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The World Bank Presents Report on Living Standards and Regional Development in Croatia

The World Bank Office in Croatia
Contact: Vanja Frajtic
Phone: 01/ 2357 297

Zagreb, February 14, 2007 – The World Bank today presented its recent report – Croatia: Living Standards Assessment – Promoting Social Inclusion and Regional Equity under the auspices of H.E. Stjepan Mesic, the President of the Republic of Croatia. The launch aimed to present the main findings of the report to key stakeholders from government, donors, civil society and academic community, as well as to inform the audience on the steps that could be taken to address the main challenges that have been identified in the report. This study does not only present an update of the poverty assessment done by the World Bank in 2000, but also provides an in-depth insight into the profile of the poor and regional dimensions of poverty.

The Croatian economy has performed quite well in the past decade, gradually reducing the income gap with the European Union. The overall incidence of poverty in the country is quite low – in 2004, about 11 percent of the population was found to be below the national poverty line. However, a closer examination of the pattern of growth during the past decade reveals that job creation in Croatia has lagged GDP growth and wages – as a result, a large share of the poor, many of whom were outside the work force or the formal pensions system, did not share in the benefits of growth. Looking ahead, continuing to narrow the gap in living standards with the European Union will be Croatia’s main challenge, requiring committed and well thought out strategies to promote faster job creation and greater labor mobility, along with measures aimed at building human capital to improve workers’ opportunities.

“In a country like Croatia, there should be no talk of poverty. Our analysis indicates that a perfectly targeted transfer of 1.5 billion kunas (about 0.7 percent of GDP) would be sufficient to eliminate poverty: the Croatian Government currently spends about four percent of GDP on over 100 different programs, almost twice the average in Austria, Italy, Germany, Slovakia, Poland, and Hungary” said Anand K. Seth, World Bank Country Director for Croatia, Bulgaria and Romania. “Poverty persists not because there aren’t enough resources for poverty reduction, but rather because these resources aren’t optimally targeted: for instance, good programs like the social support allowance (pomoć za uzdržavanje) receive only 0.26 percent of GDP, much less than other programs that are not means-tested”.

As Croatia prepares to join the European Union, the Government has been working on the Joint Inclusion Memorandum, a National Regional Development Strategy and National Action Plan for Employment to address the issues of poverty and regional disparities. The Living Standards Assessment Report offers data and analysis relevant for these tasks shedding light on the strategic priorities facing the government and some of the main trade-offs involved. For instance, the report accords high priority to improving the quality and effectiveness of social safety nets by improving the targeting of social benefits to the poor within the current overall budgetary envelope.

“The Croatian Government in its continuous efforts to improve the living standards of its citizens placed education and employment growth at the focus of its national plans and programs.  It can now make efficient use of the produced studies in this sector and of international support to explore modalities to implement its social agenda,” stated Vincent Degert, Head of Delegation of the European Commission to Croatia.

 Main findings of the Living Standards Assessment Report

  • Certain groups, in particular (i) households headed by unemployed or retired/economically inactive and (ii) households headed by elderly who receive no pensions, face a particularly high risk of being in poverty.
  • Croatia has one of the lowest employment rates in Europe (54.7 percent). To improve labor utilization and foster job creation, a wide menu of policy measures should be adopted, starting with improving the investment climate and the system of property registration, improving the efficiency of the legal system, adjusting real wages to productivity and local market conditions, raising human capital of workers (especially in lagging regions), and encouraging labor mobility.
  • To reduce poverty and social exclusion, effectiveness of the social protection system should be improved through rationalizing spending and improving targeting and strengthening system administration.
  • Eastern and Central parts of Croatia are the most disadvantaged regions in the country, with more than 20 percent poverty rate for Central Croatia and around 17 percent poverty rate for Eastern Croatia. A National Regional Development Strategy will need to address this regional disparity through adequately designed programs and projects that build on local comparative advantages and make the best use of local knowledge and initiative.

Since Croatia joined the World Bank in 1993, the Bank has been active in providing financial and technical assistance, policy advice and analytical services to Croatia. To date, the Bank has offered support for 32 projects with a total value of US$1.80 billion, and it has approved 48 grants with a total value of US$51.5 million. All completed projects to date have satisfactory ratings. The success of the overall project portfolio over the past years is also above the regional average, and fund disbursement rates are high.

The full report is available at:

For more information about the World Bank's work in Croatia, visit

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