Republic of Croatia: Selected Issues

International Monetary Fund

No 2025/330, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issues paper focuses on the role of fiscal policies on inflation in Croatia. Fiscal policy has played a notable role in Croatia’s recent inflation dynamics. While fiscal measures supported growth during the pandemics and in 2022 with limited inflationary effects, fiscal loosening in 2024, particularly through public wage increases, accounted for more than 40 percent of the total contribution of endogenous shocks to headline Harmonised Index of Consumer Prices and about 60 percent of the total shocks that Croatia can influence. Fiscal policy should be mindful of its inflationary impact. With monetary policy set at the euro area level and macroprudential tools now actively deployed to contain the growth of households’ credit—thereby helping to reduce demand-driven inflationary pressures—fiscal policy, while pursuing its own objectives—should be tightened considerably to ensure a coherent overall policy mix to limit imbalances in the economy and safeguard macroeconomic stability.

Keywords: HICP inflation; healthcare expenditure; headline HICP; tobacco consumption; efficiency gain; Inflation; Europe (search for similar items in EconPapers)
Pages: 87
Date: 2025-12-11
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