implications of the results for banking system evolution and policy in Croatia.
92. The Croatian banking system before the transition was characterized by two nationalbanks and roughly twenty regional banks, each competing in largely non-overlapping regionalmarkets. All banks were controlled by socially-owned (effectively state-owned) entities ratherthan private owners. Banks were owned and controlled by major borrowers to varyingdegrees. Starting in 1989, new private banks were allowed to enter the market. Two dozennew private banks entered the market by the end of 1994, mostly in the capital, Zagreb.Simultaneously, older Croatian banks and enterprises began a gradual process of privatizationin which banks sought new private owners directly through new share issues at the same timeas state-owned shareholders of banks also sought to privatize themselves. As a result of bothprocesses, the new private banks were joined by eight privatized banks by the end of 1994.Eighteen other banks were in majority-state ownership at the end of 199430. New entry intobanking was very heavily concentrated in Zagreb, while privatization of older banks occurredin both Zagreb and the other regions. At end-1995, Zagreb customers were served by twentybanks while customers in various regions of Croatia were generally served by one or two
29Prepared by Thomas Dorsey. This paper is an extension of a part of a larger paper preparedfor the Second Dubrovnik Conference on Economies in Transition: Velimir Sonje, Evan Kraft,and Thomas Dorsey, "Monetary and Exchange Rate Policy, Capital Inflows, and the Structureof the Banking System in Croatia," June 1996.
30Five additional majority state-owned banks entered the market between end-1991 andend-1995. Most were new subsidiaries of older majority state-owned banks.
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older regional banks, which may or may not have been privatized, and two national banks, oneof which was privatized. In some cases, generally the more populous regions, a new privatebank was also in the market.
93. Most of the descriptive statistics and almost all of the statistical analysis are based onbalance sheet data for end-1995 and cash flows for the year 1995. This choice of data isdriven by availability of useful information. Prior to 1994, Croatia was characterized by veryhigh inflation and a unresolved situation regarding bank privatization. Although 1994 cashflow data were available, the very recent and sudden end of high inflation raises some questionas to whether 1994 cash flows would be representative of "normal" conditions.31
94. Nominal magnitudes from bank balance sheets are presented as ratios to total assets inorder to come up with measurements independent of scale as in other papers on bankingsystem competition, structure, and performance.32 Two sources of data sometimes used inother analyses that were not available for this study are line of business cadi flow data andstock market data.33 Data on costs and revenues by line of business (e.g., household versusgovernment deposit-taking or commercial versus consumer loans) were not available at all.Information on the market valuation of assets exists but is quite limited; only a few banks haveshares that are actively traded in Croatian stock markets and only one bank is fully listed onthe Zagreb Stock Exchange. Therefore, this paper relies primarily on balance sheet databecause of the absence of alternatives.
B. Competitive Structure and Financial Differences Among Croatian Banks
95. Tables 1 and 2 below show the share of banking system assets classified by type ofbank ownership and regional competition conditions. Both classifications require someexplanation, particularly in the case of the ownership classification. To capture therelationship, if any, between ownership and bank behavior, three categories of ownership are
31Retail price inflation in Croatia fell from 38.7 percent in October 1993, to 1.4 percent inNovember 1993, and to O.S percent in December 1993. The first five months of 1994 ware allcharacterized by falling prices.
32This scaling is done to focus on the proportional effect of asset and liability allocation, not tooffset heteroskedasticity (although it may serve that function as well). As these data are drawnfrom balance sheets, the total assets (or equivalently total liabilities) should not be interpretedas asset market values. This approach has been used even in cases in which the banks underconsideration were failed banks. See in this regard David C. Wheelock and Paul W. Wilson,"Explaining Bank Failures: Deposit Insurance, Regulation, and Efficiency," Review ofEconomics and Statistics, 1995.
33See for example, Mary S. Schranz, "Takeovers Improve Firm Performance: Evidence fromthe Banking Industry/* Journal of Political Economy, 1993.
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employed in the tables and estimates: "new private" banks are those private banks establishedsince 1989 with a private ownership structure; "privatized" banks are those older banks withmixed but majority private ownership structures; and "state" banks, a majority of the shares ofwhich are owned by majority-state enterprises.34
96. While the ownership of the new private banks is straightforward, the ownership of theolder banks, whether privatized or not, requires some understanding of banking systemownership in the former Yugoslavia.
97. As noted above, the banks inherited from the old regime were owned by groups ofsocially-owned enterprises. This ownership structure was initially continued during theprivatization process although sales of new bank shares to household or other buyers dilutedthe original ownership in many cases. In addition, enterprise privatization has been an ongoingprocess throughout the period under consideration with enterprises becoming majorityprivately owned through a gradual process of share sales from the Croatian PrivatizationFund. As a result of both processes, the ownership structure of almost all of the old banks hasbeen constantly changing, and the measurement of private bank ownership is dependent uponthe measurement of privatization of the enterprises that own bank shares.
98. Privatized banks are those banks with a majority of shares owned by originally privatefirms, fully-privatized firms, majority-privatized firms, or private individuals as of end-1994.35
These banks include the largest bank measured by deposits (the second largest measured byassets) as well as seven other banks (see Tables 1 and 2). Only a single observation is used forthis measure: thus there is no change in the composition of the privatized banks over time; thesame eight banks contribute to the "privatized" data for all years. As a result, changes in theasset shares of this group over time reflect only the relative performance of these eight banksas they proceeded on the path to privatization and not changes in the composition of thegroup as banks move from "state" to "privatized" categories.36
^There are "new" state banks, but these are generally subsidiaries of, or successors to, otherstate banks that represent a continuation rather than a transformation of the ownershipstructure.
"The measurement of privatization for banks existing at end-1994 is taken from an inventoryof banks published in the Croatian financial journal Barika International, December 1995,pp. 38-43. Although the process of privatization began years earlier, these banks had notformally become majority private until 1994. Given that financial flow data was for 1995,end-1994 and end-1995 privatization data would be equally relevant However, even thoughtwo additional banks had become majority privately-owned by end-1995, changing thedefinition of "privatized" to reflect end-1995 ownership status to add these two banks to theprivatized category status did not substantially affect the empirical results.
**The number of privatized banks based on ownership structure at the time of measurementwas zero through 1993, 8 at the end of 1994, and 10 at the end of 1995.
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Table 1. Banking System Assets by Ownership and Region:end-1991 through end-19951
f^tum^i uliiiiv/WUCIaili|J
StatePrivate
New PrivatePrivatized
RegiopNationalRegionalZagreb
Share of Assets
1991 199 199 994
(hi percent)
62.1 67.0 65.0 62.3
2.1 3.5 3.8 7.735.8 29. 31.2 30.2
55.0 55. 59. 4.742.9 42. 38. 0.52.1 2.0 2.6 5.9
1995
58.9
10.031.3
54.738.57.8
'Data for 1993 are end-September rather than end-December observations.
OwnershipStatePrivate
New PrivatePrivatized
RegionNationalRegionalZagreb
Table 2. Number of Banks by Ownership and Region:end-1991 through end- 1995
1991 199 199 994
13 17 17 18
8 13 18 248 8 8 8
2 2 2 220 25 28 31
7 11 13 17
1995
18
278
23318
Total 29 38 43 50 53
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99. The regional categories used to proxy competition conditions also require someexplanation. Competition in the Croatian banking system may be characterized as follows:each regional bank competes primarily only with the two national banks and does not competesignificantly with other regional banks or Zagreb-based banks other than two national banks.New entry has changed this situation to some degree, but the new entrants have been heavilyconcentrated in Zagreb—the largest market in Croatia but one which has between one-fourthand one-fifth of the country's population. This has tended to make Zagreb a more competitivebanking market than other regions of the country. Ideally, information on business activity bybank for each region could be used to better measure the degree of sub-market competition,but such data are unavailable and the Zagreb/regional distinction is used as a proxy formarkets with relatively strong versus relatively weaker bank competition.
100. The relative average size of the banks and several other characteristics of banks in thevarious sectors are shown in Table 3 (end-1994 data). New private banks are on the order ofone-tenth the size of state and privatized banks respectively. Capital among new banks of allsorts is remarkably high.37 We will see below that capital to a great extent plays the role ofdeposits for these banks. Old banks, whether privatized or state-owned, have much lowerlevels of capital adequacy. Note that capital adequacy levels in general seem acceptable, evenfor the old state banks. Although, at least for the worst banks, potential loan losses may in factexceed existing capital.
TableS. Capital and Employee Productivity at end-1994
New PrivatePrivatizedState
AverageAssets perBank, inthousandsofHrK
237,3592,747,4452,279,218
CapitalAssetratio,in percent
653518
Assetsperemployee, inthousandsofHrK
3,0992,7592,935
Personnelexpense/assets,in percent
2.282.221.71
Reserves/grossloans,in percent
7.829.01
11.76
All banks 1,226,108 47 3,003 2.09 10.37
101. Efficiency measurement in banking is a complicated issue. As a practical matter, costratios and similar input-based measures of efficiency are all that can be readily calculated frombalance sheet data. Costs and inputs can be measured in a relatively straightforward manner
37Money assets such as reserve deposits with the NBC have been removed from total assets toapproximate risk-weighted capital ratios (since these items are zero-weighted) for this tableonly. All other references to asset ratios use total book value of all assets.
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and compared to assets of various types (as is done below); quality of services is harder tomeasure. Therefore, what is described here as efficiency refers to a narrow cost efficiencyconcept and not to a broad concept of economic efficiency that correctly accounts for servicequality. Evidence from other economies suggests that this might not be appropriate. Forexample, Berger, Kashyip, and Scalise (1995) found that non-interest expenses relative toassets were rising in the United States in recent years as a result o/increased competition andinnovation; bank competition for customers took the form of an increased range of financialservices and increased provision of customer services such as automatic teller machines andelectronic banking.31 In spite of the increase in non-interest expenses relative to assets, onewould not necessarily want to describe such an outcome as a decrease in 'true" efficiency in anormative sense given the clear indications of increased service in this case.
102. Two personnel-based measures of banking overhead costs are assets per employee andpersonnel cost relative to assets. Data from 1994 on both employee productivity measuresappear in Table 3. The evidence is mixed: new private banks have lower costs by the assetsper employee measure but state banks have lower cost by the personnel costs to assetsmeasure. It seems that the new private banks tend to pay higher wages, possibly to attractexperienced personnel away from older banks or to provide greater employee incentives.
103. Data on broader cost measures appears in Table 4. All ownership categories havealmost identical ratios of administrative costs to assets while new private banks have slightlyhigher ratios of total non-interest cost to asset than state or privatized banks. One item thatdoes stand out in table 4 is the mudh lower administrative and non-interest cost ratios of thetwo national banks (one privatized and one still in state ownership). These data point to thefact that special attention should be given to the problem of economies of scale.
104. There are marked differences between various classes of banks in terms of interest ratesand interest rate spreads. It may be seen in Table 4 that national banks have much lowerinterest rate spreads than either regional or Zagreb banks and that new private banks havehigher spreads than state banks with privatized banks falling in between. Data show that newprivate banks held an advantage in net interest income as a ratio of total income. Table 5presents data on interest income, interest rates, and profitability. New private banks tend tocharge higher interest rates on short-term loans.
38 Allen M. Berger, Anil K. Kashyip, and Joseph M. Scalise, "The Transformation of the USBanking Industry: What a Long Strange Trip It's Been/' Breakings Paper on EconomicActivity 1995:2, 1995.
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Table 4. Banking System Cost/Asset Ratios and Interest Rate Spreadsby Market Type, Age, and Ownership in 1995
Type Non-InterestExpense/Assets
AdministrativeCosts/Assets
Interest RateSpreads39
Interest Income/Assets
RegionalZagrebNationalNew PrivatePrivatizedState
8.49.44.79.08.38.3
(In percent)
4.65.22.44.74.74.7
7.67.83.6
10.88.76.6
8.59.45.0
10.87.77.7
Table5. 1994 Interest and Return on Assets Indicators
Short-termloan rates40
Returnon capital
Returnon assets
New PrivatePrivatizedState
All banks
24.3418.3321.13
21.73
(in percent)
5.107.41
-18.83
-5.48
1.280.68-1.45
-0.57
105. The structure of profitability is largely consistent with the interest rate levels. Both newprivate and privatized banks are profitable by all measures. New private banks are the mostprofitable by the return on assets measure, but are less profitable by the return on capitalmeasure due to high capital holdings of new private banks. It can be quite difficult for thesenew private banks to develop a retail deposit base. Opening up a branch network requireslarge initial investment hi both equipment and personnel. Furthermore, the short-run
39The spread is calculated as the ratio of interest income to assets less the ratio of interestexpenses to deposits. Three banks for which the interest rate spread is not meaningful(e.g., because of near zero deposits) are excluded from the calculation.
"Announced interest rates are taken from the financial weekly Privredni Vjesnik.
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opportunity cost of such a business strategy during 1995 was high. In the short run, it wasmore profitable for the new, capital-rich banks to lend at high interest rates through theinter-bank money market than to invest in branch networks.
C. Relationships Between Profitability, Efficiency, Competition, and Ownership
106. There are competing influences in the relationship between profitability, interest ratespreads, growth, and overhead cost structure on one hand and ownership, age, competitiveenvironment, and scale on the other hand. The nature of bank ownership structures might beexpected to be particularly important. New private banks might be expected to perform betterthan old, state-owned banks. This superior performance might be thought of as having avariety of causes. The new banks would not be burdened by an existing portfolio of suspectloans inherited from the former regime. Their private ownership would establish incentivesthat would make it less likely that they would engage in money-losing new lending for politicalreasons or reasons related to moral hazard inherent in their ownership structure. They wouldalso be expected to avoid excessive overhead costs in the form of over-staffing, excessivewages or real estate or other "empire-building" activities divorced from profitable banking.Older banks that have been privatized might be thought of as an intermediate case, performingbetter than old, majority state-owned banks because of the improved incentives associatedwith the transformed ownership but less well than new private banks. Competing influencesabout the behavior of the new or private banks can be categorized in terms of three stylizedtypes.
107. One hypothesis, combining several relationships might be characterized by describingthe new or private banks as "lean and mean". Support for this hypothesis would be finding atendency for new private or privatized banks to have higher profits, lower interest ratespreads, and lower overhead-to-assets ratios. Conversely, the hypothesis suggests that olderand majority state-owned banks might be expected to be relatively unprofitable, exhibit higherspreads, and have higher overhead cost ratios under this hypothesis. This is arguably themainstream stereotype of banks (or other economic enterprises) in transition economies: theold regime is characterized by bloat and inefficiency for which cost control and aggressivepricing brought about through privatization and new private entry are the remedy.
108. A second hypothesis would have it that new private banks (but not necessarilyprivatized banks) are exploiting a niche to engage in what might be characterized as "creamskimming"—taking the most profitable customers on both the deposit and lending sides of thebalance sheets by providing higher quality services (and therefore incurring higher costs).These banks might also be expected to be relatively profitable, but, unlike banks under thefirst hypothesis, they might be expected to have higher interest rate spreads and perhapsmodest growth rates reflecting the preference for high rates of return over aggressiveexpansion. This hypothesis would be consistent with the view that existing bank ownershiplinks have channeled excessive credit to bank shareholders while pushing otherwisecreditworthy customers to the margins of the banking system where they would face higherrates due to greater competition for funds. Support for this hypothesis would be finding a
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positive relationship between new private banks on one hand and higher profits, and relativelyhigh interest rate spreads, on the other.
109. A third hypothesis, closely related to the "cream skimming" hypothesis, might becharacterized as "aggressive full service banks" also taking the most profitable customers onboth the deposit and lending sides of the balance sheets by providing higher quality (andtherefore incurring higher costs). These banks might also be expected to be relativelyprofitable, but they might be expected to have higher overhead-cost-to-assets ratios.However, unlike banks under the cream skimming hypothesis, they would be expected to havelower interest rate spreads and high rates of asset growth reflecting the preference foraggressive expansion over high rates of return. Such banks might typically be foreign banks(largely absent from Croatia in 199S) or domestic banks seeking low risk foreign or domestic"blue chip"clients. Support for this hypothesis would be finding a positive relationshipbetween new or privatized banks and higher profits, higher overhead-to-assets ratios, andrelatively low interest rate spreads.
110. Independent of the differences between these three hypotheses, two factors that needto be controlled for are the influence of economies of scale and competitive environment.First, Croatia is a middle income country with less than five million people but more than fiftybanks of widely varying sizes; it is not obvious that all are at or above the minimum efficientscale. Absent a control variable for economies of scale, large but inefficient banks could havetheir inefficiency masked by the effect of the scale economies. Second, competition in themore competitive banking markets could result in an equilibrium with lower profits, spreads,and overhead cost relative to other markets independent of ownership and age effects. Theregional variables described above are used as proxies to capture the effects of regionaldifferences in competition.
D. Empirical Examination of Competition, Scale Economies, and Efficiency
111. This section presents the results of regressions that attempt to assess some of thesehypotheses. Two measures of profitability (profits to assets and profits to capital), two costratios (non-interest expenses-to-assets and administrative expenses-to-assets), the ratio ofinterest income to total assets less the ratio of interest expenses to deposits (the "spread" forthe purposes of these regressions), and rate of growth are the dependent variables. Theindependent variables are the natural log of total assets (to capture the influence of economiesof scale), the ratio of non-interest expenses to assets, a dummy variable for new private banks(established in 1989 or later), a dummy variable for older privatized banks, and a dummyvariable for banks operating in Zagreb. All regressions use 1995 flows and end-1995 stocksfor all variables.
112. The sample used for the regressions reported on below excluded those banks withdeposits-to-asset ratios under 0.2. Because these banks are not taking significant amounts ofdeposits relative to their assets, concepts such as interest rate spreads are of questionablerelevance and cost ratios need to be considered in the light of having few of those costsassociated with depositor services. Some of these banks operating with little or no deposits
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are in a very early phase of their start-up while others appear to be engaged in somethingmore like investment banking than intermediation between depositors and borrowers. Anotheranomalous bank, one created to manage the Croatian assets and liabilities inherited from abank based in Serbia, was also excluded due to its anomalous nature. These deletions reducesthe total sample from 53 banks to 48 banks. However, these omitted banks are relatively smalland account for a small share of Croatian banking assets.
Profitability
113. The first measure of profitability employed is the ratio of 1995 profits to end-1995assets. This measure of profitability was regressed on the logarithm of total assets to capturethe effect of economies of scale, the ratio of deposits to total assets (to capture the effect ofdependence on borrowed resources) and dummy variables for local banks based in Zagreb,new private banks, and privatized banks (Table 6). A second regression was run on the samevariables but with the profit to capital ratio as the dependent variable (Table 7). In both cases,restricted regressions were run excluding the least statistically significant variables. Therestrictions were statistically insignificant (as measured by the F-statistics) in both cases andthe new private dummy variable became positive and significant (by conventional t-statisticmeasures) while the privatized dummy variable remained positive but fell short of thetraditional t-statistic levels for statistical significance.41
41 Although somewhat subjective, the general criteria for the variables excluded from therestricted regressions shown in the table are the omission of variables with very low t-statisticsand, in the case of the highly correlated Zagreb and New Private dummies, the omission of theless significant variable of the two when both are marginally significant.
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Table 6. Determinants of ProfitabilityDependent Variable: Profits/Assets
Constant
Natural log of Assets
New Private
Privatized
Zagreb
F(2,42)=0.5595
(t -statistics in parentheses)
0.0032(0.68)
0.0003(0.08)
-0.046(-1.35)
0.015(1.25)
0.018(1.29)
0.013(1.05)
0.030(1.65)
-0.034(-1.28)
0.020(1.95*)
0.015(1.07)
* indicates statistical significance at the five percent level
Deposits/Assets
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Table?. Determinants of ProfitabilityDependent Variable: Profits/Capital
(1) (2) (3)
(t -statistics in parentheses)
Constant -0.013(0.68)
0.021(1.65)
0.029(1.29)
Natural log of Assets 0.005(0.38)
Deposits/Assets
New Private
Privatized
Zagreb
F(2,42)-0.11F(l,44)=2.07F(3,42)-0.74
-0.046(-0.44)
0.052(1.41)
0.059(1.35)
0.056(1.46)
for comparison of (1) and (2)for comparison of (2) and (3)for comparison of (1) and (3)
0.052(1.57)
0.055(1.33)
0.050(1.44)
0.068(2.16*)
0.047(1.14)
* indicates statistical significance at the five percent level
114. These regressions indicate that private banks, particularly new private banks, are moreprofitable than state banks when scale effects and the influence of deposit-to-asset ratios aretaken into account. Three features of the insignificant variables are worthy of note. First,differences in profitability between new private and privatized banks, which should have beenpicked up by the new bank dummy, do not appears to be substantial given that the coefficientis low relative to the standard error. Second, the dummy variable for Zagreb, although of alow level of significance, has the opposite of the expected sign. Rather than suppressingprofits, the more intensely competitive Zagreb market appears to be associated, albeit weakly,with higher profits. The third feature worth noting is the economic significance of thecoefficients on these new private and privatized dummy variables. The dummy on new privatebanks suggests an additional profit effect for new private banks equal to 2.0 percent of assetsand 6.8 percent of capital, almost exactly the size of the mean profit to assets and profit tocapital ratios for all banks (2.1 percent and 6.7 percent respectively). The estimated profit
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effects for privatized banks (1.5 percent relative to assets and 4.7 percent relative to capital)are smaller and statistically insignificant but are also large in economic terms. This suggeststhat the low statistical significance may be more the result of low sample size rather than smalleconomic effect.
Non-interest expense and administrative cost ratios
115. Conventional wisdom about the banking system in Croatia suggests that the newerprivate banks are relatively efficient due to low overhead expenses (arguably too low foreffective loan evaluation according to some), while the older banks, particularly those thathave not yet been privatized are burdened with excessive overhead. The information in Tables4 and 5 provides some limited support for that view, but the differences across ownershiptypes are small and some measures show higher costs for the new private banks. The apparentlack of difference across ownership types may reflect the offsetting effects of economies ofscale trading to reduce the costs of the generally larger state-owned and privatized bankswhile poor cost control in those banks raises costs.
116. Two dependent variables (non-interest expenses to assets and administrative costs toassets) are regressed on the natural log of total assets (to capture the influence of economiesof scale), the ratio of deposits to assets (to capture the higher costs associated with retailbanking), a dummy variable for banks operating from Zagreb (other than the two nationalbanks), a dummy variable for new private banks established in 1989 or later, and a dummyvariable for older privatized banks.
117. In the case of both non-interest expense and administrative cost ratios, the results aresimilar. Both regressions show significant economies of scale, and a weaker but positiverelationship between the ratio of deposits to assets.42 The regressions on administrativeexpenses showed a marginally significant positive relationship between both new private banksand location in Zagreb on one hand and higher costs on the other (perhaps reflecting either aneed to provide more services in a more competitive environment or higher wages in Zagreb).Otherwise, the ownership, age and locations dummies showed little relationship to the costratios in the presence of the other independent variables.
118. These results tend not to support the idea that new private banks or more competitivebanking markets will reduce costs in the Croatian case or that older or state-owned banks aresuffering from bloated overhead costs. The new entrants may be more efficient in the sensethat they are providing a higher level of service with the same cost ratios as other banks.However, it does not seem to be the case that the new private or privatized banks areproviding lower cost banking services once the influences of scale and dependence upondeposits are taken into account.
"The deposit-to-assets ratio is included in the restricted regression for non-interest expensesin spite of its low t-statistic to maintain parallel treatment to the restricted regression foradministrative expenses.
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TableS. Determinants of Non-Interest and Administrative Expenses
Dependent variable: Dependent variable:Non interest expenses/ Administrative Expenses/
assets assets
Constant 0.244(4.00**)
Log Assets -0.015(-3.31**)
Deposits/Assets
0.036(0.84)
0.247(5.46**)
-0.015(-3.63**)
0.058(1.63)
New Private 0.012(0.88)
Privatized
Zagreb
F(3,42)-F(3,42)-
•0.001(-0.07)
0.012(0.80)
0.165(5.06**)
-0.011(-3.86**)
0.041(1.71)
-0.010(-1.18)
0.001(0.11)
0.013(1.47)
0.155(5.58**)
-0.011(-4.17**)
0.054(2.47**)
0.543 for non-interest expense to assets ratio0.885 for administrative expense to assets ratio
** indicates statistical significance at the one percent level
Interest rate spreads
119. Regressions with interest rate spreads as the dependent variable (Table 9) suggest thatthe regional variables do not have much explanatory power for this variable and theeconomies of scale is only marginally significant. Nevertheless, it is noteworthy that therelationship between bank size (log of assets) and spreads is positive once other factors arecontrolled for by the regression in spite of the generally lower spreads at the very largenational banks and the relatively high spreads at the small new private banks (see Table 4above). There is also a positive, albeit statistically marginal, relationship between higherinterest rate spreads and privatized banks. However, the size of the coefficient on non-interestexpenses gives a strong hint as to why the non-interest expenses variable had no strongcorrelation with profit ratios: the restricted regression suggest that more than 89 percent of
(t-statistics in parentheses)
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these costs are passed on to customers in the form of lower deposits rates or higher creditrates43.
120. Similar results, although with weaker statistical significance were obtained with theadministrative costs ratio as the independent variable in place of the non-interest expenseratio. These regressions also suggested that there was a strong relationship between privateownership and higher spreads and that most of the non-interest costs were passed on throughinterest rate spreads. As with the non-interest and administrative cost ratios, it is worthdistinguishing between the marginal statistical significance of the ownership dummy variablecoefficients and the economic significance of the coefficient values. The parameter values inthe restricted regression for both the new private and privatized dummy variables suggest thatthe effect of either ownership status is in excess of one fourth of the mean interest rate spread.
"Ideally, the potential interdependence between non-interest costs and interest rate spreadsarising from accounting identities should be addressed through simultaneous equationsmethods. Broadly similar results were obtained with three-stage least squares estimates of asystem similar to the second columns of tables 8 and 9. However, the usefulness of suchestimates is severely limited because of the lack of truly exogenous instruments other thanownership and regional dummies (e.g., variables not included in balance sheet or profit-and-loss identities) and the attendant need for very strong assumptions behind the identifyingrestrictions.
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Table9. Determinants of Interest Rate Spreads(Dependent variable: interest rate spread)
(t- statistics in parentheses)
Constant
Log Assets
Non interest expenses/assets
New Private
Privatized
Zagreb
F(2,42)=1.48
-0.080(-1.12)
0.0049(1.02)
0.938(5.64**)
0.025(1.64)
0.025(1.39)
0.019(1.22)
-0.008(-0.53)
0.893(6.02**)
0.025(1.89*)
0.023(1.30)
* indicates statistical significance at the five percent level** indicates statistical significance at the one percent level
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Growth in assets
121. Regressions on asset growth in 1995 produced only one significant variable, thedummy variable for new private banks. The growth variable is calculated as the change inassets from end-1994 to end 1995 relative to the average of end-1994 and end-1995 assets.The coefficient on the dummy variable for new private banks suggests an additional49 percent growth in assets for these banks in both the restricted and unrestricted regressions.
Table 10: Determinants of 1995 Asset Growth(Relative to the Average of end-1994 and end-1995 assets)
Constant
Log Assets
New Private
Privatized
Zagreb
F(2,42)«= 0.31
(t- statistics in parentheses)
0.985(1.55)
-0.064(-1.37)
0.492(2.96**)
0.014(0.07)
0.017(0.11)
0.984(1.59)
-0.063(-1.40)
0.494(3.44**)
** indicates statistical significance at the one percent level
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£. Concluding Remarks
Characterizing the private banks
122. These results suggest that Croatian private banks, particularly new private banks, aremore profitable, faster growing, and probably have higher spreads than those remaining instate hands. Profits of private banks tend to be higher by an amount roughly equal to medianprofitability regardless of whether profits are measured relative to assets or capital. Theestimates of the effect of ownership status on growth suggest that new private banks grow ata rate that is an additional 49 percent higher than other banks. There was no significantrelationship between ownership status, age, or market location in terms of non-interest oradministrative expenses once other variables were controlled for, although there were strongdiseconomies of scale which would fall heavily on the new private banks because they tend tobe smaller than other banks.
123. In terms of the three hypotheses about the behavior of private banks laid out above,the "lean and mean" hypothesis seems clearly inconsistent with these results with itsimplications of lower administrative and non-interest costs, and lower interest rate spreads.Similarly, the lower spreads argue against the "aggressive full service bank" hypothesis. The"cream skimming" hypothesis looks most consistent with the data; private banks do havesubstantially higher profits and interest rate spreads than their state-owned competitors.
124. The results on growth suggest that the higher spreads have not prevented growth ofthe new private banks, although perhaps growth would be still faster if new private bankswere to switch to an "aggressive full service" approach. However, as noted above, such anapproach may not be cost effective given the costs and time needed to build a retail bankingnetwork that could fund faster growth.
Implications for the Croatian banking system
125. New entry by either new private banks or by foreign banks might be thought of as asource of competitive pressure that could reduce the high interest rate spreads observed inCroatian banking. In Croatia, this new entrant role would potentially fall on new private banksas foreign banks were largely absent in Croatia during the sample period. However, it doesnot seem to be the case in Croatia that new entrants were putting downward pressure oninterest rates by undercutting the incumbent banks on pricing; new private banks in Croatiaappeared to have higher spreads.
126. Their profitability and rapid growth both suggest that new private banks are successfuland aggressive competitors in some sense (particularly notable given their high concentrationin Zagreb, Croatia's most competitive banking market). However, given that they have higherspreads and no lower overhead cost ratios than other banks, their competitiveness wouldappear to be founded on providing more or better services or serving previously under served
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markets rather than gaining customers through more aggressive pricing and better costcontrol.
127. A reduction in interest rate spreads does not seem likely to be the direct, near-termresult of new entry by new private banks thus far. However, the absence of a direct effect ofnew entry in the sense of having new entrants undercutting the spreads of incumbent banksisn't to say that there has been no indirect effect on spreads as a result of new entry. Olderbanks may have reduced their spreads relative to what they would be otherwise in order toprevent an even fester erosion of market share.
128. If the new private banks or privatized banks exhaust the high return potential ofunder-served clients willing to pay high interest rates, their own business strategy mightchange. Absent a different strategy on the part of new private banks, other influences wouldseem to be called for in order to reduce interest rate spreads. Bank rehabilitation of problembanks is one possibility; this is already underway but results are not yet evident. The recentrehabilitation and possible future breakup of the largest state-owned bank and the recentrehabilitation of two other large state-owned banks could substantially change the structure ofthe Croatian banking market and the financial structure of its major participants. The firststages of bank rehabilitation in early 1996 have already reduced interbank interest rates, and itis certainly possible that spreads and lending rates will fell as rehabilitation proceeds.Moreover, foreign banks are only just now starting to enter the Croatian market. Their entrycould reduce concentration in the banking sector and bring down interest rate spreads throughgreater competition. The horizontal breakup of the larger state-controlled banks, for examplethrough privatization, could further invigorate competitive forces in ways that had not beenapparent before.
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ANNEX I
SUMMARY OF THE CROATIAN EXCHANGE AND TRADE SYSTEM(POSITION AS OF DECEMBER 31,1996)
Exchange Arrangement
129. The currency of Croatia is the Kuna, the external value of which is determined in theinterbank market. The exchange rates in the interbank market are determined by authorized banksthat transact with each other at freely n^otiatedi^ates. The National Bank of Croatia (NBC) mayset intervention exchange rates at which it will transact with banks outside the interbank marketfor purposes of smoothing undue fluctuations in the exchange rate. On December 31,1996, theaverage interbank market rate for the U.S. dollar was HrK 5.5396 per US$1.
130. There are no taxes or subsidies on purchases or sales of foreign exchange.
131. Croatia accepted the obligations of Article Yin, Sections 2, 3, and 4 of the Articles ofAgreement on May 29,1995.
Administration of Control
132. Foreign exchange transactions are governed by the Law on the Foreign Exchange System,Foreign Exchange Operations, and Gold Transactions, which was enacted on October 7, 1993.The NBC formulates and administers exchange rate policy and may issue foreign exchangeregulations under this law. A Trade Law (codifying domestic trade and foreign trade legislationin a comprehensive law) was passed on January 31, 1996, and came into force on February 17,1996. Companies wishing to engage in foreign trade must register with the commercial courts.The representative offices of foreign companies must be registered with the Ministry of Economy.
133. Foreign exchange transactions must be conducted through authorized banks; currently 52commercial banks in Croatia are licensed to conduct foreign exchange transactions. Restrictedlicenses are given to banks that may open accounts for resident natural persons and may buy andsell banknotes and checks (currently 8 banks).
Prescription of Currency
134. Settlements between residents and nonresidents may be effected in any convertiblecurrency. Croatia does not maintain any bilateral payments agreements involving exchangerestrictions.
Resident and Nonresident Accounts
135. Resident natural and juridical persons may, in principle, open and operate foreignexchange accounts only in Croatia. However, the NBC has the authority to allow residentjuridical persons to keep foreign exchange in accounts with foreign banks in order to cover thecosts of business operations and meet the requirement of regular foreign trade activities abroad.
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ANNEX I
costs of business operations and meet the requirement of regular foreign trade activities abroad.The law also makes specific provisions for resident juridical persons engaged in capital projectconstruction abroad to maintain accounts with foreign banks, subject to a license issued by theNBC.
136. Nonresidents may open foreign exchange accounts with fully licensed banks in Croatia.These accounts may be credited freely with foreign exchange and debited for payments abroador conversion into domestic currency; reconversion of domestic currency into a foreign currencyis permitted. Juridical persons may credit these accounts with foreign banknotes up to a limit ofUS$20,000 without special permission from the NBC.
137. Nonresident natural and juridical persons may open accounts in domestic currency withthe proceeds from sales of goods and sendees or with foreign exchange transferred from abroad.They may purchase foreign exchange with fiinds held in these accounts without restriction.
Imports and Import Payments
138. Croatia does not maintain any import quotas—die existing quotas were abolished bydecree of July 12,1996, although such quotas are in principle allowed for under the TradeLaw under conditions similar to WTO rules. All imports except a list of products whoseimportation is controlled by international agreement for noneconomic reasons (such as, arms,gold, illegal drugs and narcotics, and artistic and historic work) are free from licensingrequirements, and a small number of other products (notably iron tubes and bars). Theimportation of these items is allowed on a case-by-case basis.
139. Imports are subject to a customs tariffs of up to 25 percent, with a few exceptions.The exemption for duty-free imports by travelers is US$100. Goods imported by travelers andpostal shipments up to the value of US$500 are subject to a simplified customs procedurewith a unified tariff rate of 8 percent. For imports exceeding that value, the regular importtariffs and taxes are applied. Returning citizens may bring into the country household effectsduty free in an amount related to the period spent abroad for household effects and for privatebusiness purposes without restrictions, but on a case-by-case basis, under the approval ofMinistry of Finance. Under certain conditions, goods imported by nonresidents for investmentpurposes are exempt from import duties. Also, raw materials and intermediate products usedin the production of exports are exempt from all import duties and taxes, provided that thevalue added of the export product is at least 30 percent of the value of the imported items andthat export proceeds are received in convertible currency. Payments for legal imports are notrestricted.
140. Advance payments for imports are permitted, where down payments are required bysuppliers, in accordance with customary international practices.
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Payments for invisibles
141. Payments for invisibles related to legal imports by juridical persons may be madefreely. Payments of leasing fees are permitted provided that temporary imports have beenregistered with the Customs Office. Natural persons may also purchase foreign exchange inthe interbank market for the payment of goods and services abroad and for deposit in aforeign exchange account for the purpose of future payments. Resident juridical persons(including tradesmen and natural persons engaging in independent activities) may purchaseforeign exchange only for authorized payments abroad, except to make payments for activitiesrelated to scientific, humanitarian, cultural, or sport events. Payments of royalties, insurance,and legal obligations and contracting of life and casualty insurance policies with foreigncompanies are also permitted.
142. Resident natural parsons may take out of the country foreign currency equivalent toDM 1,000, including for short cross-border trips. There exist no restriction on the frequencywith which such amounts can be taken out. An additional amount equivalent up to DM 2,000may be taken out, provided that it is withdrawn from foreign currency accounts or purchasedfrom banks for travel expenses. In both cases the NBC may allow higher amounts to be takenout on a case-by-case basis. The exportation of Croatian currency by both residents andnonresidents is limited to HrK 2,000 a person.
Exports and Export Proceeds
143. Exports are free of restrictions except for certain products for which permits must beobtained (list D products: e.g., weapons, drugs, and art objects); several basic foodstuffs toensure adequate domestic supplies; unrenewaMe resources (oil and natural gas); hides and wood.
144. Export proceeds must be collected and repatriated in full to Croatia within 90 days of thedate of exportation; this period may be extended with the permission of the NBC. If paymentterms in excess of 90 days have been agreed with foreign importers, the credit arrangement mustbe registered with the NBC.
Proceeds from Invisibles
145. Proceeds from services are, in principle, subject to the same regulations as those applyingto merchandise exports. The importation of Croatian currency by both residents and nonresidentsis limited to HrK 2,000 a person.
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Capital
146. Resident juridical persons, including commercial banks, may borrow abroad. They arerequired to register the loans contracted, including commercial credits, with the NBC. Financialcredits may be extended to nonresidents by resident juridical persons, only in accordance with theprovisions of the Law on Foreign Trade Credit Operations. Natural persons are permitted toobtain loans from nonresidents in domestic or foreign currency. The foreign exchange positionsof commercial banks are subject to a limit (maximum up to 30% of the bank capital).
147. Foreign direct investment by nonresidents may take the form of joint ventures or fullownership and must be registered with the commercial courts. Repatriation of capital andtransfers abroad of profits are not restricted. In principle, domestic and foreign investment istreated equally (e.g. "national treatment"). If the foreign equity capital participation exceeds20 percent, inputs used in the project are exempt from import duties. The profit tax rate isuniform and amounts to 35 percent. Foreign direct investment abroad by residents must beregistered with the Ministry of Economy within a 30-day period commencing from the signatureof the contract. Such investment must generally be undertaken through loans abroad or throughreinvestment of profits. Inward portfolio investment is not restricted, except in central bankshort-term securities on the primary market. In general, outward portfolio investment is restricted.
148. Nonresident natural persons may acquire real estate in Croatia through inheritance as longas their country of residence extends reciprocal treatment to residents of Croatia. Nonresidentnatural persons not engaged in economic activities in Croatia may purchase real estate only underthe same conditions. Nonresident natural or juridical persons engaged in economic activities inCroatia may also purchase real estate under these conditions and may sell it to resident ornonresident juridical persons. Residents may acquire real estate abroad on the basis of reciprocityof treatment, but they are not permitted to purchase foreign exchange in the exchange market forthis purpose; the use of balances in foreign exchange accounts for this purpose is also prohibited.
Gold
149. The National Bank of Croatia may export gold and gold coins without any restrictions.Unprocessed gold may be exported under the approval of the National Bank of Croatia.
ISO. Gold coins may be exported by authorized commercial banks, under the approval of theNational Bank of Croatia.
151. Importation of gold is subject to the approval of Ministry of Economy.
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Changes From July 1,1995 through December 31,1996
152. December 14,1995 the Law on Issuance and Sale of Securities was passed and came intoforce on January 1,1996.
153. December 14t 1995 the Law on Investment Funds was passed and came into force onJanuary 3,1996.
154. February 17,1996 the Trade Law became effective.
155. June 8,1996 the Law on Foreign Credit Operations became effective.
156. July 1, 1996, the Law on Customs Tariffs (including unification of various and tariffsin a single tariff structures) became effective.
157. July 12,1996, a Decree Law Export Quotas (including abolition of import quotas)became effective.
158. July 31,1996 an exchange of bonds in the context of an agreement with London Clubcreditors was effected.
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SUMMARY OF THE CROATIAN PENSION SYSTEM:CURRENT FEATURES AND ISSUES FOR REFORM45
A. Introduction
159. Pension reform is high on the agenda of several industrialized and transition countries.One route that countries are taking is a rationalization of the existing pay-as-you-go (PAYG)pennon system through selected parametric adjustments on dither the revenue or theexpenditure side or both, such as the contribution rate and the pension benefits formula.Croatia has been considering a broader approach, encompassing a more fundamental systemicreform of its pension system by (a) downsizing and rationalizing the existing PAYG systemand (b) introducing privately-managed, obligatory and voluntary funded pension schemes.
160. Under an unfunded regime like the PAYG system, current revenue of the pension planis expected to finance current obligations, and the rate of the payroll tax—the standardfinancing source for public pension plans—is adjusted periodically to ensure that revenues andexpenditures match. Such an approach formalizes an implicit intergenerational contract foryounger working generations to pay for the older generations' retirement benefits. Theexisting commitments to current and future retirees is an unfunded debt.
161. Under a funded regime, workers save in and invest for retirement via pensionaccounts. Reserves could be accumulated with a view to equaling the expected benefitspayable after retirement to those who work and save in the pension plan now. Contributors,upon retirement, would get back only what they put in plus the return on their investment.
162. Croatia—with the help of the World Bank—envisages a possible switch to a multiplepillar system, under which (1) the current PAYG pension system (first pillar) would be bothdownsized and rationalized, and complemented by (2) a compulsory, privately-managedsavings scheme in which current workers invest for their retirement (second pillar), and (3) anadditional voluntary pension scheme under which workers could invest additional amounts fortheir retirement (third pillar). Under the three pillar concept: the compulsory savings scheme(second pillar) would have the primary responsibility for handling the retirement savings of theworkers; the downsized publicly-managed and tax-financed first pillar would have the primarygoal of redistribution (to keep old people out of poverty); and voluntary saving plans (thirdpillar) would exist for people who want more protection than what is offered by the first andsecond pillars of the pension system.
163. As soon as the two funded pillars have been established, the working populationwould have to provide for the already retired population under the PAYG system and, at thesame time, save in their individual retirement accounts. Put differently, with unchangedpension contributions, a transitional financing gap would emerge in the PAYG system,because individual contributions would be diverted from the PAYG system to the compulsoryand voluntary individual retirement accounts. Until the transition from a single pillar PAYG
45 Prepared by Christian Schiller with Heliodoro Temprano-Arroyo.
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system to the three pillar pension system is completed, the PAYG pension system would befaced with the obligation of having to meet pension obligations that exceed the reducedavailability of payroll tax revenues. This transitional gap depends on a number of factors,including the size of the second and third pillar relative to the PAYG system and the speed atwhich the funded pension schemes are phased in.
164. This paper provides an overview of the Croatian pension system in terms of its currentfeatures and issues for reform in light of the multi-pillar reform proposals currently underconsideration. Section B contains a description of the starting point, the existing PAYGpension system. Section C highlights the effect of aging on the existing PAYG pensionsystem. Section D discusses some issues related to the envisaged downsizing andrationalization of the PAYG system. Section E provides a short overview of issues related tothe establishment of compulsory and voluntary funded pension schemes which will beprivately managed. Sections F and G shed some light on issues related to the transition fromthe single-pillar PAYG pension system to the multi-pillar pension system being considered inCroatia. Sections H and I briefly review the role of privatization proceeds in the reformprocess and the impact on government and private savings. Section J contains concludingremarks.
B. The Existing Pension System
165. The PAYG system is managed by the pension and disability fond ("the pension fund"hereafter), which comprises three subfunds: the workers' fund (771,000 beneficiaries in 1996);the fund of self-employed (18,000 beneficiaries in 1996); and the farmers' insurance funds(55,000 beneficiaries in 1996). These three subfunds provide three types of benefits:retirement pensions (450,000 beneficiaries in 1996), disability pensions (197,000 beneficiariesin 1996), and survivor pensions (196,000 beneficiaries in 1996).
166. The average monthly retirement pension paid out by the workers' fund in September1996 was HrK 887, the average disability pension was HrK 905, and the average survivorpension was HrK 747. The benefits paid out by the fund of the self-employed were about25 percent below those of the workers1 fund. The benefits paid out by the farmers's insurancefiind were considerably lower, with the average old age pension for former farmers atHrK 153 in September 1996.
167. The pension fund is not allowed to run deficits except to the extent that it can financethem by drawing down bank deposits that were accumulated because of previous surpluses. In1995, tiie pension fund had a small deficit equivalent to 0.2 percent of GDP: its total revenuesamounted to 12.1 percent of GDP and total benefits to 12.3 percent of GDP. In 1996, thepension fund is estimated to have run a surplus of 0.1 percent of GDP, with revenues andexpenditures reaching 12.9 and 12.8 percent of GDP, respectively.
168. The pension fund obtains the bulk of its revenues from employee and employercontributions. The percentage of its revenues raised from contributions, however, declinedfrom 93 percent in 1995 to 88 percent in 1996, reflecting an increase in transfers from the
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central government from HrK 280 million to HrK 1,200 million. Transfers are budgeted toincrease again in 1997, so that the share of contributions in total revenues is expected todecline to 83 percent in 1997. Contribution rates are set at 12.75 percent of wages for bothworkers and employers in the case of the workers' fund, and at 25.5 percent of theself-employed's insurance base in the case of the self-employed fund. Individual farmerscontributing to the farmers' fund pay 12.27 percent of the insurance base plus 0.76 percent oftheir annual cadastral income plus 0.76 percent of their average cadastral income. A smallpercentage of the revenues of the pension fund also accrues from its portfolio of shares inenterprises.
169. In terms of benefits, old age pensions are currently determined by the ten highestconsecutive years of earnings. For the calculation of the pension base, earnings are adjustedupward by average wage growth in the years up to the one preceding the year in which theentitlement is established. The accrual fkctor is set in such a way that it aims to produce an85 percent replacement rate for a foil career worker. For men, the pension base is multipliedby a coefficient of 0.35 plus an additional 0.02 per each year of contribution up to a maximumof 0.85. For women, the initial coefficient is 0.40 plus an additional 0.03 per each year ofcontribution or other qualifying periods, also up to a maximum of 0.85. The standardretirement age for men is 60 and for women 55, but one can choose early retirement. Forexample, men can retire at 55 (with reduced benefits) after 35 years of work, while womencan retire at 50 after 30 years of contributions. Under the early retirement option, the pensionbenefit is assessed in the same way as the regular old age pension, but a reduction factor of1.33 percent is applied for each year of early retirement. Farmers are not entitled to earlyretirement.
170. There is a guaranteed minimum pension, provided that neither the retiree nor othermembers of their household have other sources of income sufficient to support them. In 1995,about 1/6 of the total retirees were entitled to a supplement to reach this minimum guaranteedthreshold, which was increased to HrK 615 per month in early 1996. Certain groups ofpeople—such as former members of the Yugoslav army, retired Parliamentarians, World Warn veterans, invalids and families of victims of the last war, and refugees from other republicsof the former Yugoslavia—also receive so-called beneficiary pensions. These beneficiariesreceive pensions either without having contributed to the system or beyond the amount thatwould result from the application of the above-described arrangements. Starting in 1997,these beneficiary pensions are to be fully financed by transfers from the state. The increase inthe minimum guaranteed pension in 1996, the decision to fully finance beneficiary pensions bystate transfers, and the sharp increase in beneficiary pensions related to the last war explain thebulk of the increase in transfers from the central government budget in 1996 and 1997.
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C Aging Population
171. The PAYG pension system is particularly sensitive to demographics. Croatia has arelatively old population. In 1990, the percentage of the population over 60 years of age stoodat 17.8 percent (see table 1). This percentage, which was only slightly below the average of18.2 percent seen in the OECD countries, made Croatia one of the transition countries withthe oldest populations. Moreover, as is the case with many other European countries, Croatiais undergoing a demographic transition. If current projections prove to be correct, Croatia'spopulation will experience significant aging in the next few decades as a result of decliningfertility rates and the convergence of life-expectancy to the higher levels observed in mostmiddle to upper income countries.
172. Based on the most recent world population projections published by World Bank, theCroatian old age dependency ratio (measured as the ratio of the population of normalretirement age to the working-age population) is expected to increase from 36 percent in 1990to 41 percent in the year 2000,49 percent in the year 2010 and almost 68 percent in 2035 (seechart 1).45 Fortunately, the rate of increase in the dependency ratio is projected to slow downsomewhat between 1995 and the beginning of the next century, thus providing someshort-term breathing space to the pension system. However, the rate of increase in thedependency ratio is projected to accelerate in the first half of the next decade, and growth inthis ratio will then remain at a substantially higher level until the year 2020. Under currentpension arrangements, this would require a dramatic increase in the contribution rate.
173. If the average pension is B, the payroll tax rate t, the number of contributors L, thecontributions base (the average wage) W, and the number of pensioners P, balancing thecash-flow of a PAYG plan requires the following: B*P - t*W*L; or t = (P/L)*(B/W). Thus,the required contribution varies directly with (P/L), a variable that can be proxied with the oldage dependency ratio, and the average replacement rate (B/W). Application of this equatioa toCroatia—assuming unchanged average retirement ages, replacement rates, and the increasesin ( P/L) implied by the World Bank's population projections—indicates that the requiredcontribution rate will have to be about 5, 25 and 70 percent higher than now in the years2000,2010 and 2035, respectively, to preserve the balance of the PAYG pension system.Based on current law, it would thus have to be raised from 25.5 percent to 26.7 percent by2000, to 32 percent by 2010 and to about 44 percent by 2035. These calculations clearlysuggest that the contribution rates required to balance an unreformed pension system wouldstart to become untenable from about 2005 onwards.
^International Bank for Reconstruction and Development 1994, World PopulationProjections 1994-95, (Baltimore: The Johns Hopkins University Press).
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Table 1: Percentage of the Population Over Sixty, 1990-2150
Economy
Croatia
OECD countries I/
Eastern Europe and former Soviet Union I/
Latin America and Caribbean If
Middle East and North Africa I/
Sub-Saharan Africa 11
Asia I/
1990
17.8
18.6
13.8
8.2
5.7
5.2
6.3
2000
21.2
20.0
15.6
8.8
6.0
5.0
7.3
2010
23.9
23.2
16.9
9.6
6.5
4.9
8.6
2020
26.9
26.9
20.2
12.0
8.0
5.5
11.6
2030
28.7
30.8
22.2
16.4
9.8
6.8
15.0
2050
30.0
31.3
26.6
23.7
14.5
11.2
20.7
2075
29.7
30.2
28.8
27.9
21.6
20.0
25.9
2100
30.1
30.4
29.8
29.4
27.3
26.1
28.3
2125
30.6
30.7
30.4
30.2
29.5
28.3
29.6
2150
30.9
30.9
30.8
30.6
30.3
29.5
30.3
Source: International Bank for Reconstruction and Development (1994).
I/ Simple average.
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CHART 1
Croatia: Old Age Dependency Ratio andContribution Rate I/ 2/
Sources: International Bank for Reconstruction and Development (1994) and staff calculations
1/ The old age dependency ratio is defined as the population of normal retirement ages (60 for men and 55 for women)as a percentage of the working-age population (men aged 15-59 plus women aged 15-54).2/ The pension contribution rate is calculated as described in section C of the paper.
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ANNEX n
174. The necessity to pay for old age, disability and survivors pensions would eventuallybecome a major burden for the economy. As the pace of privatization and the role of privatesector firms increases, the negative effects on labor supply engendered by ever highercontribution rates would aggravate the tensions already emerging in the PAYG pensionsystem's financial situation. Therefore, the government's decision to overhaul the currentpension system is welcome. It also appears that the government would be getting an earlystart as near-term estimates by the World Bank suggest that the aging of the Croatianpopulation would start to put the most serious pressure on an unreformed pension systemaround 2005.
D. Reform of the PAYG System
175. Under the reform proposal, a one-pillar PAYG system would be replaced by athree-pillar system. The first pillar would not vanish, but would be reduced in size andrationalized. Thus, workers would continue to contribute to the mandatory and public PAYGsystem and benefits would continue to be received under the PAYG system at the time ofretirement, but they would be less generous. Accordingly, the accrual factor of the PAYGplan would need to be adjusted.
176. Measures that are being considered in the context of a rationalization of the PAYGsystem in Croatia—or elsewhere for that matter—have one thing in common: the choice isbetween cutting benefits (of the pensioners) and increasing the contributions (of workers). Inline with the general approach of downsizing the role of the PAYG system, the reform optionsenumerated below are all based on the former. One advantage of concentrating onexpenditure-cutting rather than revenue-raising measures is that it avoids increases incontributions which, by increasing the indirect cost of labor, may have a negative impact onemployment. With Croatia already suffering from a relatively high rate of unemployment, thisconsideration is particularly relevant.
177. The main reform options are discussed below.
• Increasing the retirement age. Under the current pension regime, the normalretirement age in Croatia of 60 and 55 years for men and women, respectively, whichis low for a country with a population almost as old as that of the OECD countries.For comparison, average normal retirement ages in the OECD countries in 1990 were64.4 and 62.9 years for men and women respectively, with several countries havingretirement ages of 67 for both men and women47. Although life-expectancy in OECDcountries is also significantly higher than in Croatia, these figures clearly suggest thatthere is substantial room for increasing the retirement age in Croatia. In this respect,recent simulations conducted by the IMF staff for industrial countries suggest thatrelatively moderate extensions in the retirement ages can have powerful positive
"See the statistical appendix of International Bank for Reconstruction and Development,1994, Averting the Old Age Crisis, (New York: Oxford University Press).
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effects on the financial position of pension systems.48 Recognizing this, the Croatianauthorities have been considering an increase in the retirement age to 65 years for menand to 60 years women. A rapid increase has obvious advantages from a financialperspective, but political and social considerations advice a more gradual approach toraising retirement ages.
Linking benefits to lifetime earnings. In general, a lengthening of the earnings periodapplied for calculating the pension base (of currently a worker's best ten consecutiveyears) should result in a reduction of the pension base.
• Changing the benefits adjustment formula. If pensions are linked to wages, they willprobably grow fester than if they ware linked to prices. Linking pensions to pricesprotects the real value of pensions, but would probably exclude pensioners fromparticipating in the growth of the economy and, as a consequence, the replacementrate would probably fall. To address the problem of a drop in the replacement rate, areview, say every five years, could take place to allow for a supplementary adjustmentif this were felt to be warranted by the increase in wages and salaries. An alternativeoption (and one that has been considered by the Croatian authorities) would be toadopt a mixed system of indexation, such as the Swiss one, whereby pensions arelinked to both wages and prices through a formula. With this intermediate option,pensions would grow over the medium-term less rapidly than wages but fester thanprices, allowing pensioners to thereby benefit partially from productivity growth in theeconomy. Basically, the question of price versus wage indexation of pensions iscentered on the issue of the extent to which pensioners should also enjoy the benefitsof growth in labor productivity taking place after they have left the labor force.
• Curtailing pension credits for years spent in child rearing, higher education andothers.
• Reducing the accruals rate. Unless the change is retroactive, it will effect pensionbenefits and the finances of the PAYG pension system only very gradually.
• Increasing the actuarial decrement for early retirement. The size of the actuarialdecrement for early retirement is a key variable in a worker's retirement decision. Ifthe factor is too small, individuals will be encouraged to retire early because thediscounted value of their expected pensions with early retirement is larger than withnormal retirement. The 1991 reform in Germany introduced a 3.6 percent factor peryear, which is being considered in Croatia, representing a marked increase comparedto the 1.33 percent decrement under the current PAYG pension system.
178. In addition to these parametric changes that aim at rationalizing the benefits of thecurrent PAYG system, the Government of Croatia has also focused on the collection side. In
48 Sheetal K. Chand and Albert Jaeger, 1996, Aging Populations and Public PensionSchemes, Occasional Paper 147, (Washington: International Monetary Fund).
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1996, efforts to improve the collection of contributions owed to the pension fund included:strengthening the Institute for Payments system of collections such that social securitycontributions are in fact deducted before wage payments can be executed; legalcharacterization of social contributions as tax due and owed to the central government, withthe same penalties as would apply to failure to pay income and profit taxes; enforcement ofsocial security contributions by the dedicated unit within the Ministry of Finance; and lateinterest charges on delinquent payments that are significantly higher than commercial bankcredit rates. In addition, means-testing provisions have been enforced.
E. The Two Funded Pillars
179. The PAYG system could be complemented by two funded pillars. The second pillarwould be an obligatory funded and privately-managed pension scheme that would be based onindividual accounts that are supervised and regulated by public authorities. Upon retirement,the payments out of the individual accounts would be in the form of annuities according to lifetables. The third pillar would be a voluntary retirement savings scheme in the form of highercontributions to individual accounts, also supervised by public authorities.
180. One critical prerequisite for moving toward funded pension schemes is the existence ofan adequately developed financial infrastructure, offering a basic set of financial instruments ina reasonably efficient way. Besides bank instruments, this should include government debtinstruments allocated by a well-functioning, competitive market. The existence of independentpension fund management companies and life insurance companies associated with the pensionsystem can improve the functioning of the financial market and, more generally, help facilitatefinancial market development. At the same time, private pension funds* ability to earnreasonable rates of return is enhanced with well functioning financial markets, while ensuringthat pension savings can be invested in financial instruments which are adequately regulatedand appropriately safe.
F. The Transition
181. As soon as the two funded pillars have been established, the working population—fora number of years—would have to provide for the pensions of the already retired populationunder the PAYG pension system and, at the same time, save in their compulsory retirementaccounts as well as, if desired, in the voluntary retirement accounts. They would have to pay,from currant income, both for their own pension plan investments and the (unfunded) benefitspromised to current retirees. In other words, with an unchanged rate of pension contributions,a fiscal gap would be created by diverting individual contributions from the PAYG system tocompulsory and voluntary retirement accounts. This gap would change over time, buteventually disappear.49
49 The fiscal deficit of the transition to a new pension arrangement in reality reflects thefinancial materialization of the outstanding implicit debt of the PAYG system. Holzmann hasestimated, for a number of countries and for a reasonable range of parameter assumptions,
(continued...)
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182. Croatia is envisaging only a partial shift towards a funded system. The PAYG pensionsystem would stay, but would be scaled down. There are various options in terms of the speedat which the role of the current PAYG system could be diminished and the funded pensionplans be phased in. The key factors are (1) the size of the pensions to be provided under thenew PAYG pension system and thus the share of pension contributions that will remain withthis system and (2) at which age a switch to the funded pension scheme would take place.
183. Under a very gradual approach, only new labor market entrants would be required tomake contributions both to the PAYG system and to the funded system. Under this scenario,contributions for new labor market entrants could be, for example, 15.5 percent of wages tothe first pillar and 10 percent to the second pillar.50 Everybody else would continue tocontribute the full 25.5 percent to the PAYG pension system. The total contribution ratewould therefore remain at 25.5 percent. It would take about 45 years until all workers wouldbe contributing under the multi-pillar system.51 Upon retirement, those who had contributed tothe funded pension schemes would receive the basic pension under the new PAYG system andadditional annuities based on the savings accumulated in their retirement account. Those whohad not contributed to the funded scheme, but only to the PAYG system, would receive thebasic pension under the new PAYG system plus transition benefits under the PAYG system.Over time, those who receive a transition benefit would diminish and disappear (after some85 years).
184. For a more rapid shift, a plan could be adopted under which, for example, all workersbelow a cut-off age (say 40 years) would be included in the multi-pillar system. This planwould be along the lines of the proposal currently under consideration in Croatia. Under thisscenario, contributions for workers below the age of 40 could be 10 percent of wages to thesecond pillar and 15.5 percent to the first pillar. For those currently above the age of 40,contributions would continue to be made in an amount of the full 25.5 percent of wages to thePAYG pension system. Within 20 years (assuming that retirement ages are kept at theirpresent levels), all workers would be contributing under the multi-pillar system. Transition
49(... continued)that the present value of the total unfunded future liabilities of PAYG systems is 15 to 25times current annual pension expenditures. With pensions in Croatia currently running atabout 11 percent of GDP, applying these results to Croatia would imply an unfunded debt ofthe PAYG pennon system in Croatia on the order of 160 percent to 275 percent of GDP inpresent value terms. See R. Holzmann, 1993, "Reforming Old-age Pension Systems in Centraland Eastern European Countries in Transition", Journal of Economics, pp. 191-218.
50 Recall the total contributions are 12.75 percent of wages from workers, matched byemployers to give a total of 25.5 percent.
51 This would be the time needed for the normal retirement of the youngest men alreadyworking at the time of the introduction of the pennon reforms, assuming no change inretirement ages and assuming that workers enter the labor force from the age of 16 onwards.
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benefits under the PAYG system, however, would need to be paid for as long as under theprevious scenario because of the rights that those under 40 of age at the time of the start ofthe reform would have accumulated from the previous PAYG system.
185. Under the most rapid approach, all workers would start contributing to the multi-pillarsystem from the beginning of the reforms. Again, transition benefits would need to be paid forthe same length of time as under the two previous scenarios, i.e., until the last pensioner whoentered the labor force before the reform process started, and has thus accumulated rightsfrom the previous PAYG system, dies off.
F. Transition Costs
186. The calculations that follow are meant to be helpful as illustrations of the magnitude ofthe possible fiscal consequences of various transition scenarios.
187. In 1996, the Croatian pension fund had budgeted for payroll tax collections equivalentto 11 percent of GDP. Diverting 1 percentage point of today's 25.5 percent contribution ratefor every worker from the PAYG system to individual retirement accounts would result in arevenue dedine for in PAYG system of about 0.4 percent of GDP. Assuming a cut-off age of40, about half of the total wage bill would be affected by the switch52, and the budgetarycosts of diverting 1 percentage point of today's 25.5 percent contribution rate would be0.2 percent of GDP. Consequently, 10 percentage points would probably "cost" about2 percent of GDP188. During the transition, the fiscal gap of the PAYG system would change according tothe speed of the switch to the three-pillar pension system. The dynamics depend on twofactors: the speed at which the transition benefits paid out by the PAYG system disappear; andthe extent to which pension contributions are diverted from the PAYG system to the fundedpension plans. These two elements are in fact interrelated.
189. Under the very gradual approach, where part of the contributions for only newentrants to the labor market are sent to the funded pension schemes, the revenue shortfall inthe PAYG system would be small in the beginning, but increase over time. At the same time,pension obligations under the PAYG system would remain unchanged for some time and startto decline only after the first worker retires under the multi-pillar system and begins to draw apension from his individual accounts (after some 40 years).
190. On the other hand, if all workers wore to switch immediately, the PAYG pensionsystem would suffer the full revenue loss right from the beginning of the transition period, butpension obligations under the PAYG system would also start to decline early. Assumingcontributions for all workers to the funded pension system were equal to 10 percentage points
52 Information on the distribution of wages by age was not available. A cut-off age of 40 isassumed to affect about half of the total wage bill: the World Bank population projectionsindicate that 56.4 percent of the working age population was below 40 in 1995. However, theaverage wage of workers below 40 is usually less than the wage of the more senior workers.
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of the total of 25.5 percentage points, a deficit of 4 percent of GDP would immediatelyemerge in the P AYG pension system. The fiscal gap would begin to decline as retirees start todraw a pension from their funded pension schemes, accompanied by a fall in transition benefitspaid out by the PAYG pension system. The gap reaches zero when the last transition benefitunder the PAYG system is paid out (after some 85 years).
191. Recent discussions between the Croatian authorities and the World Bank, in thecontext of a possible Public Sector Adjustment Loan, have focused on a transfer to the secondpillar funds, from the beginning of the reforms, of between 5 and 8 percentage points of the25.5 percent contribution paid by workers aged 40 or below. If, for example, 8 percentagepoints of the contribution were transferred to the second pillar, the initial fiscal gap in thePAYG system would be equivalent to about 1% percent of GDP. This gap would increaseduring the years after pension reform is introduced because more and more workers woulddivert their contributions to their individual account; at the same time, PAYG benefits wouldremain unchanged. The effect on the fiscal deficit would peak in 20 years because, at thattime, all workers would have moved to the multiple pillar system and the new pensionerswould begin to draw a pension from their individual retirement accounts. Thus, the revenueshortfall in the PAYG system would stop growing; and benefits paid out by the PAYG systemwould start to decline.
G. Using Privatization Proceeds
192. Croatia is contemplating the use of privatization proceeds to help cover the financialburden resulting from the transition to a multi-pillar pension system. To finance the transitioncosts by earmarking these proceeds for the pension system could be done in a direct and anindirect way. In the second case, assets of the privatization fund would be sold and theproceeds used to close the initial financing gap. Alternatively, the assets owned by theprivatization fund could be handed over directly to the obligatory pension plans.
H. Private and Government Savings
193. During the transition, when a financing gap would emerge in the public PAYG pensionsystem, the private pension funds would, concurrently, run a surplus. Thus, if the Governmentdecides to raise resources to cover the temporary gap in the PAYG system by issuing debt,there could be strong demand for this debt by the pension funds, since they need to invest inlong-term instruments.92 At the same time, saving by the private sector would, ceteris paribus,
52 In Chile, for example, when the new fully funded pennon scheme was introduced in 1981,the pension funds were required to invest virtually all their portfolio in government paper. Inthe meantime, these restrictions have been eased somewhat.
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rise in line with the pension funds' surplus that results from introducing the second and thirdpillar. Thus, the deficit created in the government PAYG pension system and the consequentreduction in government saving would be offset by an increase in saving by the private sector.
194. The implications for national saving would, however, become more uncertain once theceteris paribus assumption is relaxed. The final effect of pension reform on national savingwould depend on its effect on the private sector's perception of its future tax liabilities, onwhether or not the private sector shows some degree of Ricardian behavior, on the extent towhich the government takes fiscal measures to offset the temporary gap in the PAYG system,and on the particular form those measures take.53
L Concluding Remarks
195. Population aging is a widespread phenomenon and will—as in many othercountries—contribute to fiscal stresses on Croatia's existing PAYG pension system. Asubstantial reform of Croatia's pension system is unavoidable, although the most seriouspressures from these demographic trends are unlikely to arise until about the middle of thenext decade.
196. One route that a number of countries have taken is a reform through selectedparametric adjustments of the PAYG system on either the revenue or the expenditure sides orboth.
197. Croatia is considering a different approach. It plans to downsize, but not eliminate, thePAYG system, and complement it with fully funded pension schemes. Such an approachshould significantly reduce the vulnerability of Croatia's pension system to the agingphenomenon. However, there would also be significant temporary fiscal costs from shifting toa multi-pillar pension system, in the form of a transition gap in the public PAYG pensionsystem that would need to be dealt with. In this regard, a large part of the transition costscould be covered by privatization proceeds if the privatization process were to gathersufficient momentum. Further, the temporary gap of the PAYG system would have as acorollary temporary surpluses of the funded pension schemes. A key question is the extent towhich pension reform could generate an increase in private saving and how to channel ittowards the financing of the deficit of the PAYG system.
198. Generally, pension measures take a long time to mature in the sense that their foilfinancial implications may take more than a generation to become apparent. It is, therefore,
53 A comprehensive list of the main references in the literature on the impact of pensionsystems on saving can be found in the bibliographic notes (p. 400) of Averting the Old AgeCrisis, referenced in footnote 3.
-77-
©International Monetary Fund. Not for Redistribution
ANNEXE
welcome that Croatia is giving attention now to how to cope with the aging phenomenon; butcare will need to be taken to ensure that the transition costs to a new pension system aremanageable.
-78-
©International Monetary Fund. Not for Redistribution
SUMMARY OF THE CROATIAN TAX SYSTEM AS OF DECEMBER 31,1996
Tax Nature of Tax Deduction andExemptions
Rates Remarks
1. Taxes on income, profits and capital gains
1. Individual Income
1.2 Profit Tax
The unified tax is levied on allpersonal income and includesincome from employment,small-business activity and self-employment, fanning andforestry, and property andproperty rights. The tax base forresidents is both income earneddomestically and abroad;foreigners are taxed for incomeearned in Croatia.
The tax is levied on legal entitiesas well as natural persons whoengage in regular and for-profitbusiness activity, and who arerequired to keep business booksand have to submit financialstatements. Natural personswho engage in small businessactivities that are covered by theincome tax can choose to payprofit taxes and keep accountingbooks instead. The taxable baseis the difference between thevalue of assets and liabilities atthe beginning and the end of thetax period. The tax is imposedon both residents and non-residents operating a business inCroatia.
There is an exempt taxthreshold of HrK 800 permonth (as of Jan. 1,1997).This amount increases ifthe taxpayer has adependent spouse or otherclose or disabled familymembers and/or children.As of January 1,1995,allowances for food, andtravel are included in thetax base. Capital gains aretax exempted. Taxexemptions granted underthe former Direct TaxesAct continue to be validuntil they expire.
Exemptions and tax reliefcan be granted toenterprises which invest inwar affected regions.Taxes which are paidabroad for activities inCroatia can be deductedfrom the tax liability.Exemptions that weregranted under the DirectTaxes Act continue to bevalid until they expire.
20 percent on taxable incomeup to three annual minimumsalaries (decreased as ofJanuary 1,1997 from25 percent); 35 percent ontaxable income exceedingthree annual minimumsalaries.
As of January 1,1997, therate was increased from 25 to35 percent of the assessedtaxable base.
Income Tax Act becameeffective January 1,1994.Taxes which are paid abroadfor activities in Croatia can bededucted from the tax liabilityup to the overall liability inCroatia.
The Profit Tax Act becameeffective January 1,1994. Asof January 1,1997, the taxbase is reduced by a "normal1*rate of return on equity whichis defined as 5 percentincreased by the change in theproducer price indexpublished by the NationalInstitute for Statistics.
©International Monetary Fund. Not for Redistribution
Tax Nature of Tax Deduction andExemptions
Rates Remarks
L3 Surcharge on IncomeTax
1.4 Gaining Tax
Towns and cities of more than
surcharge to be collected by thecities on the income tax of thecentral government.
The tax is levied on individualswho realize profits fromgambling.
Up to 30 percent.City of Zagreb up to 60percent.
2. Social security contributions
2.1 Employees
2.1.1 Pension fund
2.1.2 Healthinsurance
2.1.3 Employmentfund
2.1.4 Childbenefits
2.2 Employers
2.2.1 Pension fund
2.2.2 Healthinsurance
The tax is levied on individualswho receive wages and salariesfor work performed in thecountry or abroad if they havebeen assigned to a job by aCroatian employer. The taxtakes the form of a CentralGovernment payroll tax. Thefunds are in principle obliged tobalance their budgets, andbenefits are financed on a pay-as-you-go basis.
Same tax base as for employees'contributions.
No exemptions areprovided.
No exemptions areprovided.
Standard rates:
Pension:12.75 percent
Health:7.00 percent
Employment:0.85 percent
Children:2.20 percent
Pension:12.75 percent
Health:7.00 percent
Employment:0,85 percent
40,000 inhabitants can impose a
©International Monetary Fund. Not for Redistribution
Tax Nature of Tax Deduction andExemptions
Rates Remarks
3. Tax on property
3.1 Tax on real propertytransactions
3.2 Inheritance and gift tax
3.3 Tax on motor vehicles
3.4 Tax on watercraft
3.5 Tax on firms
3.6 Tax on weekend houses
The tax is paid by individualsselling property and by personstaking part in exchangetransactions.
The tax is paid by those whoinherit property or receive it as agift. The rate is set andcollected by the counties.
The tax is levied on owners ofmotor vehicles and collected bythe counties. It is based on bothengine power and age of thevehicle.
The tax is paid by owners ofwatercraft and collected by thecounties. It is based on the ageof the boat, equipment andlength.
The tax is paid by legal andnatural persons who own abusiness but do not pay incomeand profit tax. The fee is set andcollected by the municipality.
The tax is paid by legal andnatural persons who ownweekend houses. The fee is setand collected by themunicipality.
Certain exemptions areenvisaged by statute.
5 percent.
Up to 5 percent
Automobiles DM 30 to DM200 per year.Motorcycles DM 20 to DM100 per year.
DM 30 to DM 550 per year.
Up to DM 500 per year.
Up to DM 3 per squaremeter.
©International Monetary Fund. Not for Redistribution
Tax Nature of Tax Deduction andExemptions
Rates Remarks
4. Domestic taxes on goods and services
4.1 Safes tax on goods
4.2 Sales tax on services
4.3 Excise taxes
4.3.1 Tax on oilderivatives
4.3.2 Tax ontobacco
4.3.3 Tax on beer
4.3.4 Tax on highpercentage alcohol
4.3.5 Tax on softdrinks
4.3.6 Tax on carimports
The tax is paid on goodsintended for final consumption.The tax is paid by legal entitiesand natural persons that engagein the activity of selling goodsand raw materials. The tax baseis the sales price of the good.
The tax is paid on the sale ofservices by legal entities andnatural parsons who providethese services for a nominal fee,in kind or in form of reciprocalservices.
Specific unit taxes paid byproducers and importers.
Standard rate:15 percent
Standard rate:10 percent
HrK 0.30 to 1.90 per liter.
HrK 2.50 to 8.50 per packageof cigarettes.
HrK 80.00 to 120.00 perhectoliter.
HrK 30.00 to 60.00 per literper absolute alcohol content.
HrK 40.00 to 80.00 perhectoliter.
75-90 kw engine power -HrK 7,000; 90-110 kwengine power - HrK 15,000;more than 110 kw enginepower-HrK 30,000.
The excise taxes becameeffective July 1,1994.
Effective August 15,1995
©International Monetary Fund. Not for Redistribution
Tax Nature of Tax Deduction andExemptions
Rates Remarks
4.3.7 Tax onimported coffee
4.4 Ticket tax
4.4 Ticket tax
4.5 Sales surcharge
4.6 Special consumptiontax
4.7 Tax on advertizing
The tax is paid by the organizersof sports events and levied onthe ticket price. It is collectedby the counties.
The tax is paid by the organizersof sports events and levied onthe ticket price. It is collectedby the counties.
A general surcharge on goodsbased on the after sales tax retailprice.
The tax is paid by restaurantowners and levied on the salesprice of beverages sold.Municipalities collect therevenues and set the rates.
The tax is paid by legal andnatural persons who advertize inpublic places. The tax is set andcollected by the municipalities.
Certain items such ascigarettes and oilderivatives are exempted.
DM 1.00 to DM 4.00 perkilogram.
Up to 5 percent.
Up to 5 percent.
10 percent.
Up to 3 percent.
Up to DM 300 per year.
©International Monetary Fund. Not for Redistribution
Tax Nature of Tax Deduction andExemptions
Rates Remarks
S. Taxes on international trade and transactions
5.1 Import duties
5.1.1 Customsduties
Paid by the importer of a widerange of goods and services
A large number of itemsare not considered customsgoods (e.g., movableproperty owned byCroatian citizens,enterprises, and other legalpersons; certain foreignpersonal investments indomestic enterprises andretail shops; imports whichwill be used mainly forproduction of goods forexports).
Most tariff rates are in the5-25 percent range.
©International Monetary Fund. Not for Redistribution
Table 1. Croatia: Quarterly GDP at Constant 1990 Prices
1989QlQ2Q3Q4
Total
1990QlQ2Q3Q4
Total
1991QlQ2Q3Q4
Total
1992QlQ2Q3Q4
Total
1993QlQ2Q3Q4
Total
1994QlQ2Q3Q4
Total
1995QlQ2Q3Q4
Total
1996QlQ2Q3
GDP inmillion kunas
71.274.778.572.2296.6
68.669.072.266.4276.2
59.260.753.348.3221.5
47.948.650.549.8196.8
48.049.049.848.3195.1
46.048.151.850.4196.3
48.550.150.850.4199.8
49.151.154.4
Index1990 = 100
103.1108.2113.6104.6107.4
99.399.9104.696.2100.0
85.788.077.270.080.2
69.470.473.272.271.3
69.671.072.170.070.7
66.769.775.073.171.1
70.272.573.572.972.3
71.174.078.8
Source: Central Bureau of Statistics.
- 85 -STATISTICAL APPENDIX
©International Monetary Fund. Not for Redistribution
Table 2. Croatia: Gross Domestic Product at Current Prices I/
(In millions of kuna)
Percent composition
Total activity at factor costs
Industry and mining
Agriculture and fisheries
Forestry
Water management
ConstructionTransport and communication
Trade
Hotels, restaurants, and tourism
Crafts and trades
Housing, utilities, and public services
Financial and other services
Education, health care, central
government, funds and associations
Net indirect Taxes
GDP-at market prices
1990
253
642431
152222129
1610
55
26
279
1991
374
963552
19393610133322
65
34
408
1992
2,294
580290326
701592318260
242169
372
334
2,628
1993
36,023
9,007
4,172
46297
1,278
2382
2,734
1,158
8924,803
2,905
6,135
5,810
41.833.2
1994
68,263
14,934
8,097
934'
1942,615
5,077
5,019
2,739
2,227
5,7736,562
14,091
17,037
85,299
1995
74,828
14,889
8,380
885200
2,950
5,499
6,123
2,512
2,873
6,208
6,844
17,464
19,736
94,564
1990
90.6
23.1
8.51.00.35.27.97.94.53.15.73.5
19.9
9.4
100.0
1991
91.7
23.6
8.71.20.44.69.58.82.43.18.25.4
15.9
8.3
100.0
1992
87.3
22.1
11.0
1.20.22.76.08.83.12.39.26.4
14.2
12.7
100.0
1993
87.2
21.5
9.91.10.23.05.66.62.82.1
11.57.0
14.8
13.9
100.0
1994
80.0
17.5
9.51.10.23.16.05.93.22.66.87.7
16.5
20.0
100.0
1995
79.1
15.7
8.90.90.23.15.86.52.73.06.67.2
18.5
20.9
100.0
Source: State Institute for Macroeconomic Analysis and Forecasting.
I/ These estimates are produced independently by SIMAF. The Central Bureau of Statistics is in the process of preparing current price estimates for GDP.
©International Monetary Fund. Not for Redistribution
Table 3. Croatia: Gross Domestic Product at Constant 1994 Prices II
(In millions of kunas)
Percent composition
Total activity at factor costs
Industry and miningAgriculture and fisheriesForestryWater managementConstructionTransport and communicationTradeHotels, restaurants, and tourismCrafts and tradesHousing, utilities, and public servicesFinancial and other servicesEducation, health care, centralgovernment, funds and associations
Net indirect Taxes
GDP-at market prices
1990
93,585
24,0449,9891,527
2324,5515,573
11,1105,8382,4926,0157,933
14,280
10,344
103,928
1991
77,373
18,0339,1801,191
1993,2455,0169,2772,7152,0435,8887,203
13,384
6,920
84,293
1992
70,404
15,9057,922
897192
2,9475,0766,8652,4401,9275,7326,591
13,910
12,124
82,528
1993
67,947
15,3178,271
838192
2,6964,7065,2722,1232,0155,7356,696
14,085
12,536
80,483
1994
68,263
14,9348,097
934194
2,6155,0775,0192,7392,2275,7736,562
14,091
17,037
85,299
1995
69,838
14,9798,178
873196
2,5655,0776,1232,4382,4505,7746,766
14,419
17,721
87,559
1990
90.0
23.19.61.50,24.45.4
10.75.62.45.87.6
13.7
10.0
100.0
1991
91.8
21.410.91.40.23.86.0
11.03.22.47.08.5
15.9
8.2
100.0
1992
85.3
19.39.61.10.23.66.28.33.02.36.98.0
16.9
14.7
100.0
1993
84.4
19.010.31.00.23.35.86.62.62.57.18.3
17.5
15.6
100.0
1994
80.0
17.59.51.10.23.16.05.93.22.66.87.7
16.5
20.0
100.0
1995
79.8
17.19.31.00.22.95.87.02.82.86.67.7
16.5
20.2
100.0
Source: State Institute for Macroeconomic Analysis and Forecasting.
I/ These estimates are produced independently by SIMAF and, therefore, are not consistent with official estimates from the Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
- 88 - STATISTICAL APPENDIX
Table 4. Croatia: Gross Domestic Product Deflators I/
(1994«100)
Total activity at factor costs
Industry and miningAgriculture and fisheriesForestryWater managementConstructionTransport and communicationTradeHotels, restaurants, and tourismCrafts and tradesHousing, utilities, and public servicesFinancial and other servicesEducation, health care, centralgovernment, funds and associations
Net indirect Taxes
GDP-at market prices
1990
0.3
0.30.20.20.40.30.40.20.20.30.30.1
0.4
0.3
0.3
1991
0.5
0.50.40.40.80.60.80.40.40.60.60.3
0.5
0.5
0.5
1992
3.3
3.63.73.63.12.43.13.43.43.14.22.6
2.7
2.8
3.2
1993
53.0
58.850.455.150.647.450.651.954.544.383.743.4
43.6
46.3
51.9
1994
100.0
100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
100.0
100.0
100.0
1995
107.1
99.4102.5101.4101.9115.0108.3100.0103.0117.3107.5101.2
121.1
111.4
108.0
Source: State Institute for Macroeconomic Analysis and Forecasting.
I/ These estimates are produced independently by SIMAF. The Central Bureau of Statistics is in the processof preparing current price estimates for GDP.
©International Monetary Fund. Not for Redistribution
- 89 - STATISTICAL APPENDIX
Table 5. Croatia: Trends in Industrial Production I/
Total Capital Inter- Consumer Electricity Oil and gas Oil Metal Machine Shipindustry goods mediate goods generation extraction refining working building building
goods
198819891990199119921993199419951996
1990Q4
1991QlQ2Q3Q4
1992QlQ2Q3Q4
1993QlQ2Q3Q4
1994QlQ2Q3Q4
1995QlQ2Q3Q4
1996QlQ2Q3Q4
1996Jan.Feb.Mar.Apr.MayJun.Jul.
Aug.Sep.Oct.Nov.Dec.
113.4112.7100.071.561.157.455.956.157.8
99.3
81.382.465.856.6
58.659.260.566.2
58.258.156.655.1
53.355.355.459.9
56.056.653.258.3
56.057.456.860.9
56.155.756.356.758.257.356.756.057.865.463.154.2
121.3118.9100.064.951.044.938.540.143.9
95.7
71.973.559.754.4
52.455.447.154,0
43.952.245.540.5
35.740.234.443.4
37.239.837.645.7
38.648.443.644.2
38.439.339.149.450.045.937.348.245.345.945.940.7
114.6113.8100.072.262.359.358.960.061.1
97.8
84.485.967.151.1
60.258.960.269.1
60.858.957.456.0
57.058.658.161.4
60.861.454.359.2
60.861.058.563.7
59.859.363.362.160.460.760.155.659.867.466.856.9
107.8108.4100.074.064.161.060.660.060.6
103.1
81.982.467.164.0
61.260.666.167.8
60.659.560.260.4
56.857.662.065.5
58.858.559.159.7
58.257.261.465.7
59.359.056.453.759.158.662.160.661.672.866.957.3
108.898.4
100.0101.0101.3107.999.7
104.6131.1
122.6
127.9116.275.384.3
92.9105.584.8
122.0
119.7102.6105.6107.8
118.289.791.699.2
118.499.997.9
115.4
145.3120.8107.6150.7
165.3144.7
125.7126.1118.6117.7112.999.0
110.7149.4145.1157.6
107.5107.0100.082.481.886.078.382.676.3
110.3
104.282.672.670.0
87.472.575.192.0
92.776.573.178.6
88.266.766.991.3
91.884.474.691.0
90.166.064.085.0
95.687.5
87.172.268.057.758.861.272.180.883.890.6
102.298.4
100.068.857.665.064.982.476.1
99.9
84.278.076.036.9
50.655.560.563.6
67.467.257.961.5
61.753.275.968.9
91.9114.093.187.4
83.065.878.270.0
78.773.8
96.466.166.3
65.094.093.147.458.183.868.0
129.2129.5100.066.349.146.141.940.640.3
86.0
76.179.060.149.8
49.147.848.251.1
45.647.847.544.2
40.641.742.742.6
37.942.338.943.2
40.741.244.039.4
39.439.742.742.537.443.837.7
45.049.246.642.229.5
122.2113.4100.055.131.727.122.225.424.7
107.9
66.462.651.240.0
32.029.331.234.4
23.432.528.525.5
17.523.119.029.3
19.023.234.436.1
20.528.1
23.721.0
19.723.718.127.229.8
27.323.923.024.124.119.119.8
118.1106.9100.068.459.546.638.138.434.1
96.0
63.079.266.864.4
56.871.050.159.9
46.157.746.940.3
38.442.434.437.0
35.040.534.343.9
42.956.6
46.950.7
36.944.047.951.762.355.645.839.255.658.853.439.9
Source: Central Bureau of Statistics.
II Seasonally unadjusted indices, 1990*100.
©International Monetary Fund. Not for Redistribution
Table 6. Croatia: Mining and Industry - Indices of Production, Stocks, Consumption, Employees and Productivity
Production
1990199119921993199419951996
1995Jan.Feb.Mar.Apr.MayJim.Jul.Aug.Sep.OcLNov.Dec.
1996Jan.Feb.Mar.Apr.MayJun.JuLAug.Sep.OctNov.Dec.
Total
178.3127.5108.9102.499.7100.0103.1
95.996.6107.598.9101.4102.895.091.498.4106.7110.095.5
100.099.4100.4101.2103.7102.1101.199.9103.1116.7112.596.6
Equipmentand Machinery
249.2161.8127.2112.196.0100.0109.4
84.593.4100.896.697.3104.093.987.699.8104.6110.6126.9
98.297.997.4123.2124.8114.693.1120.2113.0114.4114.5101.4
ProductionMaterials
169.7122.5105.7100.599.9100.0103.6
98.798.0113.0104.4104.5103.892.888.494.9101.8108.191.5
101.5100.6107.4105.3102.6102.9102.094.3
101.4114.3113.396.5
ConsumerGoods
166.8123.4106.9101.7101.0100.0101.1
96.095.5103.393.198.9101.297.996.4101.7113.5112.789.7
98.898.494.089.598.697.7103.6101.1102.7121.3111.595.5
StocksFinal Products
Total
154.7136.7115.8117.4104.0100.0
100.498.3101.0105.2107.5104.8100.397.893.992.297.9100.7
101.5104.8104.4100.7100.499.093.193.888.492.8101.6
Equipmentand Machinery
181.3171.2154.4151.0131.8100.0
119.0125.7129.5134.4137.5121.5118.671.367.570.156.748.2
49.551.242.848.844.341.941.249.450.752.457.6
Production.Materials
132.8121.2110.4114.299.4100.0
97.993.996.1103.2104.6102.098.4104.299.092.499.9108.2
107.0109.7109.7107.1107.5106.299.1100.490.689.998.2
ConsumerGoods
186.3155.4115.1114.0103.4100.0
100.399.0102.3101.1104.7105.599.493.591.497.1104.7101.0
104.8109.1110.1102.4102.0100.895.493.393.9107.6118.3
RawMaterials
125.8108.0113.4115.1101.4100.0
95.595.995.697.893.993.795.298.696.1111.9112.7113.0
110.5105.0105.2104.0106.395.799.6100.195.698.5103.7
ConsumptionRaw
Materials
157.9111.7101.398.199.5100.0
101.599.3110.3103.1106.698.191.192.093.2104.1107.193.6
95.993.1100.397.492.786.884.885.793.2104.8107.3
Electricityand Fuck I/
160.8122.0103.9104.199.3100.0
112.298.0115.0110.295.095.886.680.677.499.5120.2108.9
103.51183113.8100.088.482.682.174.981.5103.6108.6
Number ofEmployees
171.6141.3120.2112.7106.4100.0
102.8102.4101.9101.1100.7100.199.899.198.898.497.897.0
94.694.193.893.793.392.892.892.291.791.390.8
Productivity 2/
104.490.590,891.193.8100.0
111.7111.5111.0110.4109.9110.0109.4108.7107.5107.2107.2106.6
113.3112.5108.6109.1109.2108.9109.7110.6110.7111.6111.4
Source: Central Bureau of Statistics.
I/ Consumption of electricity and fuck includes only fuels used for production and technology purposes. Fuels used as raw materials for further production are not included,II Productivity indices show the change in the period from January to the month for which the data is given k comparison with the same period in the previous year.
©International Monetary Fund. Not for Redistribution
STATISTICAL APPENDIX
Table 7. Croatia: Agricultural Production
(1988=100)
1989 1990 1991 1992 1993 1994 1995
(All production units)
Total production
Field cropsCerealsIndustrial cropsMeadow crops
FruitViticultureStock-raising
CattlePigs
Total production
Field cropsCerealsIndustrial cropsMeadow crops
FruitViticultureStock-raising
CattlePigs
Total production
Field cropsCerealsIndustrial cropsMeadow crops
FruitViticultureStock-raising
CattlePigs
104.0
108.0103.0116.0110.0122.0106.0100.0100.0100.0
104.0
107.098.0
123.089.0
101.098.0
103.0110.0102.0
104.0
108.0105.080.0
111.0131.0107.098.097.099.0
100.9
105.8108.2112.597.989.1
115.595.091.0
100.0
101.9
107.0107.8107.087.288.9
108.897.992.4
105.1
100.9
105.8108.2100.898.889.1
116.693.190.297.0
93.8
108.0115.7106.9101.8123.8123.672.267.373.0
88.7
108.1108.9108.1103.887.1
105.570.559.159.9
95.8
108.0119.083.7
102.7137.2128.372.669.579.6
81.2
74.170.086.368.5
128.4119.172.879.172.7
70.7
70.064.377.661.776.974.170.763.759.9
85.4
76.072.888.669.6
144.6129.673.386.579.1
85.2
85.788.586.871.1
104.8124.267.070.270.7
75.9
83.578.889.849.190.872.767.258.165.9
86.7
86.993.472.472.8
109.5135.966.476.472.8
82.7
85.783.278.176.085.9
114.265.666.071.4
63.0
70.164.675.481.063.563.259.141.266.6
88.4
93.093.476.011. 194.1
125.168.476.473.6
83.5
92.589.082.077.695.3
106.261.061.465.0
58.0
68.767.268.6
185.454.641.752.037.555.9
91.1
104.1101.896.574.8
111.1120.065.071.869.9
Source: Central Bureau of Statistics.
- 91 -
©International Monetary Fund. Not for Redistribution
- 92 - STATISTICAL APPENDIX
Table 8. Croatia: Tourism Data - Overnight Stays
1983198419851986198719881989199019911992199319941995
1994
1995
1996
Jan.Feb.Mar.Apr.MayJun.Jul.
Aug.Sep.Oct.Nov.Dec.Jan.Feb.Mar.Apr.MayJun.Jul.
Aug.Sep.Oct.Nov.Dec.
Jan.Feb.Mar.Apr.MayJun.Jul.
Aug.Sep.Oct.Nov.
Total
54,63259,46567,66568,21668,16067,29861,84952,52310,15810,72412,90919,97712,885
231.0239.0337.0455.0949.0
1,971.05,653.07,068.02,075.0
400.0286.0311.0248.0259.0286.0595.0666.0
1,559.04,121.0
3,516.0850.0295.0225.0266.0
247.0252.0289.0560.0918.0
2,178.06,109.08,020.01,950.0
389.0257.0
Overnight StaysDomestic
(In thousands)
8,5418,5278,7908,8368,3977,9467,3836,7473,3943,1703,1524,4214,370
141.0138.0188.0167.0260.0335.0990.0
1,358.0358.0170.0169.0146.0160.0157.0162.0226.0254.0367.0
1,111.0
1,153.0319.0166.0146.0149.0
155.0139.0148.0220.0253.0432.0
1,224.01,536.0
322.0174.0155.0
Foreign
46,09150,93858,87559,38059,76359,35254,46645,7766,7647,5549,757
15,5568,515
90.0101.0149.0288.0689.0
1,636.04,663.05,710.01,717.0
230.0117.0166.088.0
102.0124.0369.0412.0
1,192.03,010.0
2,363.0531.0129.079.0
117.0
92.0113.0141.0340.0665.0
1,746.04,885.06,484.01,628.0
215.0102.0
Source: Croatian Economic Trends.
©International Monetary Fund. Not for Redistribution
- 93 - STATISTICAL APPENDIX
Table 9. Croatia: Number of Nights Spent According to Accomodation
(In thousands)
1990 1991 1992 1993 1994 1995 1996
(Total nights spent)
HotelsPensionsMotelsOvernight lodging housesTourist facilitiesInns and other food and
lodging establishmentsSpas and sanatoriumsCompany vacation facilitiesVacation facilities for
children and adolescentsCampgroundsHousekeeping facilities - private rooms,
apartments, villas and weekend cottagesOther
Total
20,716122337127
5,198
16617
4,412
1,24512,010
7,375348
52,523
5,90421
15962
844
15283740
981,436
456140
10,158
4,98315
10032
1,648
2300140
612,651
70984
10,725
5,729228221
2,178
2199139
1073,562
748119
12,908
8,43321
10327
3,357
2283249
2195,079
2,054150
19,977
5,587159529
1,972
2261303
1923,429
840160
12,885
855131
11141
3083
5172401
2255815
2806214
21,455
(Nights spent by tourists from Croatia)
HotelsPensionsMotelsOvernight lodging housesTourist facilitiesInns and other food and
lodging establishmentsSpas and sanatoriumsCompany vacation facilitiesVacation facilities for
children and adolescentsCampgroundsHousekeeping facilities - private rooms,
apartments, villas and weekend cottagesOther
Total
2,64845
10652
353
4355
1,317
323677
728139
6,747
2,249135925
258
2244209
45114
12947
3,394
2,067106412
391
125278
16161
9523
3,170
2,0538
5310
369
111988
41257
9754
3,150
2,6096
6414
410
1130174
108368
44988
4,421
2,5697
6616
466
1173225
108349
279111
4370
2732107321
502
3139251
107387
527157
4909
(Nights spent by foreign tourists)
HotelsPensionsMotelsOvernight lodging housesTourist facilitiesInns and other food andlodging establishments
Spas and sanatoriumsCompany vacation facilitiesVacation facilities forchildren and adolescents
CampgroundsHousekeeping facilities - private rooms,
apartments, villas and weekend cottagesOther
Total
18,06877
23175
4,845
12262
3,095
92211,333
6,647209
45,776
3,6558
10037
586
1339
531
531,322
32793
6,764
2,9165
3620
1,257
14862
452,490
61461
7,555
3,676142911
1,809
18051
663,305
65165
9,758
5,824153913
2,947
115375
1114,711
1,60562
15,556
3,0188
2913
1,506
18878
843,080
56149
8,515
5819213820
2581
233
150
1185428
227957
16546
Source: Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
Table 10. Croatia: Nights Spent by Tourists According to Country of Origin
1990 1991 1992 1993 1994 1995 1996
(Number of nights)
European UnionEastern EuropeOther EuropeanNon-European
Total
European UnionEastern EuropeOther EuropeanNon-European
30,170,0008,120,000
401,000640,000
39,331,000
76.720.6
1.01.6
2,877,0002,178,0001,563,000
155,000
6,773,000
42.532.223.12.3
3,642,0003,257,000
36,000109,000
7,044,000
51.746.20.51.5
5,130,3544,133,029
338,204156,450
9,758,037
(In percent)
52.642.43.51.6
8,026,7246,946,380
397,308185,658
15,556,070
51.644.72.61.2
4,569,2153,502,749
296,713146,714
8,515,391
53.741.13.51.7
8,986,6966,843,974
442,505272,451
16,545,626
54.341.42.71.6
Source: Statistical Yearbook, Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
- 95 - STATISTICAL APPENDIX
Table 11. Croatia: Composition of Employment I/
1991 1992 1993 1994 1995 1996 2/XI
(In thousands)
Total
Goods and services
Mining and industryOfwhich:
Manufacture of metal productsMachine industryShipbuildingManufacture of electrical equipmentFinished wood productsTextile fibre and fabricsFinished textile productsLeather footwear and accessoriesFood products industry
Agriculture and fisheriesOf which: fisheries
Forestry
Water management
Construction
Transport an** <^nmrnllnic^infi^Qfwhich:
RailwaysOcean shippingRoad transportCommunications
TradeRetail tradeWholesale tradeForeign trade
Hotels, restaurants, tourism
Crafts and trade
Housing, utilities, and public services
Financial and other servicesOfwhich: banking
Education, health, and government
Education, culture, and the arts
Health care and social services
Government bodies
1,303.6
1,053.0
461.9
36.825.321.728.327.520.552.924.351.1
48.31.6
13.4
5.6
98.8
110.2
33.110.024.420.3
142.3103.531.07.8
61.0
28.3
28.3
55.421.7
250.6
93.8
101.9
54.4
1,137.9
903.8
397.6
28.921.716.424.922.916.246.221.446.5
43.21.6
11.5
5.0
76.2
95.6
28.67.2
21.119.9
123.990.128.25.6
52.5
24.2
23.8
50.719.0
234.1
87.7
97.4
48.6
1,108.4
872.3
384.7
28.219.716.323.922.315.548.922.244.1
42.31.5
10.8
4.3
66.3
90.0
26.45.3
20.020.2
125.287.931.85.5
50.5
23.8
23.3
51.518.6
236.1
88.9
98.6
48.2
1,061.5
827.0
368.3
26.417.715.521.521.214.348.323.244.2
39.51.4
10.9
4.0
59.0
84.9
23.94.7
18.320.4
116.580.431.64.5
48.8
21.8
23.5
50.119.1
234.5
89.4
97.3
47.5
1,026.8
792.2
349.2
24.415.714.120.519.513.245.621.243.9
35.21.3
10.9
4.0
59.0
84.1
23.44.6
17.921.1
109.873.032.44.4
44.6
20.0
24.1
51.319.3
234.6
88.9
95.3
50.4
962.2
728.3
314.5
20.012.512.918.217.810.740.318.142.8
30.31.1
10.4
4.0
54.2
82.9
24.04.3
16.322.1
95.563.628.23.7
40.1
17.7
24.4
54.523.8
233.9
90.0
96.5
47.4
Source: Central Bureau of Statistics, Monthly Statistical Report.
1 / The data cover the fonner socially - owned enterprises, privated and partially privatized enterprises, as well as the general governmentsector. Annual data are the average of March and September.2/ The last available data is for November 1996; provisional data is presented for that month. The number of employed persons forNovember 1996 is taken from a monthly survey which covers 70% of employed from each activity. The employed persons in the Ministryof Defense. Ministry of Interior and independent fanners are not included.
©International Monetary Fund. Not for Redistribution
Table 12. Croatia: Trends in Employment and Unemployment I/
(End of period)
1990199119921993199419951996 Q21996 Q3
Majority state-owned ent. &pub. sector 2/
(1)
1,670,0961,482,7401,221,3331,054,357
870,787799,665
Privatesector 3/(2)
285,766343,650435,200586,823716,791738,804
Totalemployment(3)=(l)+(2)
1,955,8621,826,3901,656,5331,641,1801,587,5781,538,4691,451,7331,468,316
Unemployed(registered)
(4)
195,466283,308261,050243,096247,555249,070252,524262,203
Laborforce
(5)=(3)+(4)
2,151,3282,109,6981,917,5831,884,2761,835,1331,787,5391,704,2571,730,519
Unemploymentrate
(4)/(5)
9.113.413.612.913.513.914.815.2
Vacancies
10,7016,9228,8638,4269,0697,76510,66910,974
Source: State Institute for Macroeconomic Analysis and Forecasting.
©International Monetary Fund. Not for Redistribution
- 97 - STATISTICAL APPENDIX
Table 13. Croatia: Trends in Wage Bills and Non-wage Compensation
(In thousands of kunas, prices of December 1990)
1989199019911992199319941995
1994Jan.Feb.Mar.Apr.May.JimJul.Aug.Sep.Oct.Nov.Dec.
1995Jan.Feb.Mar.Apr.May.JunJul.Aug.Sep.Oct.Nov.Dec.
1996Jan.Feb.Mar.Apr.May.JunJul.Aug.Sep.Oct.
TotalCompensation
140,485155,907116,40961,21150,19469,70182,786
4,0114,6145,5765,5725,6606,4625,9735,8846,1636,1856,5077,099
5,9166,2666,7826,7206,8927,0917,2526,9177,2237,1456,9387,645
6,9656,8987,1907,2727,6057,5828,0137,8797,7377,958
Wage Social Compensation WageBill Benefits from Employmen Bill
and Work
98,47398,50571,05133,59927,19835,12349,148
2,4132,5662,6962,8122,6982,9182,9383,0913,1493,1423,1983,505
3,7693,9394,1894,0954,0924,1884,2684,1474,1764,0613,9984,227
3,9473,9424,0554,0634,2294,3044,3464,5934,3274,347
31,44641,93029,85313,68110,56214,55715,946
7231,0541,3981,0821,2061,4791,1801,1861,2591,2321,4001,360
9851,1451,2731,2811,2281,3611,3171,3741,5221,4611,4101,589
1,6661,5971,7501,7341,8421,8681,9631,8971,9431,994
10,56615,47115,50513,93112,43420,02117,692
875994
1,4821,6781,7562,0651,8551,6071,7551,8111,9092,234
1,1621,1821,3201,3441,5721,5421,6671,3971,5251,6221,5301,829
1,3521,3591,3851,4761,5351,4111,7041,3901,4661,616
0.700.630.610.550.540.500.59
0.600.560.480.500.480.450.490.530.510.510.490.49
0.640.630.620.610.590.590.590.600.580.570.580.55
0.570.570.560.560.560.570.540.580.560.55
Socialbenefits
(Shares)
0.220.270.260.220.210.210.19
0.180.230.250.190.210.230.200.200.200.200.220.19
0.170.180.190.190.180.190.180.200.210.200.200.21
0.240.230.240.240.240.250.240.240.250.25
Compensationfrom Employment
and Work
0.080.100.130.230.250.290.21
0.220.220.270.300.310.320.310.270.280.290.290.31
0.200.190.190.200.230.220.230.200.210.230.220.24
0.190.200.190.200.200.190.210.180.190.20
Source: Croatian Economic Trends.
©International Monetary Fund. Not for Redistribution
- 98 - STATISTICAL APPENDIX
Table 14. Croatia: Trends in Average Monthly Net Wages and Salaries I/
1989199019911992199319941995
1995Jan.Feb. 21Mar.Apr.MayJun.Jul.Aug.Sep.Oct.Nov.Dec.
1996Jan.Feb.Mar.Apr.MayJun.Jul.Aug.Sep.
Total
(InHrK)
0.84.88.1
33.4535.4
1,248.61,819.1
1,745.01,725.01,800.01,791.01,836.01,843.01,798.01,839.01,826.01,848.01,895.01,883.0
1,924.01,908.01,920.01,980.02,067.01,994.02,071.02,085.02,028.0
Total
(InUS$)
414.9112.0140.4234.0347.8
317.5326.0360.2361.7367.9365.5359.1342.8347.5351.8354.9354.2
349.5355.3351.8355.7370.6366.3393.9396.7373.8
Total Economy Non-economy
(InHrK, prices of Dec. 1990)
5.35.64.42.22.02.84.1
3.93.94.04.04.14.14.04.14.04.14.24.1
4.24.24.24.34.54.34.44.54.3
5.25.54.42.21.92.83.9
3.83.83.93.94.04.03.94.03.94.04.14.0
4.14.14.14.24.44.24.44.44.3
5.87.55.62.32.13.14.4
4.44.34.44.44.44.64.34.34.34.44.44.5
4.44.44.54.54.64.54.54.64.5
Source: Croatian Economic Trends; and staff estimates.
I/ Comprises the formerly socially-owned industrial sector ("economy11) and the generalgovernment sector ("non-economy").21 Series break starting in January 1995 when amounts previously included in non-wagecompensation are shifted to wages.
©International Monetary Fund. Not for Redistribution
- 99 - STATISTICAL APPENDIX
Table 15. Croatia: Average Gross Monthly Pay per Employeeloyee
(In Croatian kuna)
Total
Goods and services
Mining and industryOfwhich:
Manufacture of metal productsMachine industryShipbuildingManufacture of electrical equipmentFinished wood productsTextile fibre and fabricsFinished textile productsLeather footwear and accessoriesFood products industry
Agriculture and fisheriesOf which:
Fisheries
Forestry
Water management
Construction
Transport and communicationsOfwhich:
RailwaysOcean shippingRoad transportCommunications
TradeRetail tradeWholesale tradeForeign trade
Hotels, restaurants, tourism
Crafts and trade
Housing, utilities, and public services
Financial and other servicesOfwhich:
Banking
Education, health and government
Education, culture and the arts
Health care and social services
Government bodies
1994
2,155
2,092
2,083
1,8231,7881,6602,4091,6221,3521,8551,5352,530
2,020
1,969
2,187
1,927
1,970
2,189
1,7913,1561,8332,259
1,8551,6822,2402,754
1,967
2,003
1,946
2,895
2,886
2,360
2,310
2,234
2,686
1995
2,887
2,781
2,743
2,3842,2722,3083,1372,0321,7452,1951,8773,472
2,690
2,603
3,041
2,558
2,550
2,840
2,5133,8452,4212,906
2,5902,3783,1043,546
2,591
2,625
2,741
3,796
3,829
3,190
2,988
3,202
3,510
1996I- VI
3,159
3,075
3,000
2,4532,6312,7153,6291,9591,8842,2261,9183,649
2,915
2,774
3,285
2,869
2,809
3,209
2,7244,0912,6083,543
2,8012,5233,5443,754
2,605
2,743
3,180
4,386
4,577
3,386
3,193
3,386
3,734
1996I-X
3,210
3,143
3,061
2,5212,6762,8273,6022,0101,8682,2611,9563,688
2,967
2,789
3,407
3,044
2,930
3,275
2,8484,1502,7123,532
2,8662,7563,6223,875
2,740
2,850
3,234
4,383
4,542
3,393
3,209
3,402
3,713
Source: Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
Table 16. Croatia: Indices of Nominal Net Wages and Salaries per Employee
(1993=100)
Total
Goods and servicesMining and industry
Of which:Manufacture of metal productsMachine industryShipbuildingManufacture of electrical equipmentFinished wood productsTextile fibre and fabricsFinished textile productsLeather footwear and accessoriesFood products industry
Agriculture and fisheriesQfwhich:
FisheriesForestryWater managementConstructionTransport and communications
Ofwhich:RailwaysOcean shippingRoad transportCommunications
TradeRetail tradeWholesale tradeForeign trade
Hotels, restaurants, tourismCrafts and tradeHousing, utilities, and public servicesFinancial and other services
Ofwhich:Banking
Education, health, and governmentEducation, culture and the artsHealth care and social servicesGovernment bodies
1991
1.5
1.51.4
1.11.41.71.31.21.41.11.31.71.5
1.51.51.51.41.6
.8
.5
.6
.8
.8
.91.71.51.21.4.6.5
.4
.7
.81.71.6
1992
6.3
6.46.5
6.26.78.46.36.67.06.46.56.16.9
6.96.85.95.46.6
7.96.37.26.17.37.66.96.25.76.36.05.9
5.56.16.16.25.7
1993
100.0
100.0100.0
100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
100.0100.0100.0100.0100.0
100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0100.0
100.0100.0100.0100.0100.0
1994
237.1
236.6230.5
209.5227.4209.2225.6217.5231.8210.2199.4244.7231.4
200.2225.6234.6260.1227.8
228.1224.3240.4218.7254.3259.2245.0233.9241.6239.5234.3234.8
218.6236.2229.3247.3230.2
1995
345.6
343.2332.0
300.6318.4320.6328.2300.7325.8276.2268.2361.4330.6
293.2344.4342.2372.0326.0
348.0304.5346.7314.2381.9392.3365.5334.6340.8344.5355.8337.0
317.8346.7324.4380.6328.9
1996I-X
381.2
384.0366.9
318.6370.4386.2372.0300.2346.0284.7280.0382.2363.6
307.2381.4398.6422.8374.0
390.0327.7386.0382.0418.3422.2419.5363.8358.8374.1412.9383.7
370.1367.5345.5403.5348.2
Source: Central Bureau of Statistics.
STATISTICAL APPENDIX- 100 -
1.1.1.1.1.1.1.
1.1.
1.1.1.1.1.
©International Monetary Fund. Not for Redistribution
STATISTICAL APPENDIX
Table 17. Croatia: Indices of Real Net Wages and Salaries per Employee
(1993=100)
Total
Goods and services
Mining and industryOf which:
Manufacture of metal productsMachine industryShipbuildingManufacture of electrical equipmentFinished wood productsTextile fibre and fabricsFinished textile productsLeather footwear and accessoriesFood products industry
Agriculture and fisheriesOf which:
Fisheries
Forestry
Water management
Construction
Transport and communicationsOf which:
RailwaysOcean shippingRoad transportCommunications
TradeRetail tradeWholesale tradeForeign trade
Hotels, restaurants, tourism
Crafts and trade
Housing, utilities, and public services
Financial and other servicesof which
Banking
Education, health, and government
Education, culture, and the arts
Health care and social services
Government bodies
1991
174.4
174.4
162.7
127.9162.7197.6151.1139.5162.7127.9116.2197.6
174.4
174.4
174.4
174.4
162.7
186.0
209.3174.4186.0209.3
209.3220.9197.6174.4
139.5
162.7
186.0
174.4
162.7
197.6
209.3
197.6
186.0
1992
100.0
101.5
103.1
98.4106.3133.3100.0104.7111.1101.5103.196.8
109.5
109.5
107.9
93.6
85.7
104.7
125.3100.0114.296.8
115.8120.6109.598.4
90.4
100.0
95.2
93.6
87.3
96.8
96.8
98.4
90.4
1993
100.0
100.0
100.0
100.0100.0100.0100.0100.0100.0100.0100.0100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0100.0100.0100.0
100.0100.0100.0100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1994
114.4
114.2
111.2
101.1109.8100.9108.9105.0111.9101.496.2118.1
111.7
96.6
108.9
113.2
125.5
110.0
110.1108.2116.0105.6
122.7125.1118.3112.9
116.6
115.6
113.1
113.3
105.5
114.0
110.7
119.4
111.1
1995
160.4
159,3
154.1
139.5147.7148.8152.3139.5151.2128.2124.5167.7
153.4
136.1
159.8
158.8
172.6
151.3
161.5141.3160.9145.8
177.2182.0169.6155.3
158.1
159.9
165.1
156.4
147.5
160.9
150.5
176.6
152.6
1996I-X
169.6
170.9
163.3
141.8164.8171.9165.6133.6154.0126.7124.6170.1
161.8
136.7
169.7
177.4
188.2
166.4
173.6145.8171.8170.0
186.2187.9186.7161.9
159.7
166.5
183.8
170.8
164.7
163.6
153.8
179.6
155.0
Source : Central Bureau of Statistics.
- 101 -
©International Monetary Fund. Not for Redistribution
Table 18. Croatia: Health Insurance of Workers
(Number of persons insured)
Total
Currently employed
Receiving retirement pensions
Unemployed persons
Other
Family members
Refugees
1990
4,394,398
1,723,059
657,961
81,260
72,736
1,859,382
0
1991 If
4,899,083
1,839,657
712,865
163,615
78,481
2,104,465
0
1992
4,608,466
1,606,984
712,032
178,618
72,266
1,847,566
191,000
1993
4,571,955
1,573,520
742,828
166,534
79,356
1,818,717
191,000
1994
4,591,341
1,564,494
778,400
161,660
82,710
1,813,077
191,000
1995
4,629,280
1,588,344
799,892
158,164
79,629
1,811,602
191,649
Source: Central Bureau of Statistics, and Croatian Health Insurance Institute.
I/ As of 1991 health insurance for agricultural workers is also included.
©International Monetary Fund. Not for Redistribution
Source: Central Bureau for Statistics, and National Workers1 Retirement and Disability Fund.
Table 19. Croatia: Child Care Supplements
Number receiving benefits
Number of children
Expenditures, (thousand kunas)
Child care supplement, (thousand kunas)
1990
175,103
334,804
2,369
2,280
1991
194,022
365,469
4,268
4,096
1992
208,414
394,034
17,505
16,740
1993
193,423
359,529
113,820
102,945
1994
204,975
378,434
662,780
636,319
1995
199,775
370,150
820,581
801,540
1996
196,962
365,202
853,164
825,249
©International Monetary Fund. Not for Redistribution
Table 20. Croatia: Disability and Retirement Insurance II
1990 1991 1992 1993 1994 1995 1996I-VI
(Number of persons)
Retirement benefitsDisabilty pensionsOld-age pensionsSurvivor pensionsFormer republics of former Yugoslavia
Disability compensation(for bodily injury)
Disabled workers - retrainingor additional training
Disabled workers -unemployment benefits
Compensation for less thanfull-time employment
Compensation for reducedpay on new job
594,839163,309264,096167,434
89,186
1,766
3,960
23,619
26,771
646,140164,858310,068171,214
94,186
2,472
6,650
20,441
31,056
762,072183,530387,405191,137
95,153
2,472
7,418
16,947
32,043
784,364181,614409,122193,628
100,964
2,159
11,654
16,192
31,637
813,382184,989433,180195,21325,620
104,172
2,102
13,061
16,145
32,956
863,551193,654443,688200,58929,118
104,819
2,476
14,434
14,390
32,217
866,126194,846446,929195,23329,118
104,520
(Expenditures, in thousands of kunas)
TotalDisability pensionsOld-age pensionsSurvivor pensionsSupplement (100 kuna)Compensation for bodily injuryCosts and compensations associated
with retraining and additionaltraining of disabled workers
Contributions to housing constructionAdministrative costsOther
31,6036,860
13,5455,793
206
1,069521818
2,790
47,7809,558
22,3177,984
309
1,675553
1,0594,325
208,83639,383
108,68136,132
1,382
4,4712,7544,933
11,100
3,318,269593,397
1,756,203571,993
20,709
96,25636,12891,481
152,102
8,479,0611,245,6133,698,3751,208,417
413,08742,780
240,0433,243
166,3271,874,265
10,667,3021,648,7544,412,0541,510,676
521,76751,695
257,6321,782,484
316,078274,842
5,947,376915,942
2,219,835793,682521,76747,544
155,280947,428118,876227,022
Source: Central Bureau of Statistics, and National Workers1 Retirement and Disability Fund.
I/ From 1991 onwards, coverage is slightly broader than previously.
©International Monetary Fund. Not for Redistribution
- 105 - STATISTICAL APPENDIX
Table 21. Croatia: Price Developments
Retail Prices Producer PricesRate of Growth
199019911992199319941995
1995Jan.Feb.Mar.Apr.MayJun.Jul.Aug.Sep.Oct.Nov.Dec.
1996Jan.Feb.Mar.Apr.MayJun.Jul.Aug.Sep.Oct.Nov.Dec.
IndexDec. 1994=100
100.7100.8100.9101.6101.8101.4101.4101.3102.9103.4103.5103.7
103.9104.4104.3104.0105.2105.7106.1106.1106.2106.7107.2107.2
PreviousPeriod
609.5123.0665.5
1,517.597.62.0
0.70.10.10.70.2
-0.40.0
-0.11.60.50.10,2
0.20.5
-0.1-0.31.10.50.40.00.10.60.50.0
Same MonthPrevious Year
-2.2-0.70.42.52.82.61.91.92.93.53.73.7
3.23.63.32.43.34.14.54.73.13.23.53.4
IndexDec. 1994=100
99.9100.5100.099.599.699.499.599.8100.1100.6101.1101.6
101.7101.7100.7101.1100.7101.1101.1101.1101.2101.2102.8103.1
Rate of GrowthPrevious Same MonthPeriod Previous Year
455.3146.3825.5
1,512.477.60.7
-0.10.6
-0.5-0.50.1
-0.20.10.30.30.50.50.5
0.10.0
-1.00.4
-0.40.40.00.00.10.01.60.3
-4.30.61.71.31.31.71.20.80.71.31.21.6
1.91.30.71.61.21.71.71.31.10.61.71.5
Source: Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
Table 22. Croatia: Retail Inflation Rates
(Average percentage change)
Total
Goods
Agricultural products
Industrial products - total
Processed food products
Alcoholic beverages
Tobacco
Non-food industrial productsTextile productsFuel and lightHousehold furnishingsElectric appliancesMedicine
ServicesHousing servicesPublic utilities and servicesTransportCommunications
1990
609.5
591.6
915.3
582.5
507.7
704,6
435.6
614.8639.9514.1567.7704.0483.4
690.11,074.7
750.2598.2398.0
1991
123.0
115.5
104.0
115.9
127.7
87.8
101.9
113.768.296.474.569.3
404.2
152.5320.7117.5159.5202.5
1992
665.5
746.8
632.3
751.1
740.7
749.7
1,050.0
743.3817.4659.9771.1958.5374.7
393.577.0
358.2486.7246.2
1993
1,517.5
1,502.4
1,135.9
1,514.2
1,442.2
1,593.4
1,278.2
1,552.61,774.71,807.11,776.31,488.62,665.1
1,604.21,534.41,805.51,681.41,703.8
1994
97.6
95.1
134.5
94.1
93.3
108.2
159.1
90.8103.587.6
103.862.2
110.5
110.9142.8113.798.895.2
1995
2.0
0.0
3.7
-0.2
0.0
4.4
27.2
-2.2-4.2-3.5-5.8
-10.60.6
11.918.15.36.5
23.8
1996
3.5
2.4
0.0
2.5
4.5
7.7
18.2
0.2-1.51.9
-3.3-3.9-0.6
8.65.14.55.9
32.8
Source: Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
Table 23. Croatia: Indices of Prices
(1989=100)
Indices of manufacturers' prices for industrial productsOf which:Equipment and machine
Production materials
Consumer Goods
Indices of wholesale prices for industrial products
Indices of producer process for agricultural products
Hotel and restaurant services
1990
555
543
559
551
566
628
668
1991
1,368
1,303
1,472
1,237
1,282
1,141
1,605
1992
12,654
14,069
14,412
10,178
12,142
10,435
14,336
1993
204,033
224,526
237,811
158,512
179,504
143,647
233,293
1994
362,363
373,386
413,077
296,576
340,520
284,852
450,022
1995
364,899
362,185
413,491
304,584
344,947
291,688
466,223
1996
370,008
369,428
411,423
316,463
351,846
550,143
Source: Central Bureau of Statistics.
©International Monetary Fund. Not for Redistribution
Table 24. Croatia: Electro-Energy Balance Sheet
(In millions of Kwh)
Total supply of electro-energy
Domestic production It
Imported from other SFRY republics
Imported from outside SFRY
Total use
Industry
Agriculture
Transportation
Others
Transmission loss
Exports (including other SFRY republ
1980
12,445
9,109
3,259
76
12,445
5,106
84
355
5,175
1,237
488
1985
15,019
7,627
6,388
1,005
15,019
5,811
103
410
6,897
1,328
472
1986
15,675
8,149
6,265
1,261
15,675
6,186
114
403
7,049
1,546
377
1987
16,133
8,733
6,486
914
16,133
6,247
115
410
7,475
1,477
409
1988
16,385
8,690
7,376
319
16,385
6,305
116
393
7,499
1,554
518
1989
16,128
8,109
6,726
1,293
16,128
6,361
115
382
7,436
1,548
286
1990
16,214
8,693
6,231
1,290
16,214
5,860
115
406
7,789
1,584
460
1991
14,482
8,414
5,627
441
14,482
4,591
103
217
7,322
1,481
768
1992
12,313
8,894
2,811
609
12,313
3,333
81
219
6,560
1,487
632
1993
12,942
9,359
2,391
1,192
12,942
2,997
71
229
7,048
1,329
1,257
1994
12,820
8,273
2,455
2,092
12,820
2,972
74
238
6,971
1,584
982
1995
13,244
8,862
2,548
1,834
13,244
2,695
68
240
7,696
1,660
886
Source: Electricity Institute Zagreb.
I/ Including hydro- and nuclear-generated electricity.
©International Monetary Fund. Not for Redistribution
Table 25. Croatia: Energy Balance Sheet
(In millions of tons coal equivalent)
1980 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Domestic sourcesCoalOther solid fuelsLiquid fiielOther
of which: hydro I/
ImportsLiquid fuel
USSR/FSUOthers
GasUSSR/FSU
Other primary energyof which: nuclear fuel 21
ExportsLiquid fuelSolid fuels
Change in stocks
Domestic use of primary energyElectricity generation
IndustryAgricultureHouseholdsTransportOther
8.90.30.94.43.32.2
10.08.22.16.10.50.5
1.30.0
6.35.70.6
-0.2
12.33.24.30.21.82.30.5
8.70.20.84.33.31.7
8.04.71.43.30.80.8
2.50.7
3.63.00.7
-0.3
12.83.44.40.21.92.40.5
9.20.20.84.33.91.9
8.85.41.34.10.80.8
2.60.7
4.23.60.6
-0.7
13.13.54.50.21.92.40.5
9.00.20.83.94.11.8
8.75.52.72.80.90.9
2.30.8
3.63.20.4
0.3
14.33.84.90.22.12.60.6
9.80.20.84.34.41.7
10.67.21.85.40.90.9
2.40.7
5.24.60.6
0.0
15.13.95.60.22.02.70.7
9.20.20.84.14.11.4
10.57.12.05.10.90.9
2.50.8
5.04.50.5
-0.2
14.53.65.20.22.12.70.6
8.70.20.83.93.91.3
10.47.51.65.80.80.8
2.10.8
5.14.70.4
0.1
14.13.74.70.22.12.80.6
8.10.10.73.14.11.9
6.74.10.33.80.90.9
1.70.9
3.32.90.4
0.4
11.93.73.60.22.01.90.4
6.90.10.42.73.71.5
6.94.30.83.50.80.8
1.80.7
2.82.40.4
-0.3
10.73.72.90.41.51.80.5
7.30,10.42.74.11.5
6.74.10.63.50.90.9
1.70.7
2.82.30.5
-0.2
11.03.82.70.41.61.90.6
6.70.10.42.34.01.7
7.75.80.85.00.90.9
1.00.0
3.63.20.4
-1.0
10.72.82.80.61.62.20.7
6.90.10.42.14.31.8
7.56.40.36.10.30.3
0.80.0
3.43.20.2
0.1
11.02.92.90.31.82.30.7
Source: Electricity Institute Zagreb.
I/ Hydro=hydro-generated electricity/0.35.2/ Nuclear fuel=nuclear generated electricity/0.336.
©International Monetary Fund. Not for Redistribution
Table 26. Croatia: National Public Enterprises
(End of Year)
Source: State Institute for Macroeconomic Aaalisis and Forecasting.
Employment Assets Sales
1990 1991 1992 1993 1994 1995 1994
(In persons)
HRVATSKA ELEKTROPRIVREDA(Electricity)
HRVATSKA VODOPRIVREDA(Water Supply)
HRVATSKE CESTE(Road Construction)
HRVATSKE ELJEZNICE(Raikoads)
HPT(Post and telecommunications)
JADROLINIJA RIJEKA(Coastal navigation)
HRVATSKA RADIO - TELEVIZIJA (HE(Radio and TV)
HRVATSKE [UME(Forestry)
NARODNE NOVINE(Printing)
INA - INDUSTRIJA NAFTE(Oil refining and distribution)
Total
18,289
859
4,444
37,702
20,067
2,309
3,496
14,734
736
32,585
135,221
14,250
569
3,857
29,301
18,439
2,209
2,846
10,113
725
18,345
100,654
13,984
426
3,643
22,840
19,445
1,499
2,752
9,882
763
18,084
93,318
14,457
400
3,715
22,004
19,687
2,113
2,719
10,201
746
17,965
94,007
14,158
401
3,645
21,812
20,493
1,974
2,928
10,034
727
17,513
93,685
23,331
4,952
36,590
7,086
7,618
317
793
22,328
203
20,540
123,758
1995
(Millions
23,628
5,332
37,000
7,791
8,609
267
851
22,190
206
21,171
127,045
1994
of kuna)
5,386
232
1,391
2,241
3,385
348
526
1,470
439
10,773
26,191
1995
5,831
276
988
2,323
3,854
339
711
1,359
518
9,490
25,689
©International Monetary Fund. Not for Redistribution
Table 27. Croatia: Number of Enterprises in the Economic Sector and Number of Legal Entities Undergoing Bankruptcy
(End of Year)
Number of Enterprises in the Economic Sector
Total
Industry
Agriculture and fishing
Forestry
Water supply
C onstruction
Transport and communication
Trade
Restaurants and Tourism
Artisanship and personal services
Housing and urban services
Financial,engineering and business
1991
32,051
4,556
849
21
29
2,076
800
14,948
2,076
1,386
785
4,525
1992
54,703
6,790
1,476
50
32
3,562
1,441
27,010
3,072
2,214
915
8,150
1993
83,788
9,519
2,243
87
33
5,519
2,625
42,214
4,376
3,465
1,041
12,666
1994
117,483
12,035
2,973
124
33
7,635
4,185
61,384
6,026
4,992
1,133
17,000
1995
135,403
13,437
3,319
151
35
8,943
4,731
71,258
6,828
5,983
1,193
19,615
1996 I/
139,748
13,874
3,399
161
35
9,472
44,943
73,127
7,102
6,043
1,226
20,366
Legal Entities Undergoing Bankruptcy
1991
339
176
13
60
3
28
7
23
4
25
1992
373
147
15
63
2
83
12
21
3
27
1993
397
131
17
64
2
110
14
24
2
33
1994
275
84
14
45
4
78
9
15
2
24
1995
348
112
20
55
6
95
11
18
3
28
1996 I/
413
127
26
57
8
121
17
19
2
35
Source: State Institute for Macroeconomic Analysis and Forecasting.
I/ October.
©International Monetary Fund. Not for Redistribution
Source: State Institute for Macioeconomic Analysis and Forecasting
II October.
Table 28. Croatia: Number of Employees in Enterprises Undergoing Bankruptcy
(End of Year)
Number of Employees in Enterprises Undergoing Bankruptcy
Total
Industry
Agriculture and fisfrrng
Construction
Transport and communication
Trade
Restaurants and Tourism
Artisanship and personal services
Housing and urban services
Financial,engmeering and business
1991
87,177
73,170
1,139
6,590
1,355
1,101
441
1,670
764
947
1992
69,062
53,941
1,182
8,306
2
1,942
454
1,448
368
1,419
1993
59,017
44,489
1,588
7361
2
2,212
343
1,541
4
1,477
1994
33,532
24,356
1,408
4,184
452
1,696
143
494
799
1995
43,589
30302
1,972
6,791
457
2,591
141
534
4
797
1996 11
46,792
32,142
2,212
7,172
457
3,305
141
579
0
784
1991
189,537
135,853
6,532
20,964
3,843
9,065
1,868
4348
1,621
5,443
Number of Employees in Insolvent Enterprises
1992
164,797
80,291
10,266
20375
30386
9,413
1,273
3371
383
9,039
1993
158,324
86,621
15,433
20,338
1,170
20,366
2,910
2,910
81
8,479
1994
188,902
95,464
18,273
16,598
26,434
22,638
3,110
2,010
201
4,171
1995
194,757
103,328
23,692
17,886
7,349
28,480
7,687
2,019
285
4,006
1996 I/
160,792
81,429
16,368
16,199
3,764
27,230
6,768
2366
738
4,897
©International Monetary Fund. Not for Redistribution
Table 29. Croatia: Government Employment
Central government
Budgetary central government
AdministrationLegislatureJudiciary
Social Accounting Service (ZAP)
National Bank of Croatia (NBC)
Extrabudgetary funds
Regional and local governments
Healthcare
Social services
EducationPrimarySecondaryTertiaryOther
Research
Culture, aits and information
Sports
Total general government
1991Dec.
29,312
19,938
6,880723
6,047
6,288
400
8,974
22,952
76,859
24,441
66,97639,48517,4009,159
932
5,742
20,124
1,779
248,185
1992Dec.
25,635
18,885
6,938721
5,725
5,501
384
6,366
20,443
73,158
24,090
64,48938,20217,2498,280
758
3,994
17,048
1,608
230,465
1993Dec.
27,439
15,137
8,471852
5,814
5,430
401
6,471
19,395
73,409
24,613
67,32839,44918,3548,4201,105
3,947
16,576
1,578
234,285
1994Jul.
27,668
15,695
9,024912
5,759
5,037
434
6,502
23,376
71,046
24,754
67,23739,44118,2888,5071,001
3,979
16,142
1,552
235,754
Dec.
26,738
14,440
7,823817
5,800
5,252
431
6,615
25,560
69,996
24,976
65,86038,91017,9228,374
654
3,865
16,446
1,513
234,954
1995Jul.
21,070
13,787
7,247833
5,707
5,252
460
6,823
26,060
69,678
25,044
65,89138,88817,9288,422
653
3,863
16,486
1,509
234,853
Dec.
24,693
17,595
10,6911,0995,805
5,252
460
6,638
18,948
71,234
25,578
67,28439,19718,5748,607
906
3,990
16,619
1,536
237,310
1996Jul.
25,357
18,295
11,2141,1505,931
5,200 I/
460 11
6,602
19,000
71,317
25,097
66,18738,34118,1498,6901,007
3,361
17,093
1,458
231,083
(In percent of total employment)
Total general governmentBudgetary central governmentRegional and local governmentsExtrabudgetary fundsProviders of
HealthcareEducationSocial servicesCulture, arts and information
11.60.91.10.4
3.63.11.10.9
11.71.01.00.3
3.73.31.20.9
12.20.81.00.3
3.83.51.30.9
12.40.81.30.3
3.73.51.30.9
13.01.01.00.4
3.93.71.40.9
Source: Croatian Ministry of Finance.
I/ Estimate.
STATISTICAL APPENDIX- 113 -
©International Monetary Fund. Not for Redistribution
Table 30: Croatia - Budgetary Central Government Revenue
19961991 1992 1993 1994 I/ 1995 Budget Jaa-Nov. 11
(in millions of kunas)
Revenue and grantsRevenue
Current revenueTax revenue
Income and profit taxProperty taxTaxes on goods and servicesTaxes on international tradeOther taxes
Non-tax revenueCapital revenue
Grants
64646463250
3350
100
557557547502
842
316
990
45100
8,4718,4718,3717,892
93663
5,6631,230
0479100
0
24,26024,26023,90623,3503,803
11815,8943,487
49556354
0
27,98127,88127,28726,505
4,507142
17,746
3,939172782594100
31,085
31,08530,14729,076
4,851157
19,365
4,40033
1,072938
0
28,598
28,59827,55225,9664,947
15017,250
3,58830
1,5861,046
0
(in percent of GDP)
Revenue and grantsRevenue
Current revenueTax revenue
Income and profit taxProperty taxTaxes on goods and servicesTaxes on international tradeOther taxes
Non-tax revenueCapital revenue
Grants
Revenue and grantsRevenue
Current revenueTax revenue
Income and profit taxProperty taxTaxes on goods and servicesTaxes on international tradeOther taxes
Non-tax revenueCapital revenue
Grants
15.015.015.014.85.80.07.81.20.00.20.00.0
100.0100.0100.098.538.50.0
52.17.90.01.5
0.00.0
20.420.420.118.43.10.1
11.63.60.01.60.40.0
100.0100.098.290.115.10.4
56.817.90.08.11.80.0
20.320.320.018.92.20.2
13.52.90.01.10.20.0
100.0100.098.893.211.00.7
66.914.50.05.71.20.0
28.928.928.527.84.50.1
18.94.20.10.70.40.0
(composition)
100.0100.098.596.315.70.5
65.514.40.22.31.50.0
32.232.131.430.55.20.2
20.44.50.20.90.70.1
100.099.697.594.716.10.5
63.414.10.62.82.10.4
32.932.931.930.75.10.2
20.54.70.01.11.00.0
100.0100.097.093.515.60.5
62.314.20.13.43.0
0.0
33.033.031.830.0
5.70.2
19.94.10.01.81.20.0
100.0100.096.390.817.30.5
60.312.50.15.53.70.0
Source: Ministry of Finance.
I/ Includes the Road Fund.21 GDP shares are at an annual rate.
STATISTICAL APPENDIX- 114 -
©International Monetary Fund. Not for Redistribution
- 115 - STATISTICAL APPENDIX
Table 31. Croatia: Budgetary Centra! Government Expenditure and Net Lending
1991 1992 1993 1994 11 1995 1996Budget Jan.-Nov. 21
(In millions of Croatian kuna)
Expenditure and net lendingExpenditure
Current expenditureExpenditure on goods and services
Wages and salariesEmployer contributionsOther goods and services
Interest paymentsDomesticExternal
Subsidies and other current transfersCapital expenditure
Lending minus repayments
8383806221
437
000
1730
564564520396
9824
27321210
103440
8,4038,4037,7426,1111,941
4843,686
212207
51,419
6610
23,71923,40321,19417,1456,5891,3839,1731,3051,132
1732,7442,210
316
28,69628,47625,49520,735
8,3941,716
10,6251,392
911481
3,3692,980
221
33,26831,97226,39219,8918,4682,0039,4201,4511,015
4355,0505,5801,297
28,43727,88123,93918,2177,6731,8458,7001,162
928234
4,5604,052
446
(In percent of GDP)
Expenditure and net lendingExpenditure
Current expenditureExpenditure on goods and services
Wages and salariesEmployer contributionsOther goods and services
Interest paymentsDomesticExternal
Subsidies and other current transfersCapital expenditure
Lending minus repayments
Expenditure and net lendingExpenditure
Current expenditureExpenditure on goods and services
Wages and salariesEmployer contributionsOther goods and services
Interest paymentsDomesticExternal
Subsidies and other current transfersCapital expenditure
Lending minus repayments
19.619.618.814.64.91.08.70.10.10.04.10.80.0
100.0100.096.074.724.8
5.444,5
0.50.50.0
20.94.00.0
20.720.719.114.53.60.9
10.00.80.80.03.81.60.0
100.0100.092.170.117.443
48.43.73.70.0
18.37.90.0
20.120.118.514.64.61.28.80.50.50.03.41.60.0
100.0100.092.172.723.1
5.843.92.52.50.1
16.97.90.0
28.327.925.320.47.91.6
10.91.61.30.23.32.60.4
(Composition)
100.098.789.472.327.8
5.838.7
5.54.80.7
11.69.31.3
33.032.829.423.9
9.72.0
12.21.61.00.63.93.40.3
100.099.288.872.329.26.0
37.04.93.21.7
11.710.40.8
35.233.827.921.09.02.1
10.01.51.10.55.35.91.4
100.096.179.359.825.56.0
28.34.43.11.3
15.216.83.9
32.832.227.621.0
8.92.1
10.01.31.10.35.34.70.5
100.098.084.264.127.06.5
30.64.13.30.8
16.014.21.6
Source: Ministry of Finance.
I/ Includes the Road Fund.2/ GDP shares are at an annual rate.
©International Monetary Fund. Not for Redistribution
Table 32. Croatia: Budgetary Central Government Expenditure by Function
1991 1992 1993 1994 1995 1996Budget I/ January -
September
(In millions of Croatian Icuna)
Expenditure by function
General public services
Defense affairs and services
Public Order and safety
EducationHealth affairs and services
Social security and welfare
Culture
HousingAgriculture, forestry and fisheriesMining and mineral resourcesTransportation and communication
Other
83
322151518202077
565
2119665603
667
10430
3758
8,403
3953,259
998824
885612676
49574
578715
22,283
1,6757,650
2,8412,865
572,547
309463653192
1,4991,532
28,476
1,9119,9113,3513,278
783,186
4301,343
512255
2,232
1,988
31,622
2,072
7,760
3,827
3,696
2164,357
4362,459
556463
3,408
2,372
15,267
8245,027
1,6621,712
282,166
178772278173
1,508938
(In percent of GDP) 2/
Expenditure by function
General public servicesDefense affairs and servicesPublic order and safety
EducationHealth affairs and servicesSocial security and welfare
Culture
HousingAgriculture, forestry and fisheries
Mining and mineral resources
Transportation and communication
Other
Expenditure by function
General public servicesDefense affairs and services
Public Order and safety
EducationHealth affairs and servicesSocial security and welfare
Culture
HousingAgriculture, forestry and fisheries
Mining and mineral resourcesTransportation and commuiucrtion
Other
19.6
0.85.13.63.60.32.00.40.00.50.01.71.7
100.0
4.226.018.218.21.5
10.11.90.22.30.08.88.7
20.7
0.87.22.42.20.12.40.30.41.60.01.32.1
100.0
3.834.711.410.60.5
11.71.31.87.50.06.5
10.2
20.1
0.97.82.42.00.02.00.30.21.20.21.41.7
100.0
4.738.811.99.80.1
10.21.50.95.90.96.98.5
26.5
2.09.13.43.40.13.00.40.60.80.21.81.8
(Composition)
100.0
7.534.312.812.90.3
11.41.42.12.90.96.76.9
31.7
2.111.03.73.60.13.50.51.50.60.32.52.2
100.0
6.734.811.811.50.3
11.21.54.71.80.97.87.0
32.0
2.17.93.93.70.24.40.42.50.60.53.42.4
100.0
6.624.512.111.70.7
13.81.47.81.81.5
10.87.5
15.5
0.85.11.71.70.02.20.20.80.30.21.50.9
100.0
5.432.910.911.20.2
14.21.25.11.81.19.96.1
Source: Ministry of Finance.
I/ Includes the Road Fund.21 GDP shares for January-September 1996 are at an annual rate.
STATISTICAL APPENDIX- 116 -
©International Monetary Fund. Not for Redistribution
- 117 - STATISTICAL APPENDIX
Table 33. Croatia: Consolidated Fiscal Accounts
1991 1992 1993 1994 1995 1996
Budget
1996
Jan-Sep.
(In millions of Croatian kuna)
Central government II 21
Revenues and grants
Expenditures plus net lending 11
Balance
Extrabudgetary funds 1/3/
Revenues and grants
Expenditures plus net lending
Balance
Consolidated central government
Revenues and grants
Expenditures plus net lending
Balance
64
70
-6
75
90
-15
139
160
-21
557
500
57
315
477
-162
872
977
-105
8,471
7,482
989
4,849
6,163
-1,314
13,320
13,645
-326
24,260
22,112
2,148
12,622
13,529
-907
36,882
35,642
1,241
27,981
26,189
1,791
15,302
17,976
-2,674
43,283
44,165
-883
31,085
29,451
1,634
16,176
20,180
-4,004
47,262
49,631
-2,369
23505
20658
2,846
12580
15534
-2,954
36,084
36,192
-108
(In percent of GDP)
Central government
Revenues and grants
Expenditures plus net lending 11
Balance
Extrabudgetary funds 3/
Revenues and grants
Expenditures plus net lending
Balance
Consolidated central government
Revenues and grants
Expenditures plus net lending
Balance
15.0
16.5
-1.5
17.6
21.1
-3.4
32.6
37.5
-4.9
20.4
18.3
2.1
11.6
17.5
-5.9
32.0
35.8
-3.8
20.3
17.9
2.4
11.6
14.7
-3.1
31.9
32.6
-0.8
28.9
26.4
2.6
15.0
16.1
-1.1
44.0
42.5
1.5
32.2
30.2
2.1
17.6
20.7
-3.1
49.8
50.8
-1.0
32.9
31.1
1.7
17.1
21.3
-4.2
50.0
52.5
-2.5
33.1
29.1
4.0
17.7
21.9
-4.2
50.9
51.0
-0.2
Sources: Ministry of Finance; and staff estimates.
I/ Revenues and expenditures adjusted for inter-governmental transfers.
II Includes since 1994 the Croatian Roads fund
3/ Composed of the Pension fund, Health fund, Employment fund, Child Benefits fund and, since 1994, the Water
Management fund. Does not include the Privatization fund.
©International Monetary Fund. Not for Redistribution
Source: National Bank of Croatia.
Table 34: Croatia: Monetary Survey
(End of period, millions of kuna)
ASSETS
1. Foreign assets (net)
2. Domestic credit
2.1 . Claims on central government and funds (net)
2.2. Claims on other domestic sectors
2.3. Claims on other banking institutions
2.4. Claims on nonbank financial institutions
Total (1+2)
LIABILITIES
1. Money
2. Savings and time deposits3. Foreign currency deposits4 . Bonds and money market instruments
5. Restricted and blocked deposits
o/w: Households' blocked ffc deposits
6. Other items (net)
Total (1+2+3+4+5+6)
1993
Dec.
24040,364
19,069
21,2691016
40,604
3,139
1,4765,412
4815,594
13,857
14,934
40,604
1994
Dec.
3,009
43,832
15,625
28,115
3062
46,840
6,641
1,8738,775
19913,322
11,471
16,031
46,840
1995
Mar.
2,879
43,104
15,441
27,551
3577
45,983
6,829
1,8658,977
9512,946
11,06115,271
45,983
Jun.
4,011
43,107
15,038
27,950
3585
47,119
7,749
1,8519,991
10812,719
10,798
14,702
47,119
Sep.
4,782
45,423
15,162
30,137
21103
50,205
8,364
2,13412,179
15412,481
10,477
14,894
50,205
Dec.
4,750
49,297
15,156
34,01031
10154,047
8,275
2,04314,099
12411,921
9,812
17,584
54,047
Mar.
5,353
50,742
15,169
35,437
3798
56,095
8,601
2,304
16,499137
11,233
9,219
17,321
56,095
1996
Jun.
6,942
50,711
13,731
36,826
35119
57,653
9,397
2,52217,337
16610,709
8,704
17,52357,653
Sep.
9,563
51,537
13,450
37,920
33134
61,100
10,326
2,99119,813
1079,988
7,940
17,87461,100
Oct.
9,596
52,375
13,468
38,730
33144
61,971
10,612
3,14520,506
989,741
7,580
17,87061,971
©International Monetary Fund. Not for Redistribution
- 119 - STATISTICAL APPENDIX
Table 35: Croatia: Monetary Authorities Balance Sheet
(End of period, millions ofkuna)
ASSETSForeign assets
1.1. Goldof which:Holdings of SDKs
Foreign cash in vaultsDemand deposits with foreign banksTime deposits with foreign banks
Securities in f/cNonconvertible foreign exchange
Claims on central government and fundsClaims in Kuna
Bridging loansLoans under separate decreesOverdue claims
Claims in f/cClaims on other domestic sectors
Claims on DMBsCredits to DMBs
Refinancing of DMBsShort ..term credits against securities portfolioLombard creditsOther creditsNBC bills under repurchase agreement
NBC deposits with DMBsOverdue claims
Claims on other banking institutions
Total Assets
LIABILITIESReserve money
Currency outside banksDMBs' cash in vaults
DMBs1 depositsGiro accountsStatutory reservesNBC bills on obligatory basis
Deposits of other banking institutionsDeposits of other domestic sectors
Restricted and blocked depositsRestricted depositsEscrow deposits
Foreign liabilitiesUse of IMF credit
Liabilities to international organizations
Central government and funds depositsDemand deposits
Central government demand depositsCentral government funds demand deposits
4.2. Central government f/c deposits
NBC billsCapital accounts
Other items (net)
Total Liabilities
1993Dec.
4,044
24608
73,403
0535384
3777
1510
192182140
636
19
4,771
2,249
1,36752
82155
767
0811
152151
000
0
212,366
19
4,771
1994Dec.
7,908
2588
17,794
0251180
180
701
224222
240
19711
8,383
4,714
2,658134
1,901116
1,785
6154040
716715
1794794725
68
3752,066
322
8,383
1995Mar.
7,672
28828
7,554
0192131
1256
613
173171
1710
11
8,039
4,5442,556
1201,855
481,807
85
13027
103672671
1629629511117
4071,652
6
8,039
Jun.
9,208
518252
58,433
011970
70
492
20540
3010
1163
9,534
5,5582,983
1262,422
982,055
2701512
15540
1151,1881,187
1705705524181
2521,664
12
9,534
Sep.
10,215
770383
78,997
560
109604515
491
9188
27610
11
10,416
6,4373,212
1323,059
592,320
6802212
17245
1271,1891,188
132832827752
3091,969
12
10,416
Dec.
10,075
743384
128,381
5550
390353
3530
371
220123
26970
196
10,686
6.744
3,365131
3,199181
2,202816463
21254
1581,1751,174
1396396339
57
1682,019
28
10,686
Mar.
10.319
753385
48,593
5850
586548200348
0383
137135
1340
11
11.045
6,6763,275
1133,239
1822,255
802480
21653
1631,1931,191
2580580423156
3462,073
38
11,045
1996Jun.
10,989
720195
39,314
7570
352328
30028253
123120
1200
11
11,466
7,1253,577
1113,393
2702,459
664440
23058
1721.1611,159
2613613510103
5121,831
6
11,466
Sep.
12,452
703114
211,040
5920
275251
2510
24230
0
11
12,731
7,8823,919
1373,775
4452,955
375510
22766
1611,1491,148
254754745493
1,116
1,8199
12,731
Oct.
12,457
690114
111,061
5920
261249
249
122
6057
570
11
12,780
7,9633,946
1453,826
6193,113
93460
24281
1611,135
1,1332
518518428900
1,138
1,807
23
12,780
Source: National Bank of Croatia.
©International Monetary Fund. Not for Redistribution
Table 36: Croatia: Deposit Money Banks' Accounts
(End of period, millions of kuna)
ASSETS1 . Reserves2. Foreign assets
o/w: Claims on former Yugoslavia3. Claims on central governments and funds3.1 . Bonds arising from blocked f/c deposits3.2. Big bonds3.3. Other claims
4. Claims on other domestic sectors4.1 . Claims on local governments and funds4.2. Claims on enterprises4.3. Claims on households
5. Claims on other banking institutions6. Claims on nonbank financial institutionsTotal Assets
LIABILITIES1. Deposit money2. Savings and time deposits3. Foreign currency deposits4. Bonds and money market instruments5. Foreign liabilities
o/w: Liabilities to former Yugoslavia6. Central government and funds' deposits7. Credit from central bank8. Restricted and Mocked deposits
o/w: Households' blocked #c deposits9. Capital accounts
10. Other items (net)Total Liabilities
1993Dec.
8668,5963353
19,97214,8373,6351,500
21,26911
193551,902
1016
50,729
1,7641,4765,412
4812,24883561,438
27515,59313,85711,756
71850,729
1994Dec.
2,0369,1172,425
17,83811,4374,9721,429
28,114113
24,6263375
3062
57,197
3,9611,8738,775
199133016,942
1,669224
13,28111,47114,185
-27257,197
1995Mar.
1,9818,8332,354
17,53711,0435,103
1,39127,548
12223,8993,527
3577
56,012
4,2611,8658,977
9512,953
6,7461,660
18312,91911,06114,168-1,06856,012
Jun.
2,4949,2082319
17,44410,8535,0641,527
27,948131
23,9803,837
3585
57,213
4,7391,8519,991
10813,2166,7901,821
13812,67810,79813,404
-73257,213
Sep.
3,2069,4712,403
17,32610,4865,0001,839
30,135161
25,7124,262
21103
60,262
5,1182,134
12,179154
13,7146,8711,945
9012,43510,47713,413
-91960,262
Dec.
3,30411,1852,337
17,18710,0785,0612,048
34,009147
293504,513
31101
65,816
4,8612,043
14,099124
15,335
6,8962,026
18311,866
9,81216,228
-95065,816
Mar.
3,36712,1942,257
16,9289,5394,8782,511
35,434150
30,4364,848
3798
68,058
5,2772,304
16,499137
15,9666,9581,765
13711,1799,219
15,782-987
68,058
1996Jim.
3,513
13,4592,193
15,6548,4774,6562,520
36,823139
31,5445,139
35119
69,603
5,7762,522
17,337166
163466,7301,661
12210,6488,704
16308-1,28469,603
Sep.
3,927
14,5612,017
15,5077,8584,0533,596
37,918139
32,2285,551
33134
72,080
6,3572,991
19,813107
16,300
6,6351,785
299,9207,940
16,737-1,95972,080
Oct.
3,985
14,5092,017
15,5017,8324,0473,622
38,728138
32,7885,802
33144
72,900
6,6203,145
20,50698
16,2366,5851,775
599,6577,580
16,321-1,51772,900
Source: National Bank of Croatia.©International Monetary Fund. Not for Redistribution
Table 37: Croatia: Interest Rates of the National Bank of Croatia
(In Percentage, On Yearly Basis)
Deposit RatesInterest rates on
Year Month statutory reserves™th the NBC I/
1994 January
February
March
April
MayJune
July
AugustSeptember
OctoberNovember
December
1995 January
FebruaryMarchApril
MayJune
JulyAugust
September
OctoberNovember
December
1996 January
February
MarchApril
MayJune
July
AugustSeptemberOctober
6.06.05.25.25.252525.25.25.2
5.25.25.25.25.55.55.55.55.55.55.55.5
5.55.55.55.55.55.55.55.55.55.5
Interest rates on
NBC bills onobligatory basis
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
16.5
12.0
Interest rates on NBC billson voluntary basis 2/
7 days
26.8
28.3
24.0
17.5
17.9
15.2
11.0
11.0
11.1
11.1
9.09.0
9.09.59.09.09.09.09.0
10.0
12.0
12.0
12.0
12.0
12.0
12.0
12.0
12.0
12.0
35 days
66.9
41.1
24.8
18.7
19.4
20.0
14.0
14.0
14.1
13.7
11.0
12.0
12.0
12.5
16.1
15.9
15.8
18.0
19.0
19.2
22.0
22.9
24.4
25.5
26.0
26.0
26.0
26.0
25.1
21.5
16.5
9.18.08.0
91 days
66.7
71.5
25.0
15.0
22.0
16.8
17.0
17.0
17.0
14.0
14.0
14.0
14.8
17.3
17.5
17.5
19.3
19.5
24.0
24.0
26.0
27.0
27.0
27.5
27.5
28.0
26.5
22.8
17.6
10.8
9.59.5
Credit ra tes
NBC On ReserveDiscount Lombard Shortfall On arrears
Rate Credits Credits
14.0
14.0
11.0
11.0
9.59.58.58.58.58.58.58.5
8.58.58.58.58.58.58.58.58.58.58.5
8.5
8.58.58.58.58.58.58.56.56.56.5
18.9
18.9
14.5
14.5
12.5
12.5
14.0
14.0
14.0
14.0
14.0
18.0
18.0
18.0
18.0
18.0
18,0
18.9
19.7
20.5
22.3
24.4
24.9
25.5
25.7
27.3
27.7
28.1
28.3
27.1
20.9
19.6
13.0
11.0
200.4127.8
71.0
40.0
34.5
34.5
23.0
23.0
23.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
17.0
127.8
51.1
47.1
30.0
30.0
30.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
22.0
24.0
24.0
24.0
24.0
18.0
18.0
Source: National Bank of Croatia.
I/ From December 1992 through October 7, A291993 data present weighted averages of monthly interest rates on statutory reserves
deposited with the NBC.2/ Since November 1993 table shows weighted averages of monthly interest rates from auctions of NBC bills.
©International Monetary Fund. Not for Redistribution
- 122 - STATISTICAL APPENDIX
Table 38: Croatia: Deposit Money Bank Interest Rates - Domestic Currency Rates
Interest rates on deposits in KunaYear Month Total On demand On time and
average deposits savings deposits
1994 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1995 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1996 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctober
16.114.48.04.93.83.84.23.94.34.95.05.0
5.15.55.35.35.35.45.25.35.95.86.26.1
6.46.66.46.56.45.85.95.54.74.5
7.77.65.73.22.82.72.82.93.03.53.63.6
3.63.83.83.83.83.93.83.74.14.23.93.9
4.04.03.93.93.93.63.53.12.72.6
38.332.914.39.87.77.67.67.58.69.19.09.7
9.210.110.310.510.711.210.611.312.411.214.113.7
14.815.214.915.114.913.814.113.410.710.2
Interest rates on credits in KunaTotal On short-term On long-term
average credits credits
55.953.623.317.716.516.216.114.915.215.515.715.4
16.016.116.717.618.722.621.922.021.723.524.222.3
26.425.824.925.625.123.622.820.818.718.0
56.353.923.917.716.516.216.215.015.215.515.715.4
16.116.216.817.718.822.822.622.621.823.624.422.6
26.626.025.225.825.224.023.120.919.118.5
24.226.515.015.111.511.712.612.712.612.913.813.8
13.614.413.314.615.315.210.111.916.917.417.213.5
16.214.916.415.917.313.216.517.910.810.8
Source: National Bank of Croatia
©International Monetary Fund. Not for Redistribution
Table 39: Croatia: Deposit Money Banks Interest Rates - Foreign Currency Rates
Interest rates on deposits in foreign currency
Year Month
1995 JanuaryFebruaryMarch
April
MayJune
JulyAugust
September
October
November
December
1996 January
February
March
April
MayJune
July
August
September
October
Total
average
4.55.24.63.74.64.6
4.64.74.74.74.44.14.04.24.54.8
On demand
deposits
3.33.93.11.72.92.8
3.02.82.92.82.81.71.51.91.51.4
On time and
savings deposits
6.26.96.65.96.76.8
6.77.06.86.86.26.46.36.27.07.5
Interest rates on credits in foreign currency
Total
average
17.333.816.6
8.416.8
15.7
17.7
17.7
17.6
16.1
14.1
14.3
15.1
15.7
19.6
21.0
On short-term
credits
17.1
35.2
16.6
8.316.9
16.6
18.0
17.8
18.7
19.1
14.6
15.8
17.6
20.7
20.9
22.1
On long-term
credits
17.9
17.313.7
13.1
14.0
12.3
14.9
15.0
14.3
13.5
12.910.9
10.8
10.9
10.7
9.8
Source: National Bank of Croatia.
©International Monetary Fund. Not for Redistribution
STATISTICAL APPENDIX
Table 40. Croatia: Balance of Payments, 1993-1996(In millions of U.S. Dollars)
Merchandise trade balance
Exports (fo.b.)(in percent change)
Imports (c.i.f.)(in percent change)
Services and transfers
TransportationTourismOther servicesInterest income (scheduled, net) I/Government transfersPrivate transfers
Current account balance
Capital account
Foreign direct investmentMedium and long term loans
DisbursementsAmortization scheduled I/
Net non-loan claimsBank net non-loan claimsOther sectors net non-loan claims
Net short-term lending 21
Errors and omissions 3/
Overall balance
Gross reserves (US$m) (- = increase)Arrears (+ - increase)Exceptional financing
Memorandum items:Current account as percent of GDPGross reserves (US$m)Reserves in months of imports
of goods and nontinancial services
1993
-763
3904(-15.1)-4666
(4.6)
867
179533-80
-141250126
104
42
74-192154
-34544
-211255116
76
222
-449251-24
0.9616
1.1
1994
-969
4260(9.1)
-5229(12.1)
1072
120875
-257-124235224
104
220
98-137184
-321242
-190431
17
102
425
-789258106
0.71405
1.7
1995
-2877
4633(8.7)
-7510(43.6)
1165
60813
-260-94280366
-1712
491
81-137315
-45250
-467517497
1300
78
-490315
98
-10.31895
2.3
1996Est.
-3277
4511(-2.6)
-7788(3.7)
2013
1181313-186-50222596
-1263
1054
287310722
-413409
-7061115
49
595
386
-418-14051436
-7.22313
2.6
Sources: Croatian authorities and staff estimates.
II Does not include debt that was excluded from London Club agreement, andclaims on international reserves of the former SFRY.
21 Includes deposits by non-residents, mainly international organizations.3/ Includes trade credits under 3 months, unreported foreign interest income,
workers remittances and repatriation of savings in kind.4/ Excludes short-term trade related debt.
- 124 -
©International Monetary Fund. Not for Redistribution
- 125 - STATISTICAL APPENDIX
Table 41. Croatia: Merchandise Exports and Imports, 1993-96
(In millions of U.S. dollars)
Month
1993JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1994JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1995JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1996JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
Overall
Exports
3,904185353240542390277330.356257364301307
4,260135232260267244420520332512386564387
4,633370366430290468441352270555329427335
4,512390292401353433294414369275332458501
Imports
4,666162646362439538353273254569417282374
5.229137315278409292421520481432544111626
7,510505554676619679679787503615605702584
7,788527502633668637588732588587699857771
World except Former Yugoslav Former YugoslavRepublics Republics
Exports
2,938130261170389305218263278193256236240
3,292102190211204180340436249357290438296
3,571303284338218381346282174427236330252
3,293305212298255313204304261197243352349
Imports
3,894119514300380477299240209482326245303
4,657110290245370256383468429386473685564
6,658447487599550605602717444533532616526
6,922472447557599562517646519508618775703
Exports
96655927015486596877651086568
96833425064648084831559612691
1.0616782927287957096128939783
1.219858010398120901101087889106152
Imports
7734313263596154334486903771
572272533393638525246719262
850586777697477705982738658
866555576697571866979818268
Source: Central Bureau of Statistics
©International Monetary Fund. Not for Redistribution
Table 42. Croatia: Composition of Exports (SITC)
(In millions of U.S. dollars)
Total
Food productsLive animalsMeat and meat productsFish and fish productsGrain and grain productsFruit and vegetablesCoffee, tea, cocoa and spicesLivestock feedOther food products
Beverages and tobaccoRaw materials, excluding fuels
Oil seeds, for planting and consumptionRaw rubberWood, framing lumber and corkTextile fibers and waste materialRaw fertilizers and mineralsMetal ores and scrapOther raw materials
Mineral fuels and lubricantsPetroleum and petroleum productsGas, natural and industrialOther fuels and lubricants
Animal and vegetable oil and fatsChemical products
Organic chemicalsPaints, material for tanning and dyeingMedical and pharmaceutical productsSynthetic fuelsPlastic, cellulose resinsOther chemical products
Products classified according to constituent materialRubber productsPaper, cardboard and products thereofTextile yarns, textiles and the likeNon-metal mineral productsRaw iron and steelNon-ferrous metalsOther metal products
Machines and transport equipmentSpecial machines for specific industriesMetal-working toolsGeneral-purpose industrial machinesElectrical machines, devices and toolsOther machines and transport equipment
Miscellaneous ready-made productsHousehold furnishingsClothingFootwearScientific and monitoring instrumentsOther ready-made products
Miscellaneous transactions and goods
1991
3,292
246435528264347
4024
17170
117648
29223172
942
1399402768829389
47711437463
10874
104770109433776
505971128585152
6100
10
1992 I/
4,597
4595690546546322194
112286
30
16756111435
397340
17396
5974022
127123165119820449595
125124195142849492243
162572
1,04410955318617
17928
Total1993
3,904
3672249497440251098
101237
10
1686
121040
377322
18374
5646116
10077
145166526118095
1026641
131552321739
143321
1,169148644225
13139
7
1994
4,232
3695
605064401
2112867
21420
1446
132029
386344
1626
75434314
13386
17790
6541398
1291266950
168732471542
172456
1,257138629279
17194
3
1995
4,633
3956
504575423415
12890
25140
1617
132244
3913662239
8145318
137112361133670
91071241265973
172778452852
211442
123315167323428
1472
1996
4,512
4117
474964403115
15892
24720
1663
132043
416371281710
6434423
139118209110594
962
1101354865
165964
512454
219616
113312063323522
1232
Source: Central Bureau of Statistics.
II Starting with 1992 data include trade with the countries of the former Yugoslavia.
STATISTICAL APPENDIX- 126 -
©International Monetary Fund. Not for Redistribution
- 127 STATISTICAL APPENDIX
Table 43. Croatia: Composition of Imports (SITC)
(In millions of U.S. dollars)
Total
Total
Food productsLive animalsMeat and meat productsFish and fish productsGrain and grain productsFruit and vegetablesCoffee, tea, cocoa and spicesLivestock feedOther food products
Beverages and tobaccoRaw materials, excluding fuels
Oil seeds, for planting and consumptionRaw rubberWood, framing lumber and corkTextile fibers and waste materialRaw fertilizers and mineralsMetal ores and scrapOther raw materials
Mineral fuels and lubricantsPetroleum and petroleum productsGas, natural and industrialOther fuels and lubricants
Animal and vegetable oil and fatsChemical products
Organic chemicalsPaints, material for tanning and dyeingMedical and pharmaceutical productsSynthetic fuelsPlastic, cellulose resinsOther chemical products
Products classified according to constituent materialRubber productsPaper, cardboard and products thereofTextile yarns, textiles and the likeNon-metal mineral productsRaw iron and steelNon-ferrous metalsOther metal products
Machines and transport equipmentSpecial machines for specific industriesMetal-working toolsGeneral-purpose industrial machinesElectrical machines, devices and toolsOther machines and transport equipment
Miscellaneous ready-made productsHousehold furnishingsClothingFootwearScientific and monitoring instrumentsOther ready-made products
Miscellaneous transactions and goods
1991
3,828
37531421314
12158445322
1991195
42454740
667499
808810
51512545552392
174347
15468936602377
8409714
15698
47555111
17014478
147302
1992 I/
4,461
46868
1041222793036
11752
263146
1592653239
430321664323
67211461
1063872
28180848
13615570
15278
17072611713
15714529471531
175286
53169304
1993
4,666
357696113199224413837
17674
1636453136
4613021035615
57510247982458
24680445
16614875
15964
1471,123
14724
16915962578032
17335858
159339
1994
5,229
49818761939
1315234
12962
151124
1928387
43589436955812
5418146991570
23080153
13414977
14281
1651,367
17624
21724170977654
23120279
210431
1995
7,510
78027
1142345
2229838
21366
198138
2732513
6487173634
10125
81011468
1772277
3521304
86236210124243137268
200928128
330376994
101393
271214113322433
1996
7,788
76746982857
1948953
20258
220146
5230567
558577071074338
84811871
1882073
3781384
88249203142257133312
212931831
370399
10111117
92286240132367370
Source: Central Bureau of Statistics.
II Starting with 1992 data include trade with the countries of the former Yugoslavia.
©International Monetary Fund. Not for Redistribution
- 128
Table 44. Croatia: Exports by Destination
(In millions of U.S. dollars)
STATISTICAL APPENDIX
Total
Developed countries
EU countriesAustriaBelgiumDenmarkFranceItalyNetherlandsGermanySwedenGreat BritainOther
EFT A countriesNorwaySwitzerlandOther
Other developed countriesAustraliaJapanCanadaU.S.A.TurkeyOther
Developing countries
Countries of former YugoslaviaBosnia. . .HerzegovinaFYR of 'MacedoniaSloveniaOther and unclassified
Countries of the former USSR
Other developing European countriesCzech and Slovak RepublicsCzech RepublicHungaryPolandSlovakiaOther
Developing 'Middle East countriesDeveloping Asian countriesDeveloping countries of North AfricaDeveloping other African countriesDeveloping countries in the AmericasDeveloping countries of Oceania
1991
3,292
2,474
2,16297289
667151269684457
177
10458424
207719
1201060
818
247
14651
3644,,,15
2111463
191350
1992 I/
4,597
2,588
2,415105327
5890998
773339
5638
6123362
113535
691120
2,008
1,47019287
1,10190
155
11232
4232
6
101373060340
1993
3,904
2,419
2,245130297
13382892
895257333
453
402
129615
822015
1,484
96618963
7122
173
158111354378
35
19592255330
1994
4260
2729
25311493810
11191094
9411646846
654
601
133515
881420
1531
96733873
556
176
192
3468451629
14282271610
1995
4633
2862
2672200437
1101098
80997
145765
595
522
131617
835
30
1770
106138370
608
185
229
3671492152
396033
115480
1996
4512
2478
2303198414
8494969
839137035
413
371
135428
891319
2034
121954959
6110
172
191
4055562217
645439
270240
Source: Central Bureau of Statistics.
I/ Starting with 1992 data include trade with countries of the former Yugoslavia.
©International Monetary Fund. Not for Redistribution
- 129 STATISTICAL APPENDIX
Table 45. Croatia: Imports by Origin
(In millions of U.S. dollars)
Total
Developed countries
EU countriesAustriaBelgiumDenmarkFranceItalyNetherlandsGermanySwedenGreat BritainOther
EFT A countriesNorwaySwitzerlandOther
Other developed countriesAustraliaJapanCanadaU.S.A.TurkeyOther
Developing countries
Countries of former YugoslaviaBosnia. . .HerzegovinaFYR of MacedoniaSloveniaOther and unclassified
Countries of the former USSR
Other developing European countriesCzech and Slovak RepublicCzech RepublicHungaryPolandSlovakiaOther
Developing 'Middle East countriesDeveloping Asian countriesDeveloping countries of North AfricaDeveloping other African countriesDeveloping countries in the AmericasDeveloping countries of Oceania
1991
3,828
2,571
2,145177422999
62311583346
11170
10111873
3268
1118
1482130
1,257
252
332202
8025
25
1823323342
1450
1992 I/
4,461
2,392
2,118190503172
76189
768536539
777
673
1969
324
1061530
2,058
1,0318156
87421
231
378215
10332
28
92567427610
1993
4,666
2,952
2,630311471697
88292
991609044
865
792
2355
4210
1249
45
1,714
7731446
7121
261
235524278252414
3284
6437570
1994
5,229
3,525
3,096353
5531
116994115
1,11081
17962
1128
1013
3175
5419
1721650
1,705
5724
27541
254
210
92100385327
163649115810
1995
7,510
5,300
4,6645758551
1881,366
1741,509
148455113
21944
1696
4179
8012
2012888
2,210
8508
36805
224
473
147158457845
4421323624
1450
1996
7,788
5,262
4,62559710048
1991,421
1761,602
117225139
17927
1448
45717
10417
2132779
2,5268666334
769769
253
571
207193508438
106301269
17143
0
Source: Central Bureau of Statistics
I/ Starting with 1992 data include trade with countries of the former Yugoslavia.
©International Monetary Fund. Not for Redistribution
- 130 STATISTICAL APPENDIX
Table 46. Croatia: Exchange Rates and International Reserves
HrK/US$ II HrK/lOODM I/ Real Effective Foreign Exchange
1994 JanuaryFebruaryMarchAprilMayJuneJuryAugustSeptemberOctoberNovemberDecember
1995 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecember
1996 JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctober
November
December
e.o.p
6.546.186.146.146.125.875.895.855.735.495.705.63
5.505.295.004.954.995.045.015.365.265.255.345.32
5.515.375.465.575.585.445.265.265.435.39
5.47
5.54
p.a.
6.606.446.176.236.166.075.835.775.745.605.615.72
5.565.465.115.015.065.055.015.235.405.265.265.35
5.405.435.465.545.575.485.365.265.355.45
5.38
5.52
e.o.p
377.51359.52366.11369.41371.65371.76369.43369.68369.52366.52364.48363.21
363.02362.88362.96359.53359.84360.80361.52363.41370.75372.03371.66370.59
370.83369.06369.96365.52360.85357.55355.73355.11356.24356.58
356.18
356.22
p.a. Exchange Rate(Jan. 1992=100) 2/
378.85371.03364.28367.25371.38371.73370.10369.37369.31368.12365.10363.95
362.97363.05362.90362.64359.63359.95360.84362.69369.16372.02372.11371.17
370.51370.13369.58368.82363.57359.09356.13354.68355.63356.28
356.49
356.02
144.5144.8146.5141.7143.2139.8140.7140.7140.8140.8141.4142.0
143.0143.1146.0147.2147.2145.5144.8142.2141.8142.9142.7143.1
143.3143.3142.8141.4144.5145.1146.3147.1146.9146.8
146.8
146.1
Reserves (NBC)(In millions of
U.S. dollars)
624.9673.2716.1777.0795.2866.1970.0
1 082.11 160.31 393.91369.21405.0
1445.21 477.41 535.21641.71 721.71 826.11 911.51863.11943.81 897.41 892.01 895.2
1845.21 883.61 890.81 876.31 919.22019.12 216.32331.12295.12,312.5
2,292.5
2,076.6
Source: National Bank of Croatia.
II Croatia introduced a new currency, the Croatian kuna, on May 30,1994, at the rate of one kuna per 1,000Croatian dinars, Exchange rates prior to May 1994 are foreign currency units per 1,000 Croatian dinars.2/ Real effective exchange rates are calculated relative to seven currencies using retail or consumer prices.An increase in die rate denotes a real appreciation.
©International Monetary Fund. Not for Redistribution
Table 47. Croatia: External Debt Stock and Principal Repayments, 1993-2001 I/(In millions of U.S. dollars)
Debt Stock
12/31/93 12/31/94 12/31/95
TotalMedium and long term debt 3/Short term debt
Official Creditors
International OrganizationsIMFIBRDEUROFIMAEFCEEBEFREBRD
Governments (Paris Club) 4/
Private creditorsOf which : commercial banks, nonguaranteedOf which : suppliers credits, nonguaranteed
Short-term external debtCommercial banksSuppliers
Memorandum items:Interest arrearsScheduled interest payments 21
30392984
55
1636
3202189602
13910
n.a.
1317
1348136105
551144
152n.a.
33493265
84
1917
40412671482
14610
n.a.
1513
1382109163
501635
365n.a.
37583499259
2005
51922386390
1441017
1487
1527190247
22513689
425n.a.
1996
600444156
212
454
13100963
167
2326673
15611640
n.a.141
Scheduled Payments 21
1997
799483317
213
352
1110
1029
178
27015977
31725958
n.a.251
1998
413413
0
262
659
14140
112
17
197
1517057
000
n.a.211
1999
295295
0
184
79321530
121
16
105
1115631
000
n.a.192
2000
346346
0
177
82311390
130
16
95
1692717
000
n.a.180
2001
327327
0
161
82371080
140
13
79
1667
10
000
n.a.160
Source: National Bank of Croatia; and staff estimates.I/ Debt stock data for 1993-1995 have been adjusted to reflect the shares in unallocated principal debt to the Paris Club and the London Club
creditors that have been recognized by Croatia.21 Scheduled payments as of end-October 1996.3/ Excludes estimates of interest arrears, includes IMF.4/ Includes post-cutoff commercial credits (signed after December 2,1982) guaranteed by Government agencies.
©International Monetary Fund. Not for Redistribution