Henstilling med henblik på RÅDETS HENSTILLING om Kroatiens økonomiske, sociale, beskæftigelsesmæssige, strukturelle og budgetmæssige politikker

EN EN
EUROPEAN
COMMISSION
Brussels, 4.6.2025
COM(2025) 211 final
Recommendation for a
COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Croatia
{SWD(2025) 211 final}
Offentligt
KOM (2025) 0211 - Henstilling
Europaudvalget 2025
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Recommendation for a
COUNCIL RECOMMENDATION
on the economic, social, employment, structural and budgetary policies of Croatia
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular
Article 121(2) and Article 148(4) thereof,
Having regard to Regulation (EU) 2024/1263 of the European Parliament and of the Council
of 29 April 2024 on the effective coordination of economic policies and on multilateral
budgetary surveillance and repealing Council Regulation (EC) No 1466/971
, and in particular
Article 3(3) thereof,
Having regard to the recommendation of the European Commission,
Having regard to the resolutions of the European Parliament,
Having regard to the conclusions of the European Council,
Having regard to the opinion of the Employment Committee,
Having regard to the opinion of the Economic and Financial Committee,
Having regard to the opinion of the Social Protection Committee,
Having regard to the opinion of the Economic Policy Committee,
Whereas:
General considerations
(1) Regulation (EU) 2024/1263, which entered into force on 30 April 2024, specifies the
objectives of the economic governance framework, which aims at promoting sound
and sustainable public finances and sustainable and inclusive growth and resilience
through reforms and investments, and preventing excessive government deficits. The
Regulation stipulates that the Council and the Commission conduct multilateral
surveillance in the context of the European Semester in accordance with the objectives
and requirements set out in the TFEU. The European Semester includes, in particular,
the formulation, and the surveillance of the implementation of country-specific
recommendations. The Regulation also promotes national ownership of fiscal policy
and emphasises its medium-term focus, combined with more effective and coherent
enforcement. Each Member State must submit to the Council and the Commission a
national medium-term fiscal-structural plan, containing its fiscal, reform and
investment commitments, over 4 or 5 years, depending on the length of the national
legislative term. The net expenditure2
path in these plans has to comply with the
1
OJ L, 2024/1263, 30.4.2024, ELI: http://data.europa.eu/eli/reg/2024/1263/oj.
2
Net expenditure as defined in Article 2, point (2), of Regulation (EU) 2024/1263: ‘net expenditure’ means
government expenditure net of (i) interest expenditure; (ii) discretionary revenue measures; (iii) expenditure
on programmes of the Union fully matched by revenue from Union funds; (iv) national expenditure on co-
financing of programmes funded by the Union; (v) cyclical elements of unemployment benefit expenditure;
and (vi) one-offs and other temporary measures.
EN 2 EN
Regulation’s requirements, including the requirements to put or keep general
government debt on a plausibly downward path by the end of the adjustment period, or
for it to remain at prudent levels below 60% of gross domestic product (GDP), and to
bring and/or maintain the general government deficit below the 3%-of-GDP Treaty
reference value over the medium term. Where a Member State commits to a relevant
set of reforms and investments in accordance with the criteria set out in the
Regulation, the adjustment period may be extended by up to three years.
(2) Regulation (EU) 2021/241 of the European Parliament and of the Council3
, which
established the Recovery and Resilience Facility (the ‘RRF’), entered into force on
19 February 2021. The RRF provides financial support to Member States for
implementing reforms and investments, delivering a fiscal impulse financed by the
Union. In line with the priorities of the European Semester for economic policy
coordination, the RRF fosters economic and social recovery while driving sustainable
reforms and investments, in particular promoting the green and digital transitions and
making Member States’ economies more resilient. It also helps strengthen public
finances and boost growth and job creation in the medium and long term, improve
territorial cohesion within the Union and support the continued implementation of the
European Pillar of Social Rights.
(3) Regulation (EU) 2023/435 of the European Parliament and of the Council4
(the
‘REPowerEU Regulation’), which was adopted on 27 February 2023, aims to phase
out the Union’s dependence on Russian fossil-fuel imports. This helps achieve energy
security and diversify the Union’s energy supply, while increasing the uptake of
renewables, energy storage capacities and energy efficiency. Croatia added a new
REPowerEU chapter to its national recovery and resilience plan in order to finance key
reforms and investments that will help achieve the REPowerEU objectives.
(4) On 15 May 2021, Croatia submitted its national recovery and resilience plan to the
Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant
to Article 19 of that Regulation, the Commission assessed the relevance, effectiveness,
efficiency and coherence of the recovery and resilience plan, in accordance with the
assessment guidelines set out in Annex V. On 28 July 2021, the Council adopted its
Implementing Decision approving the assessment of the recovery and resilience plan
for Croatia 5
, which was amended under Article 18(2) on 7 December 2023 to update
the maximum financial contribution for non-repayable financial support, as well as to
include the REPowerEU chapter6
. The release of instalments is conditional on the
adoption of a decision by the Commission, in accordance with Article 24(5), stating
that Croatia has satisfactorily achieved the relevant milestones and targets set out in
the Council Implementing Decision. Satisfactory achievement requires that the
3
Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17, ELI:
http://data.europa.eu/eli/reg/2021/241/oj).
4
Regulation (EU) 2023/435 of the European Parliament and of the Council of 27 February 2023
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans
and amending Regulations (EU) No 1303/2013, (EU) 2021/1060 and (EU) 2021/1755, and Directive
2003/87/EC (OJ L 63, 28.2.2023, p. 1, ELI: http://data.europa. eu/eli/reg/2023/435/oj).
5
Council Implementing Decision of 28 July 2021 on the approval of the assessment of the recovery and
resilience plan for Croatia (10687/2021).
6
Council Implementing Decision of 7 December 2023 amending the Implementing Decision of 28 July
2021 on the approval of the assessment of the recovery and resilience plan for Croatia (15834/2023).
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achievement of preceding milestones and targets for the same reform or investment
has not been reversed.
(5) On 21 January 2025 the Council, upon the recommendation of the Commission,
adopted a recommendation endorsing the national medium-term fiscal-structural plan
of Croatia7
. The plan was submitted in accordance with Article 11 and Article 36(1),
point (a), of Regulation (EU) 2024/1263, covers the period from 2025 until 2028 and
presents a fiscal adjustment spread over four years.
(6) On 26 November 2024, the Commission adopted an opinion on the 2025 draft
budgetary plan of Croatia. On the same date, on the basis of Regulation (EU) No
1176/2011, the Commission adopted the 2025 Alert Mechanism Report, in which it
did not identify Croatia as one of the Member States for which an in-depth review
would be needed. The Commission also adopted a recommendation for a Council
recommendation on the economic policy of the euro area and a proposal for the 2025
Joint Employment Report, which analyses the implementation of the Employment
Guidelines and the principles of the European Pillar of Social Rights. The Council
adopted the Recommendation on the economic policy of the euro area8
on 13 May
2025 and the Joint Employment Report on 10 March 2025.
(7) On 29 January 2025, the Commission published the Competitiveness Compass, a
strategic framework that aims to boost the EU’s global competitiveness over the next
five years. It identifies the three transformative imperatives of sustainable economic
growth: (i) innovation; (ii) decarbonisation and competitiveness; and (iii) security. To
close the innovation gap, the EU aims to foster industrial innovation, support the
growth of start-ups through initiatives like the EU Start-up and Scale-up Strategy, and
promote the adoption of advanced technologies like artificial intelligence and quantum
computing. In pursuit of a greener economy, the Commission has outlined a
comprehensive Affordable Energy Action Plan and a Clean Industrial Deal, ensuring
that the shift to clean energy remains cost-effective, competitiveness-friendly,
particularly for energy-intensive sectors, and is a driver for growth. To reduce
excessive dependencies and increase security, the Union is committed to strengthening
global trade partnerships, diversifying supply chains and securing access to critical
raw materials and clean energy sources. These priorities are underpinned by horizontal
enablers, namely regulatory simplification, deepening of the single market, financing
competitiveness and a Savings and Investments Union, promotion of skills and quality
jobs, and better coordination of EU policies. The Competitiveness Compass is aligned
with the European Semester, ensuring that Member States’ economic policies are
consistent with the Commission’s strategic objectives, creating a unified approach to
economic governance that fosters sustainable growth, innovation and resilience across
the Union.
(8) In 2025, the European Semester for economic policy coordination continues to
develop alongside the implementation of the RRF. The full implementation of the
recovery and resilience plans remains essential for delivering on the policy priorities
under the European Semester, as the plans help effectively address all or a significant
subset of challenges identified in the relevant country-specific recommendations
7
Council Recommendation of 21 January 2025 endorsing the medium-term fiscal-structural plan of
Croatia OJ C/2025/638, 10.2.2025.
8
Council Recommendation of 13 May 2025 on the economic policy of the euro area (OJ C,
C/2025/2782, 22.5.2025, ELI: http:// data.europa.eu/eli/C/2025/2782/oj).
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issued in recent years. These country-specific recommendations remain equally
relevant for the assessment of amended recovery and resilience plans in accordance
with Article 21 of Regulation (EU) 2021/241.
(9) The 2025 country-specific recommendations cover the key economic policy
challenges that are not sufficiently addressed by measures included in the recovery and
resilience plans, taking into account the relevant challenges identified in the 2019-
2024 country-specific recommendations.
(10) On 4 June 2025, the Commission published the 2025 country report for Croatia. It
assessed Croatia’s progress in addressing the relevant country-specific
recommendations and took stock of Croatia’s implementation of the recovery and
resilience plan. Based on this analysis, the country report identified the most pressing
challenges Croatia is facing. It also assessed Croatia’s progress in implementing the
European Pillar of Social Rights and in achieving the Union headline targets on
employment, skills and poverty reduction, as well as progress in achieving the United
Nations Sustainable Development Goals.
Assessment of the Annual Progress Report
(11) On 21 January 2025 the Council recommended the following maximum growth rates
of net expenditure for Croatia: 6.4% in 2025, 4.9% in 2026, 4.1% in 2027, and 3.7% in
2028, which correspond to the maximum cumulative growth rates calculated by
reference to 2023 of 26.2% in 2025, 32.3% in 2026, 37.8% in 2027, and 42.9% in
2028. On 22 May 2025 Croatia submitted its Annual Progress Report9
, on adherence
to the recommended maximum growth rates of net expenditure and the
implementation of reforms and investments responding to the main challenges
identified in the European Semester country-specific recommendations. The Annual
Progress Report also reflects Croatia’s biannual reporting on the progress made in
achieving its recovery and resilience plan in accordance with Article 27 of Regulation
(EU) 2021/241.
(12) Russia’s war of aggression against Ukraine and its repercussions constitute an
existential challenge for the European Union. The Commission recommended to
activate the national escape clause of the Stability and Growth Pact in a coordinated
manner to support the EU efforts to achieve a rapid and significant increase in defence
spending and this proposal was welcomed by the European Council of 6 March 2025.
Following the request of Croatia on 27 May 2025, on [date] the Council, upon the
recommendation of the Commission, adopted a recommendation allowing Croatia to
deviate from, and exceed, the recommended maximum growth rates of net
expenditure10
.
(13) Based on data validated by Eurostat11
, Croatia’s general government deficit increased
from 0.8% of GDP in 2023 to 2.4% in 2024, while the general government debt fell
from 61.8% of GDP at the end of 2023 to 57.6% at the end of 2024. According to the
Commission’s calculations, these developments correspond to a net expenditure
9
The 2025 Annual Progress Reports are available on: https://economy-finance.ec.europa.eu/economic-and-
fiscal-governance/stability-and-growth-pact/preventive-arm/annual-progress-reports_en
10
Council recommendation allowing Croatia to deviate from, and exceed, the recommended net expenditure
path (Activation of the national escape clause), OJ C/2025/xxx, x.x.2025.
11
Eurostat-Euro Indicators, 22.4.2025.
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growth rate of 17.4% in 2024. In the 2025 Annual Progress Report, Croatia estimates
the net expenditure growth in 2024 at 17.5%. Based on the Commission’s estimates,
the fiscal stance12
, which includes both nationally and EU financed expenditure, was
expansionary, by 1.8% of GDP, in 2024
(14) According to the Annual Progress Report, the macroeconomic scenario underpinning
the budgetary projections by Croatia expects real GDP growth at 3.3% in 2025, while
CPI inflation is projected at 2.9% in 2025. The Commission Spring 2025 Forecast
projects real GDP to grow by 3.2% in 2025 and 2.9% in 2026, and HICP inflation to
stand at 3.4% in 2025 and 2.0% in 2026.
(15) In the Annual Progress Report, the general government deficit is expected to increase
to 2.9% of GDP in 2025, while the general government debt-to-GDP ratio is set to
decrease to 56.9% by the end of 2025. These developments correspond to net
expenditure growth of 7.6% in 2025. The Commission Spring 2025 Forecast projects a
general government deficit of 2.7% of GDP in 2025. The increase of the deficit in
2025 mainly reflects a strong growth of capital expenditure supported by an expected
step up in RRF implementation, carry over effect of the public sector wage reform and
a further increase in pensions expenditure due to the change in the indexation formula.
According to the Commission’s calculations, these developments correspond to net
expenditure growth of 7.9% in 2025. Based on the Commission’s estimates, the fiscal
stance, which includes both nationally and EU financed expenditure, is projected to be
expansionary, by 0.8% of GDP, in 2025. The general government debt-to-GDP ratio is
set to decrease to 56.3% by the end of 2025. The decrease of the debt-to-GDP ratio in
2025 mainly reflects the denominator effect from the expected nominal GDP growth.
(16) General government expenditure amounting to 1.8% of GDP is expected to be
financed by non-repayable support (“grants”) from the Recovery and Resilience
Facility in 2025, compared to 0.9% of GDP in 2024, according to the Commission
Spring 2025 Forecast. Expenditure financed by Recovery and Resilience Facility non-
repayable support enables high-quality investment and productivity-enhancing reforms
without a direct impact on the general government balance and debt of Croatia.
(17) General government defence expenditure in Croatia amounted to 1.0% of GDP in
2021, 1.0% of GDP in 2022 and 1.3% of GDP in 202313
. According to the
Commission Spring 2025 Forecast, expenditure on defence is projected at 1.4% of
GDP in 2024 and 1.5% of GDP in 2025. This corresponds to an increase of 0.5
percentage points of GDP compared to 2021. The period when the national escape
clause is activated (2025-2028) allows Croatia to reprioritise government expenditure
or increase government revenue so that lastingly higher defence expenditure would not
endanger fiscal sustainability in the medium term.
(18) According to the Commission Spring 2025 Forecast, net expenditure in Croatia is
projected to grow by 7.9% in 2025 and 26.6% cumulatively in 2024 and 2025. Based
on the Commission Spring 2025 Forecast, the net expenditure growth of Croatia in
12
The fiscal stance is defined as a measure of the annual change in the underlying budgetary position of the
general government. It aims to assess the economic impulse stemming from fiscal policies, both those that
are nationally financed and those that are financed by the EU budget. The fiscal stance is measured as the
difference between (i) the medium-term potential growth and (ii) the change in primary expenditure net of
discretionary revenue measures and including expenditure financed by non-repayable support (grants) from
the Recovery and Resilience Facility and other Union funds.
13
Eurostat, government expenditure by classification of functions of government (COFOG).
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2025 is projected to be above the recommended maximum growth rate, corresponding
to a deviation14
of 0.6% of GDP in annual terms. When considering 2024 and 2025
together, the cumulative growth rate of net expenditure is also projected to be above
the recommended maximum growth rate, corresponding to a deviation of 0.2% of
GDP. However, the projected deviation is within the flexibility of the national escape
clause based on current projections for defence spending.
(19) The Annual Progress Report does not include budgetary projections beyond 2025.
Based on policy measures known at the cut-off date of the forecast, the Commission
Spring 2025 Forecast projects a general government deficit of 2.6% of GDP in 2026.
These developments correspond to net expenditure growth of 4.9% in 2026. Based on
the Commission’s estimates, the fiscal stance, which includes both nationally and EU
financed expenditure, is projected to be broadly neutral in 2026. The general
government debt-to-GDP ratio is projected by the Commission to increase to 56.4%
by the end of 2026. The increase of the debt-to-GDP ratio in 2026 mainly reflects
debt-increasing stock-flow adjustments.
Key policy challenges
(20) In accordance with Article 19(3), point (b), of Regulation (EU) 2021/241 and criterion
2.2 of Annex V to that Regulation, the recovery and resilience plan includes an
extensive set of mutually reinforcing reforms and investments to be implemented by
2026. These are expected to help effectively address all or a significant subset of
challenges identified in the relevant country-specific recommendations. Within this
tight timeframe, finalising the effective implementation of the recovery and resilience
plan is essential to boost Croatia’s long-term competitiveness through the green and
digital transitions, while ensuring social fairness. To deliver on the commitments of
the recovery and resilience plan by August 2026, it is essential for Croatia to
accelerate the implementation of reforms and investments by addressing relevant
challenges in terms of administrative capacity constraints, complex public
procurement procedures, protracted permitting processes and inefficient coordination.
The systematic involvement of local and regional authorities, social partners, civil
society and other relevant stakeholders remains essential in order to ensure broad
ownership for the successful implementation of the recovery and resilience plan.
(21) The implementation of cohesion policy programmes, which encompass support from
the European Regional Development Fund (ERDF), the Just Transition Fund (JTF),
the European Social Fund Plus (ESF+) and the Cohesion Fund (CF), has accelerated in
Croatia. It is important to continue efforts to ensure the swift implementation of these
programmes, while maximising their impact on the ground. Croatia is already taking
action under its cohesion policy programmes to boost competitiveness and growth. At
the same time, Croatia continues to face challenges, including those relating to
enhancing competitiveness and innovation performance, affordable housing, water
resilience, active labour market policies for disadvantaged groups, up- and reskilling,
long-term care and deinstitutionalisation. In accordance with Article 18 of Regulation
(EU) 2021/1060, Croatia is required – as part of the mid-term review of the cohesion
policy funds – to review each programme taking into account, among other things, the
challenges identified in the 2024 country-specific recommendations. The Commission
14
From 2026 these figures will appear in the control account that is established in Article 22 of the
Regulation (EU) 2024/1263.
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proposals adopted on 1 April 202515
extend the deadline for submitting an assessment
– for each programme – of the outcome of the mid-term review beyond 31 March
2025. It also provides flexibilities to help speed up programme implementation and
incentives for Member States to allocate cohesion policy resources to five strategic
priority areas of the Union, namely competitiveness in strategic technologies, defence,
housing, water resilience and energy transition.
(22) The Strategic Technologies for Europe Platform (STEP) provides the opportunity to
invest in a key EU strategic priority by strengthening the EU’s competitiveness. STEP
is channelled through 11 existing EU funds. Member States can also contribute to the
InvestEU programme supporting investments in priority areas. Croatia could use these
initiatives to support the development or manufacturing of critical technologies,
including clean and resource-efficient technologies.
(23) Beyond the economic and social challenges addressed by the recovery and resilience
plan and other EU funds, Croatia faces several additional challenges related to labour
and skills shortages, decarbonisation and energy efficiency, innovation, access to
diversified sources of financing, the business environment and social inclusion.
(24) Croatia’s research and innovation (R&I) performance continues to improve, but
progress is hindered by persistent structural challenges, in particular the highly
fragmented public research, development and innovation sector, which consists of
numerous public research institutes and faculties within universities. The large number
of these entities dilutes resources and hinders collaboration, resulting in lower research
outputs and reduced scope for business-academia collaboration and technology
transfer. Although Croatia has been implementing reforms under the recovery and
resilience plan to reduce the number of public research institutions, increasing the
scope, ambition and pace of implementation of these efforts would be beneficial. The
level of public R&D expenditure as a share of GDP remains under EU average and has
been stagnating in recent years. The share of business expenditure for R&D and the
uptake of innovation schemes by businesses also remains well below the EU average,
contributing to a suboptimal performance.
(25) Croatia’s financing landscape is still predominantly supported by banks, with market-
based finance playing a comparatively smaller role. Firms continue to rely heavily on
internal funds and bank loans, while access to household savings via capital markets
remains limited due to still low levels of direct retail participation, despite some
progress. Domestic institutional investors, such as pension funds and insurers, assume
a limited role in financing innovative businesses. The relatively small size and
liquidity of the domestic capital markets limit exit options for venture capital and
private equity investors, compounding the financing gap for innovative firms. Reforms
under the recovery and resilience plan and the capital markets development strategy
seek to promote regional integration, digitalisation, and diversification of financing
options. Further progress is needed in boosting venture capital, private equity and
financial literacy, and improving the investment environment.
(26) As set in the Competitiveness Compass, all the EU, national, and local institutions
must make a major effort to produce simpler rules and to accelerate the speed of
15
Proposal for a regulation of the European Parliament and of the Council amending Regulations (EU)
2021/1058 and (EU) 2021/1056 as regards specific measures to address strategic challenges in the
context of the mid-term review – COM(2025) 123 final.
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administrative procedures. The Commission has set ambitious goals for reducing
administrative burden: by at least 25% for all companies and by at least 35% for
SMEs. It has also created new tools to achieve these goals, including systematic stress
test of the stock of EU legislation and enhanced stakeholders’ dialogue. To match this
ambition, Croatia also needs to take action. The complexity of administrative
procedures is reported to be a constraint by 66% of companies when doing business in
Croatia16
. Structural challenges continue to weigh on Croatia’s business environment,
with labour and skills shortages, regulatory complexity, and administrative
inefficiencies acting as major constraints on investment and growth. Regulatory
barriers in sectors such as retail and in certain professions restrict competition, while
delays in transposing EU directives increase uncertainty and compliance burdens for
businesses. Measures in the recovery and resilience plan to digitalise public
administration, promote competition, and simplify procedures are significant steps
forward. However, increasing the scope, ambition and pace of regulatory
simplification and administrative modernisation would be beneficial.
(27) The territorial fragmentation of Croatia’s public administration affects its efficiency
and exacerbates regional disparities. There is also an imbalance between
responsibilities and resources at local level. This contributes to the uneven quality of
public services provided across the country and raises administrative costs as many
small local governments lack adequate financial and administrative resources to
provide services within their remit. Although measures under the recovery and
resilience plan help address the high fragmentation by providing financial incentives
to stimulate mergers of local government units, the uptake of these incentives remains
mainly focused on mergers of functions, while the uptake in terms of actual mergers of
local government units remains limited. Increasing the scope of incentives, coupled
with potential legislative steps to ensure the uptake of actual mergers, would be
beneficial.
(28) In the first half of 2024, Croatia had the third highest electricity price in the EU for
business/industrial consumers. This continues to hold back the cost competitiveness of
Croatian companies. Despite the record increase of 397 MW of solar capacity in 2024,
the share of solar energy in electricity generation remains low, at less than 6%.
Against this background, faster roll-out of new renewable energy capacity – especially
solar – and non-fossil flexibility solutions could help reduce price levels. The
increased uptake of large-scale renewables, including solar, is hampered by an
uncertain regulatory framework as the national energy regulator (HERA) is yet to
adopt updated grid connection fees, which creates uncertainty for potential investors
and has effectively prevented projects from securing financing. Increased investment
in the electricity grid beyond the investments included in the Croatian recovery and
resilience plan will be crucial to promote the uptake of renewable energy in Croatia. In
the short term, this will require measures to incentivise hybrid storage and renewable
energy projects. In 2023, only 24% of household consumers had smart meters
installed, which is significantly less than the EU target of 80%. To be able to fully
capitalise on the increased uptake of renewable energy, significant funding for the roll-
out of smart meters beyond the measures in the recovery and resilience plan as well as
dynamic contracts, will be needed to empower consumers and foster demand response.
Revising and simplifying administrative procedures for installing renewable energy
projects, including in multi-apartment buildings, would help reduce the reliance on
16
‘Businesses' attitudes towards corruption in the EU’ Flash Report, Eurobarometer Report (April 2024)
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fossil fuels. Administrative procedures for setting up energy communities should also
be reviewed as the number of registered energy communities remains low.
(29) Energy efficiency measures are necessary to maintain the positive momentum created
by the recovery and resilience plan and accelerate progress in: (i) building renovation;
(ii) the supply of energy-efficient housing, in particular social housing; and (iii) the
replacement of gas and oil boilers with heat pumps and other more efficient and green
solutions. Relevant price signals for electrification are also hindered by a tax burden
disproportionally skewed towards electricity for both households and industrial
consumers. Considering its exposure to climate-related risks and their potential
economic impact, Croatia would also benefit from accelerating climate adaptation and
water resilience through swift implementation and close monitoring of adaptation and
sustainable water management policies, based on nature-based and climate-proof
investments in strategic infrastructure.
(30) Road transport is the most used mode of transport in Croatia for both passengers and
freight. Reforms and investments under the Croatian recovery and resilience plan –
such as modernising railway infrastructure, promoting green transport, and deploying
intelligent transport systems – already support these objectives; nevertheless, sustained
efforts remain necessary. Modernising the transport infrastructure and the railway
rolling stock, increasing the use of public transport and further greening it, putting in
place intelligent transport systems, and promoting the uptake of zero-emission
vehicles, for example by revising taxation incentives, can greatly contribute to the
decarbonisation of the transport sector and reduce the reliance on fossil fuels and
energy demand. In 2023, Croatia had the lowest share of renewable fuels in transport
in the EU (0.9% vs EU average of 10.8%). Revising rules on blending and mixing of
biofuels could encourage the use of alternative fuels. Croatia records sizeable fossil-
fuel subsidies without a planned phase-out before 2030. In particular, fossil-fuel
subsidies that address neither energy poverty in a targeted way nor genuine energy
security concerns, hinder electrification and are not crucial for industrial
competitiveness could be considered a phase-out priority. In Croatia, fossil-fuel
subsidies such as the ongoing emergency price cap on petroleum products and gas, as
well as partial refunds of excise duties for diesel in commercial transport are
economically inefficient, perpetuate reliance on fossil fuels and disincentivise
electrification and the shift to zero-emission vehicles and other sustainable solutions.
(31) Positive trends in Croatia’s labour market continue, though persistent structural and
regional challenges weigh on competitiveness and growth potential. Labour and skills
shortages are reported across many sectors, while the employment rate remains below
the EU average, particularly for vulnerable groups such as older people, low-skilled
workers, and persons with disabilities. The disability employment gap has widened
considerably, increasing the risk of poverty and social exclusion for disadvantaged
groups. Limited participation in adult learning, especially outside the capital region,
constrains the development of labour-market-relevant skills and contributes to skills
mismatches. Croatia is implementing a series of measures to address labour market
needs, some of which supported by the recovery and resilience plan and the European
Social Fund Plus. These measures include active labour market policies, upskilling
and reskilling programmes, and reforms to better integrate foreign workers into the
labour market. However, there is a need to intensify these efforts and improve their
effectiveness by more closely targeting vulnerable groups, addressing training gaps,
incentivising adult learning participation and improving labour-market-relevant skills,
including through high-quality curricula at various levels of education. Advancing the
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reform of the education system would help achieve higher participation in early
childhood education and care and more instruction time in schools, strengthening basic
skills and providing a better basis for further education and skills acquisition.
Continued efforts are needed to increase the share of qualified teachers of mathematics
and physics to improve those skills and participation in science, technology,
engineering and mathematics (STEM) studies.
(32) Despite some progress and significant policy efforts, Croatia continues to face
significant social challenges. Poverty and income inequality rates are still high,
particularly among older people, persons with disabilities and those living in rural
areas. In 2023, the risk of poverty or social exclusion remained high in Croatia. The
impact of social transfers (excluding pensions) on poverty reduction is among the
weakest in the EU, and the adequacy and coverage of minimum income schemes and
unemployment benefits are still limited. Pensions are comparatively low, and, at the
same time, the system’s sustainability is challenged by demographic pressures and a
history of early retirement. The availability of long-term care is limited, with yet
insufficient access to home care and community-based care, placing disproportionate
care burdens on informal carers, especially women, which means they are less likely to
work or look for a job. Ensuring effective and coordinated implementation of the 2030
National Housing Policy Plan would contribute to making housing more affordable.
Addressing these challenges would also contribute to supporting upward social
convergence, in line with the Commission services’ second-stage country analysis of
the Social Convergence Framework17
.
(33) The uneven distribution of doctors is a major barrier to accessing healthcare services
in remote/rural regions. Addressing shortages of workers requires initiatives to
increase the number of healthcare workers, and improve training, recruitment and
retention, paying particular attention to geographical disparities. The share of the
population using online health services is one of the lowest in the EU. Although the
recovery and resilience plan supports telemedicine services in remote and island areas,
a concerted effort is needed to promote equal access to healthcare services, especially
to primary and outpatient/ambulatory care.
(34) In view of the close interlinkages between the economies of euro-area Member States
and their collective contribution to the functioning of the economic and monetary
union, in 2025, the Council recommended that the euro-area Member States take
action, including through their recovery and resilience plans, to implement the 2025
Recommendation on the economic policy of the euro area. For Croatia,
recommendations (2), (3), (4) and (5) help implement the first euro-area
recommendation on competitiveness, while recommendations (4) and (5) help
implement the second euro-area recommendation on resilience, and recommendation
(1) helps implement the third euro-area recommendation on macroeconomic and
financial stability set out in the 2025 Recommendation.
HEREBY RECOMMENDS that Croatia take action in 2025 and 2026 to:
1. Reinforce overall defence spending and readiness in line with the European Council
conclusions of 6 March 2025. Adhere to the maximum growth rates of net
expenditure recommended by the Council on 21 January 2025, while making use of
the allowance under the national escape clause for higher defence expenditure.
17
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2. In view of the applicable deadlines for the timely completion of reforms and
investments under Regulation (EU) 2021/241, accelerate the implementation of the
recovery and resilience plan, including the REPowerEU chapter. Accelerate the
implementation of cohesion policy programmes (ERDF, JTF, ESF+, CF), building,
where appropriate, on the opportunities offered by the mid-term review. Make
optimal use of EU instruments, including the scope provided by the InvestEU and the
Strategic Technologies for Europe Platform, to improve competitiveness.
3. Address the fragmentation of public research institutes and universities by setting
goals in performance agreements that promote consolidation, collaboration, and,
where relevant, mergers, backed by financial incentives to boost scientific output and
public return on R&D investment. Foster investments in research and innovation.
Boost access to diverse sources of financing for businesses and promote capital
markets by further facilitating the participation of retail investors, including in the
bond market, addressing barriers to listing, and strengthening corporate governance
to improve the attractiveness of the stock market. Further simplify regulation,
improve regulatory tools and reduce administrative burden through digitalisation to
facilitate business creation and expansion. Reinforce the capacity and efficiency of
the public administration at the local level by merging functions and/or
municipalities.
4. Address high electricity prices for businesses by accelerating deployment and grid
connection of renewable energy projects. Further upgrade electricity transmission
and distribution grids, invest in electricity storage and advance the roll-out of smart
meters. Streamline permitting, including for energy communities, and simplify the
procedures for installing solar photovoltaic facilities in multi-apartment buildings.
Accelerate the implementation of energy efficiency measures, especially in
residential buildings, reduce the dependence on fossil fuels in the heating sector, and
accelerate the installation of heat pumps. Reduce reliance on fossil fuels and energy
demand in the transport sector by promoting sustainable urban transport, rail and the
electrification of road transport, including by reviewing targeted taxation incentives.
Take concrete steps to phase out fossil fuel subsidies in particular in the transport
sector. Address the recent decline in the share of renewables in transport by revising
the rules on biofuels.
5. Reduce labour and skills shortages by removing obstacles to labour force
participation, ensuring stronger educational foundations at every level, in particular
for basic and science, technology, engineering and mathematics (STEM) skills,
strengthening upskilling and reskilling, better targeting active labour market policies
to vulnerable groups, and strengthening efforts to attract, develop and retain talent.
Strengthen labour market policies and their coordination with social services. Reduce
poverty and income inequality by increasing the adequacy of social benefits,
including pensions, while maintaining fiscal sustainability. Improve access to formal
home- and community-based long-term care. Promote balanced geographical
distribution of health workers and facilities, investments in e-health, and closer
cooperation between all levels of public administration on health policy.
Done at Brussels,
For the Council
The President