Croatia achieves medium overall compliance with international standards and codes, with a score of 49.2 out of 100 in our Standards Compliance Index. Croatia's compliance in the area of macroeconomic fundamentals is reasonably high, except that weak enforcement of fiscal laws compromises oversight in that area. Croatia's banking supervision and payment systems also largely comply with international standards; and the securities and insurance sectors have new laws and a unified supervisor as of 2006. Its corporate governance, ,securities regulation and insolvency frameworks are satisfactory in terms of legislation, but either lack effective application or have not been sufficiently tested yet. Croatia does not comply fully with the International Financial Reporting Standards, and there is insufficient information regarding its compliance with International Auditing Standards, anti-money laundering recommendations and the revised insurance supervision standard.

Macroeconomic Policy and Data Transparency

Croatia has subscribed to the Special Data Dissemination Standard (SDDS) of the International Monetary Fund (IMF) since May 20, 1996 and has met subscriber specifications since March 30, 2001. Its metadata are posted on the Dissemination Standards Bulletin Board (DSBB). According to the SDDS website, Croatia meets SDDS specifications for coverage, periodicity and timeliness of the data and for dissemination of advance release calendars; and the country satisfies the conditions for access, integrity and quality for most data categories. However, certain fiscal, financial, and external sector data fail to report on confidentiality standards, and there is some irreconcilability between monetary and fiscal data reporting. More »

The International Monetary Fund's 2002 Financial Systems Stability Assessment judged the Croatian National Bank (CNB) to observe good monetary policy transparency practices. It recommended that the CNB make public its macroeconomic forecast and policy framework, and to issue press releases to explain its various policy decisions. In addition, the IMF recommended that the CNB post the schedule of its board meetings on the CNB website and disclose the procedures employed during internal audits. Since that report, the CNB has acted on some of these recommendations, in whole or in part, but has yet to post its meeting schedule or disclose internal audit procedures. Croatia subscribed to the International Monetary Fund's Special Data Dissemination Standard in 1996. More »

In 2004, the International Monetary Fund (IMF) issued a Fiscal Transparency Module to its Report on the Observance of Standards and Codes (ROSC) for Croatia. According to this report, Croatia has significantly progressed in its transparency practices as well as in strengthening its management policies. The ROSC further noted that the allocation of responsibilities across the different levels of government is generally well defined and that inter-governmental fiscal relations are stable. Nonetheless, the laws and regulations on public financial management are only weakly enforced, which leads to compromised fiscal oversight and control. In addition, quasi-fiscal activities are extensive and occur outside the budget process, and the agencies responsible for fiscal management are poorly coordinated. Thus, fiscal risks are not optimally managed and fiscal accountability is not assured. Croatia has been a subscriber to the IMF's Special Data Dissemination Standard since 1996. More »

Institutional and market infrastructure

According to the results of a survey conducted by the European Bank for Reconstruction and Development (EBRD) in 2003, Croatia's national Bankruptcy Law of 1997 (amended 2000) has a high overall degree of compliance with international standards, particularly in the categories of "commencement and effect of proceedings," "assets of estate," and "creditors' treatment and involvement." This assessment only looks at the content of insolvency law, and does not assess its practical implementation. A 2005 EBRD assessment, however, notes that Croatia has a large "effectiveness" gap between the terms of the legislation and its practical application. This underscores the need for further reforms, particularly with regard to the courts and other support institutions dealing with insolvency in Croatia. Both debtors and creditors seeking to commence insolvency proceedings in Croatia find it is relatively easy to determine which court to make application to, and the courts are generally adept at dealing with bankruptcy matters. The process, however, is seen as far too expensive, slow and unduly complicated to be truly effective. More »

According to the Deloitte IAS Plus website, under Croatian Accounting Law, certain specific entities are required to apply International Financial Reporting Standards (IFRSs): (1) listed companies and those that are preparing to go public; (2) financial institutions; (3) large enterprises; (4) other companies as required by financial sector supervisory authorities; and (5) companies that are required to prepare consolidated financial statements according to IFRSs. Deloitte emphasizes, however, that the IFRSs that are applied are only those that were translated as of March 31, 2004. However, IFRSs 6, 7, and 8 have not yet been translated or published, and some amendments to International Accounting Standards (IASs) and IFRSs that were made after March 31, 2004 have also not been incorporated into Croatian accounting requirements. All enterprises other than those enumerated in the Accounting Law may either apply IFRSs or use standards adopted by the Financial Reporting Standards Board (FRSB). As of May 2007, these FRSB standards are IASs as they existed in 2000. According to a 2007 self-assessment published by the Croatian Association of Accountants and Financial Experts (CAAFE), the FRSB will prepare national accounting standards for private sector entities that decide not to apply IFRSs. The standards will be a short version of IFRSs. More »

According to a 2001 report by the World Bank, in order to be more in line with the Organization of Economic Corporation and Development (OECD) Principles of Corporate Governance, Croatia needed to strengthen its corporate governance system in a number of areas. In its 2004 "Corporate Governance Sector Assessment Project," the European Bank of Reconstruction and Development (EBRD) gave Croatia a rating of "Medium Compliance" with the OECD Principles of Corporate Governance. The EBRD cautioned however that reforms in the area of corporate governance are a top priority in order to improve the enforcement of existing legislation,. At the same time existing laws should continue to be refined. Particular attention should be paid to improving disclosure and transparency and protection of minority shareholders and general company's operations. More »

In its 2006 "Doing Business Guide," PricewaterhouseCoopers (PwC) states that the Audit Act requires audits to be carried out in accordance with International Standards on Auditing (ISAs). Obligatory annual audits are required for (1) consolidated financial statements; (2) all joint-stock companies; (3) limited partnerships and limited liability companies whose total revenue for the year prior to the year subject to the audit amounts to over HRK 30 million; (4) banks, insurance companies, investment and pension funds, pension insurance companies and other regulated companies; and (5) all related companies, regardless of their size, if the controlling company is subject to mandatory audit. All other companies are audited pursuant to their own rules, i.e., the Memorandum of Incorporation or the Articles of Association. The Croatian Chamber of Auditors (CCA) is a professional organization composed of audit companies, individual auditors, and certified auditors. It is responsible for the translation, publication, and implementation of auditing standards in Croatia and monitors the compliance of its members with the Audit Act, ISAs, and other professional audit rules. According to the World Bank's 2002 Report on the Observance of Standards and Codes (ROSC) on Accounting and Auditing, the translation and publication process was up to date, and audits were carried out in accordance with all ISAs and other pronouncements issued by the International Federation of Accountants (IFAC) as of 2002. However, there is insufficient information publicly available as to Croatia's compliance with the most recent versions of the ISAs. More »

In 2003 the European Committee on Crime Problems (CDPC) conducted a mutual evaluation of Croatia's anti-money laundering (AML) regime which was based on the old (2002) Financial Action Task Force (FATF) methodology. The CDPC report indicated that the Croatian authorities at the time were in the process of overhauling the country's administrative and legal environment to combat money laundering in order to conform to European Union (EU) requirements. The 2005 "International Narcotics Control Strategy Report" by the U.S. Department of State (DoS) noted that in 2003 Croatia passed a new Law on the Prevention of Money Laundering (LPML) which is in accordance with the European Union Directives and incorporates crimes related to the financing of terrorism, drug trafficking, and human trafficking. The Croatian Financial Intelligence Unit (FIU), the the Ured za Sprjecavanje Pranja Novca (Anti-Money Laundering Department, or AMLD) was established pursuant to the LPML and operates within the Ministry of Finance. The 2005 U.S. DoS report indicated that Croatia's AML/CFT regime lacks proper asset forfeiture requirements and the law enforcement authorities in the country need to improve their technical skills to investigate and prosecute crimes related money laundering and terrorism. However, there has been no assessment as to Croatia's AML and Combating the Financing of Terrorism (CFT) regime pursuant to the new (2004) FATF methodology. More »

The 2002 International Monetary Fund (IMF) Financial System Stability Assessment concluded that the Croatian Large Value System (HSVP) and the National Clearing System (NKS) - the systemically important payment systems in the country - broadly complied with the Committee on Payment and Settlement Systems' Core Principles. At the same time, the IMF revealed some shortcomings; however, those were not related to systemic risk matters. In a 2004 follow-up assessment, the IMF identified the HSVP as a modern, functional system that follows international best practices, procedures, and technology. The report found that the NKS also complies with international best practices, and noted that the payment systems framework had gone through a major reform process involving the institutional framework, payment structure, and transmission. The Croatian National Bank's oversight role has been strengthened, and a new National Payment System Law as well as a set of new by-laws have been enacted. More »

Financial Regulation and Supervision

The International Monetary Fund (IMF) in 2002 released a report on the findings of its Financial System Stability Assessment (FSSA) of Croatia, in which it indicates Croatia either complies or largely complies with the Bank for International Settlements' Basel Core Principles (BCPs). The two attributes the IMF found lacking in Croatia were deemed to be of little importance at the time. In 2004 the IMF released an update of the 2002 FSSA, in which it notes that most of the recommendations made to the Croatian authorities in the 2002 report had been implemented. The Banking Law of 2002 and several by-laws issued by the Croatian National Bank (CNB) incorporate many of the IMF's 2002 recommendations. A European Commission report issued in 2006 notes that the CNB has made arrangements to implement the European Union's new capital requirements (Capital Requirements Directive) by January 2009. Finally, in 2006 the IMF issued a new Article IV Consultation report that judged Croatia's banking supervision, overall, to be robust, but cautioned that there remained some areas of vulnerability. More »

The 2002 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA) indicated that out of the 30 International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation, Croatia implemented 4, partially implemented 25, and did not implement 1 principle. The IMF concluded that there was considerable room for improvement in the securities supervisory framework, particularly with respect to the powers of the Croatian Securities and Exchange Commission (CSEC), inspection and surveillance procedures, as well as the cooperation between the CSEC and the Croatian National Bank (CNB). In a follow up assessment conducted in 2004, the IMF reported that there had been substantial changes in the securities supervisory framework, such as the enactment of the Securities Market Law and the Takeover Law in 2002. Moreover, on January 1, 2006, Croatia established the Croatian Financial Services Supervisory Agency (CFSSA), which assumed the responsibilities and competencies of the former CSEC, Insurance Companies Supervisory Authority, and the Agency for Supervision of Pension Funds and Insurance. According to the 2005 European Bank for Restructuring and Development (EBRD) Securities Market Legislation Assessment, Croatia's securities legislation was found in "high compliance" with the Objectives and Principles of Securities Regulation published by the IOSCO. The EBRD recommended enhancing the effective implementation and enforcement of securities regulations. More »

In 2002, the International Monetary Fund conducted a Financial System Stability Assessment, including a Report on the Observance of Standards and Codes on Insurance Regulation. According to the report, Croatia either observed or broadly observed nine of the 17 Insurance Supervisory Principles (later renamed Insurance Core Principles, or ICPs) promulgated by the International Association of Insurance Supervisors (IAIS). Three principles were partly observed, four were not observed, and one principle was found to be inapplicable. Croatia did not comply with principles related to corporate governance, internal controls, on-site inspection, and reinsurance. Because Croatia made insufficient resources available for supervisory purposes, the principle on the organization of the insurance supervisor was assessed as partly observed. In 2003, however, the IAIS revised the ICPs. Moreover, in November 2005, Croatia passed a new Insurance Law and a new Act on the Croatian Financial Services Supervisory Agency, which came into effect in January 2006. There is insufficient publicly available information regarding Croatia's compliance with the revised ICPs promulgated in 2003. More »

Legend:

Credit Ratings

Moody's Baa3/Positive

Fitch BBB-/Stable

Standard & Poor's BBB/Stable

Macroeconomic Data

2007 GDP (Current Prices): 51.4 billion USD (IMF)

2007 GDP (Per Capita): 11,576 USD (IMF)

2008 GDP (Growth Forecast): 4.3% (IMF)

2008 Inflation (CPI): 5.5% (IMF)

2007 Unemployment: 11.8% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 3.6 billion USD (UNCTAD)

FDI (Outward): 0.2 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 200 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)