Some domestic economists have long warned that European money is not omnipotent in the context of economic development, especially if it is not invested in creating the foundations for long-term economic growth on an independent basis. This independent basis primarily means investments by private companies stimulated by previously realized investments with money from European funds. Simply put, without new factories, the European money invested so far will mostly remain dead capital.
The problem of continuing investment growth will become pronounced if, after 2026, when the deadline for disbursement of funds from the National Recovery and Resilience Plan (NPOO) expires, private investments do not increase, says Ivailo Izvorski, chief economist of the World Bank for Europe and Central Asia. He obtained his PhD in economics from the prestigious American university Yale and joined the World Bank in 2005 as a senior economist for Bosnia and Herzegovina in the Poverty Reduction and Economic Management Sector. Over the years, he has held several positions at the World Bank. Before joining this institution, he built his career at the International Monetary Fund and the Institute of International Finance. Izvorski will be a speaker at Lider’s conference ‘Day of Big Plans’ which will be held on September 18 in Zagreb.
Economic growth in Croatia in recent years has largely been driven by the influx of money from European funds. Where do you see opportunities for continued economic growth after the inflow from European funds significantly decreases?
– The large influx of European money has indeed contributed to strong growth in Croatia, helping to raise GDP per capita to over 75% of the EU average, but behind strong Croatian economic growth are other, even more important factors. Personal consumption has had a very positive impact on it, aided by favorable developments in the labor market and a large influx of remittances. There is also strong export, especially in the tourism sector. These trends are likely to continue and support growth and income convergence with the rest of the EU by the end of this decade. The level of funding from EU funds is likely to decrease after the current programming period and after the 2026 deadline for disbursement of funds for the NPOO expires. Therefore, the country will have to rely much more on private capital to maintain the current level of public investment, and it will also need to stimulate private investments, which have been relatively low in recent years. Therefore, deeper structural reforms aimed at improving the efficiency of public administration, removing remaining regulatory barriers for the private sector, and reducing the role of the state in the economy, as well as policies aimed at raising the quality of human capital, could help Croatia increase labor productivity and thus ensure sustainable high growth and continued income convergence.
