Luka Burilović: The system must simply stop being a burden and become a partner to the economy

The Croatian economy is in economic stagnation despite some positive signs: the halt of economic decline, growth in exports, industrial production, and personal consumption, as well as good results from the tourist season. In other words, growth this year is primarily a result of increased foreign demand due to the growth trend of the European Union countries with which we trade the most, rather than active macroeconomic policies and the creation of a more stable and favorable business climate or the much-needed change in the model of the existing national economic policy.

As long as economic growth does not exceed the rate of three to four percent, which is necessary just to cover interest payments, we cannot speak of growth and development.  

Transferring Problems and Risks
Unfortunately, all structural problems and risks from the recessionary years, during which we lost more than 12 percent of GDP, which we have not managed to resolve or mitigate, are being transferred into the next year, 2016. First and foremost, I am referring to the high budget deficit which, according to the European Commission’s forecasts, we will not manage to reduce to the Maastricht-allowed three percent of GDP even by 2017. Moreover, this year and the next two years, we will be the country with the highest level of budget deficit among all EU countries.
A high deficit pushes public debt to long-term unsustainable levels above 90 percent of GDP with high interest payment obligations that limit the possibility of future growth. In other words, with a growth rate of 1.7 percent, which is projected for GDP, Croatia would only reach the level it achieved in 2008 in seven years.
What 2016 will be like depends on our own capabilities to conduct economic and development policy, but also on developments in the environment on which we, as a small and open economy, are largely dependent. A favorable circumstance is that growth in the European Union is expected to continue, with which we conduct the majority of our foreign trade. At the same time, however, risks related to the economic situation in China and Russia are increasing, a gradual rise in U.S. interest rates is expected, leading to changes in capital flows; there are also significant geopolitical risks (Russia, Syria, Ukraine). Not to mention the refugee crisis for which there is no comprehensive analysis of the actual scale of costs and damage it has caused. A known part of the damage is that which occurred due to the blockade of the border with Serbia, which lasted in various forms for a week. However, in the case of a continuation or intensification of the refugee and migrant crisis, the long-term consequences could be significantly greater, and will only become apparent in the coming years.

I Expect Positive Changes
In such circumstances, national economic policy must work seriously and responsibly to increase the efficiency of the system, it must enable the stability of the system through reforms so that the economy and society as a whole are not further destroyed. The Chamber has shown by its own example that it is possible to implement structural reforms in a short period and adapt to those who are the bearers of economic development, for which it exists. The system must simply stop being a burden and become a partner to the economy. Trust in the economic and political system must be restored. This will contribute to increasing competitiveness, production, and employment, reducing the budget deficit, and alleviating the pace of public debt, meaning that not only must state consumption be reduced, but the budget must also be restructured to support long-term growth. This lays the foundations for sustainable growth. The business sector has continuously adapted to the newly created situation during the crisis, largely restructuring its operations and forming the prerequisites for growth and development. It expects the same from the state, in a way that it supports it by implementing decisive reforms and creating preconditions for economic growth with a clear vision and strategy for social and economic development, a creative and stable business environment, the internationalization of the Croatian economy, and ensuring demographic survival.
In other words, I hope that today we, as a society, are mature and aware of the consequences that the misguided economic policy of the last twenty years has brought us, and I expect that the political focus will finally shift towards encouraging economic development and entrepreneurship, which, alongside a stable macroeconomic framework, implies a clear and stable legislative framework, deregulation, better utilization of European Union funds, adapting the education system to the needs of the economy, and promoting innovation and linking science, research, and development with the needs of the economy. Therefore, in the next year, I expect positive changes in building a more favorable business environment and the implementation of stronger structural reforms.