Country Partnership Framework Document of The World Bank Group FOR OFFICIAL USE ONLY Report No. CPF0000029 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY COUNTRY PARTNERSHIP FRAMEWORK FOR CROATIA FOR THE PERIOD FY25 - FY30 European Union Country Management Unit Europe and Central Asia Region The International Finance Corporation Europe Region The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Country Partnership Framework (CPF) was May 2, 2019, Report No. 130706. The date of the last Performance and Learning Review was March 13, 2023, Report No. 180636. CURRENCY EQUIVALENTS Exchange Rate Effective as of March 31, 2025 Currency Unit = Euro (EUR) US$1 = EUR 0.9246 FISCAL YEAR July 1 to June 30 IBRD IFC MIGA Vice President: Antonella Bassani Alfonso Garcia Mora Ed Mountfield Director: Anna Akhalkatsi Ines Rocha Sebnem Erol Madan Country Manager: Jehan Arulpragasam Marcelo Castellanos - WBG Task Team: Jehan Arulpragasam, Country Manager (IBRD) Kazimir Luka Bačić, Operations Officer (IBRD) Magdalena Soljakova, Senior Country Officer (IFC) Johanne Buba, Senior Economist (IFC) Seonyeong Son, Senior Risk Management Officer (MIGA) ABBREVIATIONS AND ACRONYMS AI Artificial intelligence IFC International Finance Corporation AROP At-risk-of-poverty IFI International financial institution ASA Advisory Services & Analytics IMF International Monetary Fund Country Climate and Development CCDR IPF Investment Project Financing Report Multilateral Investment Guarantee CEB Council of Europe Development Bank MIGA Agency CEE Central and Eastern Europe MFF Multiannual Financial Framework Minimum Requirement for own funds and CEM Country Economic Memorandum MREL Eligible Liabilities CLR Completion and Learning Review NDS National Development Strategy COVID-19 Coronavirus disease of 2019 NEET Not in employment, education or training CPF Country Partnership Framework NGEU NextGenerationEU DARP Distressed Assets Recovery Program NRRP National Recovery and Resilience Plan Directorate-General for Economic and Organisation for Economic Co-operation DG ECFIN OECD Financial Affairs and Development Directorate-General for Employment, DG EMPL PBC Performance Based Conditions Social Affairs and Inclusion Directorate-General for Regional and DG REGIO PFR Public Finance Review Urban Policy European Bank for Reconstruction and EBRD PforR Program for Results Development Programme for International Student EC European Commission PISA Assessment ECA Europe and Central Asia PLR Performance and Learning Review EIB European Investment Bank PPP Purchasing power parity ERDF European Regional Development Fund RAS Reimbursable Advisory Services ESF+ European Social Fund Plus R&D Research and development EU European Union RDNA Rapid Damage and Needs Assessment EU27 European Union with 27 Members RRF Recovery and Resilience Facility Eurostat Statistical office of the European Union SCD Systematic Country Diagnostic EV Electric vehicle SG REFORM Reform and Investment Task Force FDI Foreign direct investment SMEs Small and Medium Enterprises FY Fiscal year SOE State-owned enterprise GDP Gross domestic product SORT Standardized Operations Risk-Rating tool Science, technology, engineering, and GHG Greenhouse gas STEM mathematics GVC Global value chain TF Trust Fund Trends in International Mathematics and HCR Human Capital Review TIMSS Science Study Technical and Vocational Education and HDZ Croatian Democratic Union TVET Training International Bank for Reconstruction IBRD UN United Nations and Development Institutional Change Assessment ICAM US$ United States Dollar Method Information and communication ICT technology WBG World Bank Group IDA International Development Association Table of Contents I. INTRODUCTION .............................................................................................................................. 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ....................................................................... 3 II.1. Political Context ..................................................................................................................... 3 II.2. Recent Economic Developments ........................................................................................... 3 II.3. Poverty, Inequality, and Livability ......................................................................................... 5 II.4. Main Development Challenges.............................................................................................. 6 II.4.1. Institutional gaps and inefficiencies in the public sector ..................................................... 6 II.4.2. Low private sector dynamism, productivity, and investment.............................................. 7 II.4.3. Labor and skills shortages .................................................................................................... 9 II.4.4. Environmental sustainability and disaster and climate vulnerabilities.............................. 10 III. COUNTRY PARTNERSHIP FRAMEWORK: SELECTIVITY AND AMBITION........................................ 11 III.1. Selectivity Filters .................................................................................................................. 11 III.2. Country Partnership Framework ......................................................................................... 14 III.2.1 CPF Outcome 1: Increased Investment and More Productive Jobs ................................... 15 III.2.2 CPF Outcome 2: Increased Environmental Resilience........................................................ 17 III.2.3 Strengthening institutions: a cross-cutting area ................................................................ 19 III.3. Implementing the CPF ......................................................................................................... 20 IV. MANAGING RISKS ......................................................................................................................... 22 Annex I: Croatia CPF FY25-30 Results Framework ................................................................................ 23 Annex II: Completion and Learning Review .......................................................................................... 27 Annex III: IBRD Croatia Portfolio Current Lending, Pipeline, and Analytics .......................................... 94 Annex IV: IFC Croatia Investments and Portfolio .................................................................................. 96 I. INTRODUCTION 1. Over the past decade, Croatia demonstrated significant progress in economic development and improvement in living standards for its citizens. Economic performance during this period— including the country’s strong recovery following its pandemic-induced recession—was underpinned by sound economic management and notable reforms. Growth benefited significantly from the tourism sector rebound, which accounted for 19 percent of gross domestic product (GDP) in 2024. In addition, significant inflows of European Union (EU) funds during 2020–24, cumulatively totaling around 19 percent of 2023 GDP, helped boost public investment and economic growth. Croatia’s growth has contributed to substantial progress in living standards, with GDP per capita in purchasing power parity (PPP) terms increasing from 60.7 percent of the average EU27 level in 2015 to 76.8 percent in 2024. 2. However, in order to sustain strong growth and progress on shared prosperity and poverty reduction, Croatia needs to tackle several fundamental challenges. First, Croatia needs to increase the overall productivity of its economy by boosting private sector investment, promoting diversification of the economy toward higher value-added sectors, and addressing remaining business environment challenges that reduce dynamism in the market. Second, Croatia needs to contend with demographic challenges that are contributing to shortages of labor with the skills required to sustain growth. Third, as a country with rich environmental endowments that also underpin its large tourism sector, Croatia needs to decouple its growth from environmental pressures associated with water use and air pollution and manage its significant exposure to extreme weather risks. This will require better managing natural resources, reducing pollution, and mitigating environmental and climate risks. Croatia also needs to increase energy efficiency and expand renewable energy sources to reduce risks associated with global energy price volatility and improve economic performance in key sectors. Finally, despite recent progress, further strengthening of institutions is needed to sustain economic and social development and enable Croatia to tackle its development challenges effectively. 3. Against this background, the World Bank Group (WBG) plans to focus its program on addressing Croatia’s most acute development challenges. This FY25–FY30 Country Partnership Framework (CPF) is designed to help Croatia achieve its development ambitions while addressing frontier development challenges that generate global knowledge. The CPF aims to foster sustainable and inclusive economic growth through two Outcomes: (1) increased investment and more productive jobs and (2) increased environmental resilience (Figure 1). Across all activities of the CPF, strengthening institutions for resilient and inclusive growth will be a priority. The CPF is fully aligned with the WBG Corporate Scorecard, covering three Scorecard Outcome Areas (More and Better Jobs, More Private Investment, and Green and Blue Planet and Resilient Populations) and measured by five Scorecard indicators. Figure 1: Croatia CPF FY25–FY30 4. The CPF is based on extensive country diagnostics and is aligned with government priorities and the WBG’s mission of ending poverty and boosting shared prosperity on a livable planet. It draws on the Systematic Country Diagnostic (SCD) Update 2024, Country Economic Memorandum (CEM) 2023, Public Finance Review (PFR) 2023, Human Capital Review (HCR) 2024, Country Climate 1 and Development Report (CCDR) 2025 (ongoing), as well as the Completion and Learning Review (CLR) of the FY19–24 CPF. The priority areas identified are aligned with the Croatian Government Program 2024–28, National Development Strategy (NDS) of Croatia by 2030, and Croatia’s National Recovery and Resilience Plan (NRRP) 2021–26. The formulation of the CPF benefited from consultations with a broad range of partners and stakeholders. 5. The CPF program for Croatia is highly selective and focuses on unlocking private financing and developing innovative solutions. The WBG proposes a selective program with around US$700 million in International Bank for Reconstruction and Development (IBRD) lending and around US$1 billion in International Finance Corporation (IFC) financing over the FY25-FY30 CPF period, subject to adjustments through an annual business planning process.1 Croatia will continue to have access to all WBG instruments, with a flexible “if and then” approach used as a basis for increasing the ambition and scale of the program in line with the country’s demand and commitment. IBRD will support policy reforms and public sector investments to help unlock private and public capital and achieve the CPF outcomes, while in a complementary way IFC and MIGA will help catalyze private sector solutions and capital to achieve these ends. The WBG program will prioritize innovative demonstration projects and investments that can be scaled up using public and/or private financing. The WBG will aim at mobilizing private sector financing through its unique blend of financing and advisory instruments and structuring know-how. To operationalize this approach, under the identified Outcomes, the CPF will utilize one of two filters to select its interventions in Croatia. First, the WBG will choose activities where it will leverage financing, notably capital mobilized from the private sector. Second, it will provide innovative solutions that can help generate knowledge as a global public good, applicable to other countries. 6. The FY25–FY30 CPF will have a strong knowledge focus and will further strengthen Croatia’s contribution to the global development agenda. During the previous CPF, the WBG’s global knowledge was used by Croatian authorities to inform the country’s reforms and investment agenda. More importantly, the knowledge generated by the WBG in Croatia proved to be and will continue to be valuable to other WBG clients—from low- to high-income countries—across various regions. For example, knowledge generated from the Croatia public wage work has been shared with nine countries in four different regions, while knowledge generated from Croatia’s innovation work has been implemented in five countries. The CPF will therefore deepen the partnership with Croatia to increase the country’s role as a source of knowledge and experience on development issues, with a focus on global challenges. The CPF will also deepen the WBG’s partnership with Croatia in global development, including through the country’s increased role as an International Development Association (IDA) donor. 7. Strong partnerships will underpin WBG engagement in Croatia. To increase development impact, the WBG will work in close partnership with other development partners—including the European Commission (EC), which provides significant resources to Croatia—and synergistically with international organizations such as the Organization for Economic Co-operation and Development (OECD), International Monetary Fund (IMF), Council of Europe Development Bank (CEB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), and United Nations (UN) agencies, as well as bilateral partners. The WBG will also aim to increase its development impact by working with all relevant stakeholders to achieve targeted results, including private sector, academia, and civil society organizations. 8. The CPF is consistent with IBRD’s graduation policy and reflects IFC and MIGA’s evolving additionality. While Croatia’s gross national income per capita is above the IBRD Graduation 1Actual IBRD lending will depend on factors including country and program performance, global economic developments which affect IBRD’s financial capacity and demand by other Bank borrowers. 2 Discussion Income (GDI) threshold, the country needs to tackle several fundamental challenges that require WBG technical and financial support. Croatia has access to capital markets and EU funds, but these will only partially cover its financing needs, and issues ranging from the low administrative capacity of public institutions to internal regulatory barriers and implementation deficiencies, unless addressed, constrain their access and use. More broadly, multifaceted institutional, developmental and sustainability challenges affect Croatia’s ability to sustain economic growth and social progress, while its administrative capacity will need to improve to achieve the country’s development ambitions and meet global challenges in a volatile geopolitical context. The WBG program in this CPF period is designed accordingly. IBRD aims to strengthen Croatia’s institutions, build administrative capacity, and improve public sector service provision and coordination, while advancing foundational reforms and policies needed for sustainable and inclusive private-sector-led growth, as both are required for sustainable IBRD graduation. IFC and MIGA additionality, particularly in providing scarce, riskier, capital and innovative financial products, will be an increasingly important driver for Croatia’s future development. The Government has requested continued—yet selective—access to the full range of WBG instruments. Due to the complexity of development challenges that Croatia faces, their multi- sectoral nature, and the need to support further strengthening of institutional capacity as well as coordination among institutions for complex development challenges, the WBG is well placed to support Croatia on its long-term structural transformation and reform agenda. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA II.1. Political Context 9. Croatia’s strong reform agenda and robust economic performance have been underpinned by political and social stability over the past eight years. Croatia has benefited from almost a decade of political stability, with the Croatian Democratic Union (HDZ)-led coalition winning a record third consecutive term in the April 2024 parliamentary elections. This political stability has enabled Croatia to complete significant reforms supported by Croatia’s membership in the EU (since 2013) and unlocked accession into both the euro zone and Schengen area (since 2023). It has also advanced Croatia’s aspirations to join the OECD, currently planned for 2026 or 2027. While the political stability translated into continuous commitment to the reform agenda, frequent cabinet reshuffles affected some line ministries and at times also affected the efficacy and the pace of sectoral reforms. II.2. Recent Economic Developments 10. Croatia is a small, open economy that has achieved significant progress in economic development, despite major shocks. Annual GDP growth averaged 2.2 percent between 2003 and 2024, and GDP per capita increased from US$8,190 in 2003 to US$23,931 in 2024. However, growth was uneven, and the country was hit by several shocks. The global financial crisis in 2008 led to a six- year recession and was a major setback on Croatia’s path to convergence with the EU. More recently, the coronavirus disease 2019 (COVID-19) pandemic in 2020 caused the steepest recession in Croatia’s history due to the country’s strong reliance on tourism, which contributes close to 20 percent to its GDP. This was exacerbated by higher energy prices beginning in 2021, which affected the cost of energy in Croatia given its heavy reliance on energy imports and led to higher transport and production costs and household expenditures. Nevertheless, the economic recovery was quick thanks to large and responsive fiscal and monetary support schemes, including energy price caps and the inflow of abundant EU funds (in excess of €13 billion or 17 percent of 2023 GDP until 2023). 11. Croatia’s membership in the EU since mid-2013 has had a major positive impact on the country’s economic growth over the last decade. Access to the single market supported recovery from the recession by allowing Croatian firms to better integrate with European partners, leading to a gradual rise in exports of goods and services from 39 percent of GDP in 2012 to 50 percent in 2024. 3 Almost three-quarters of this growth can be attributed to more intense trade with other EU Member States, especially Central and Eastern Europe (CEE) countries. Absorption of EU funds in excess of €16 billion until 2024 supported domestic demand, especially large public investment but also private investment in productive assets to some extent. Similar benefits are expected until the end of this decade. Namely, the new Multiannual Financial Framework (MFF) as well as the NextGenerationEU (NGEU) program, including the Recovery and Resilience Facility (RRF), give Croatia access to about €20 billion of EU funds over the next five years, an amount equal to one-quarter of the country’s GDP in 2024. 12. Recent GDP growth rates have been robust, supporting Croatia’s accelerated income convergence with the rest of the EU, but the country’s growth drivers are reaching their potential. Over the last three years, average GDP growth reached 4.8 percent, consistently outpacing average growth in the EU and the euro area. Consequently, the income convergence process has accelerated, and in 2024, Croatia reached 76.8 percent of the average EU27 level of income (in PPP), up from 67.3 percent in 2019. In light of strong growth, a reduction in public debt, and a solid track record in NRRP implementation, all three leading global credit rating agencies increased Croatia’s credit rating in 2024 to above-average credit quality. However, economic growth has become increasingly dependent on consumption and public investment, largely driven by rising wages, expansionary fiscal policy, and the inflow of EU funds. Moreover, the tourism sector—one of the key drivers of economic growth—is showing signs of reaching peak capacity and faces environmental carrying capacity constraints. 13. Labor market conditions have tightened, and wage growth has been strong amid stagnant productivity, potentially weighing on Croatia’s competitiveness. The employment-to-population ratio for the working-age population (ages 15–64) has been rising and reached 68.3 percent in the 2024, 2.5 percentage points below the EU average. Strong demand for labor in the context of natural population decline, outward migration, and aging has created a significant shortage of labor in almost all economic sectors, only partly mitigated by the strong inflow of foreign workers who now account for almost 10 percent of overall employment. Tight labor market conditions in the inflationary environment have put strong pressures on wages which have been growing rapidly over the last three years, surpassing the rise of prices. At the same time, subdued labor productivity growth in the context of rising wages constrains Croatia's external competitiveness. 14. Despite its robust economic performance, sustaining the recent income convergence over the long run is far from certain. In the medium term, economic growth will likely remain robust (Table 1), supported by a strong inflow of EU funds, booming tourism sector, rising employment, and large inflows of workers’ remittances. However, the level of financing from the EU is likely to decline after 2029 as Croatia’s income per capita gap with the EU average continues to narrow. Also critically, long- term growth is expected to be dampened by various structural headwinds, including from unfavorable demographic developments, low labor productivity, and inefficiencies in public institutions. If these structural issues remain unaddressed, the projected pace of growth in the post-2030 period will not be sufficient to reach average EU income levels. 4 Table 1. Macroeconomic outlook Sources: Croatian Bureau of Statistics, Ministry of Finance, Croatian National Bank, World Bank forecast. Notes: e = estimate, f = forecast. 15. Expansionary fiscal policy has been supporting economic growth in recent years, but now gradual consolidation is needed to create fiscal space for large investment needs in the future. The fiscal stance shifted from contractionary in the 2021–22 period to expansionary in 2023–24, reflecting an increase in the public sector wage bill and pensions. While public debt has remained on a downward path and fell below 60 percent of GDP in 2024, it remains vulnerable to adverse shocks. In such a context, consolidation efforts are needed over the medium run to create (1) fiscal space for addressing large investment needs, particularly related to strengthening the Croatian economy’s competitiveness through the adoption of digital and clean technologies and enabling access to lower- cost and sustainable energy sources, and (2) sufficient fiscal buffers to build resilience against shocks. This is even more important given the anticipated decline in the availability of EU funds that currently finance a large part of public investment. II.3. Poverty, Inequality, and Livability 16. Croatia has reduced poverty through rising incomes, but the share of the population at risk of poverty remains high. Over the past decade, real per capita household income grew at an average annual rate of 4.7 percent, driving the poverty rate at the upper-middle-income line (US$6.85 a day at 2017 PPP) down from 8.1 percent in 2012 to 1.9 percent in 2022. Rising food and energy prices in recent years threatened these gains, but government support to households and firms helped mitigate the impact. Despite this progress, 19.3 percent of the population still lives below 60 percent of the median national income, ranking Croatia’s at-risk-of-poverty (AROP) rate as the 7th highest in the EU among member states with available data. Vulnerable groups—including the elderly, low-educated individuals, unemployed, and marginalized communities like the Roma—remain at high risk, highlighting the need for targeted policies. 17. Although Croatia has made progress on shared prosperity, persistent inequalities across different population groups and areas limit broader economic gains. Croatia has experienced inclusive growth over the past decade, with the real per capita income of the poorest 40 percent growing at an average annual rate of 5.8 percent between 2012 and 2022, outpacing the national average. Croatia’s shared prosperity premium is 0.7 percentage points, the 10th highest in the EU. In 2022, Croatia had less than 2 percent of its population below the US$6.85 UMIC poverty line—well below the 5.5 percent average for upper-middle and high-income countries in the Europe and Central Asia (ECA) region. However, Croatia’s at-risk-of-poverty rate was over 3 percentage points higher than the ECA upper-middle and high-income country average. In terms of inequality, Croatia performs better, with a Gini coefficient nearly 1 point below the ECA regional average for upper-middle and high-income economies. Nonetheless, significant disparities persist. Rural AROP rates (25 percent) are 5 twice as high as urban rates (12.3 percent), with nearly half of the country’s poor living in rural areas. Gender gaps further exacerbate inequality, with Croatia ranking 20th out of 27 EU countries in the 2023 EU Gender Equality Index, 9.5 points below the EU average. Women are disproportionately burdened by unpaid care and domestic work and are underrepresented in high-paying sectors where women also earn 13 percent less than men, the wage gap being even larger among individuals with lower levels of educational attainment. 18. Extreme weather events and a changing climate are increasing risks to lives and livelihoods. Extreme heat events are expected to affect water security, agricultural production, food security, and heat-related morbidity and mortality rates. With drier and hotter summers, Croatia will be increasingly vulnerable to the risk of droughts and wildfires. The country is also expected to face higher intensities of other disaster events including flooding and strong winds as well as risks from geological hazards such as earthquakes and landslides. These natural and weather-related disasters are expected to affect poor and vulnerable households disproportionately and affect people and assets concentrated in cities and along coastlines. Furthermore, while the country has ambitious plans to switch to a cleaner economy in line with EU targets, those plans could affect poor and vulnerable households— particularly those concentrated in economically lagging regions where poverty levels are above average. II.4. Main Development Challenges 19. Croatia has the potential to accelerate sustainable, resilient, and inclusive growth if it can address four main development challenges. Croatia is well positioned to be an advanced economy with increased prosperity for all of its population. It has benefited from strong growth over the last five years, has a rich natural resource endowment, and is strategically located on the Adriatic coast at the crossroads of central and southeastern Europe. To achieve growth that is broadly shared and sustainable, Croatia will need to tackle four major development challenges: (1) institutional gaps and inefficiencies in the public sector; (2) low private sector dynamism, productivity, and investment; (3) rapid demographic change leading to labor and skill shortages while straining social service delivery; and (4) environmental sustainability and disaster and climate vulnerabilities. II.4.1. Institutional gaps and inefficiencies in the public sector 20. Croatia has made significant progress in strengthening its institutions and improving public sector efficiency, creating a strong foundation for future reforms. The pace of institutional reforms gained renewed momentum in the 2020s, propelled by commitments under the NRRP and aspirations for OECD membership. Notable examples include the public sector wage reform, which has aligned Croatia with good practices across regions, and improvements in several key justice indicators such as reductions in the backlog of old cases and disposition times. Nonetheless, there is a need to further strengthen governance structures in multiple areas where performance indicators lag behind EU averages, including with respect to regulatory quality, control of corruption, and rule of law. Inefficiencies in public service provision have diminished trust in the state at both the national and local levels, making it more challenging for the government to advance the structural reforms needed to propel Croatia’s competitiveness and growth. 21. Strengthening cross-government coordination and administrative efficiency will be vital for Croatia to tackle its next generation of challenges and to increase the overall effectiveness of structural reforms. While the Government's capacity for strategic planning and public policy making has improved (as demonstrated by Croatia’s positive reform performance under the NRRP), policy implementation is held back by weak cross-government coordination and insufficient administrative capacity. Fragmentation among ministries, agencies, and local governments leads to delays in decision-making, inconsistent policy execution, and duplication of efforts, undermining the impact of 6 reform initiatives. This lack of coordination is particularly evident in areas requiring multi-sectoral collaboration, such as strengthening the investment environment, modernizing public administration, and environmental protection. 22. Limited institutional and financial capacity at the level of local government contributes to inefficiencies in public service delivery. Croatia’s administrative-territorial structure is characterized by many small local government units with limited collaborative arrangements in place, affecting economies of scale for public services and reducing the capacity to make strategic infrastructure investments and attract private investors. The challenges of fragmentation are compounded by capacity constraints at the local government level, lack of clear delineation of responsibilities between different levels of government, and insufficient fiscal capacity. 23. Despite recent progress in the commercial justice system, significant room remains to improve performance and public confidence by increasing efficiency, reducing transaction costs, and lowering uncertainty for investors. While the Croatian justice system has made improvements in reducing the length of proceedings and backlogs, legal processes remain protracted and inefficient compared to those in other EU member states. This creates barriers to business growth, investment, and economic competitiveness. Prolonged times to resolve cases and a broad lack of trust in the judiciary create uncertainty in contract enforcement, raise transaction costs for investors, and are cited as important impediments to investments in Croatia. Delayed conflict resolution particularly affects smaller and younger firms, reflecting in part the limited use of mediation and arbitration and reducing market contestability. Challenges in the justice sector stem from cumbersome administrative procedures, gaps in management skills among justice officials, lack of digitalization, and inadequate infrastructure that lacks modern judicial standards and energy efficiency. Uncertainties in land rights and lengthy processes for land transactions also affect the investment climate and impinge on land markets and land use planning. 24. Finally, despite improvements, the governance framework for state-owned enterprises (SOEs) in Croatia needs further modernization. SOEs play a significant role in the country's economic activity and public service provision, particularly in the energy and transport sectors. Improving their governance framework could strengthen financial outcomes and operational performance, reduce fiscal costs, increase innovation and productivity, and encourage SOEs to play a more prominent role in climate action. These reforms would in turn facilitate and foster private investment. A new SOE law aimed at strengthening SOE corporate governance, along with subsequent regulations, is expected to be adopted in 2025. It has the potential to establish clearer criteria for the state's participation in commercial activities, create a more centralized coordination of SOE ownership functions, and align Croatia’s SOE governance with OECD standards. However, full implementation will require substantial effort and commitment in the upcoming years. II.4.2. Low private sector dynamism, productivity, and investment 25. Productivity in Croatia remains weak—a reflection of low private investment, a skewed composition toward lower-productivity sectors, and a limited footprint in regional value chains. Total factor productivity of the Croatian economy increased by 11.2 percent in the period between 2004 and 2023, compared to an average of 30.3 percent in CEE peer countries.2 Over the past five years, private sector investment has averaged 16.3 percent of GDP, below the EU27 average of 19 percent. Croatia’s average net foreign direct investment (FDI) inflows of 2.4 percent of GDP between 2011 and 2020 were lower than the region’s average of about 5 percent. Economic activity and investment are concentrated in industries with lower value-added such as tourism and traditional 2 European Commission Directorate General for Economic and Financial Affairs’ AMECO database 7 services, while higher-productivity sectors, such as information and communication technology (ICT), high-tech manufacturing, and knowledge-intensive services, account for a lower share of the economy. This weak and narrowly focused investment constrains the diffusion of technology and innovation, hampering total factor and labor productivity growth and economic competitiveness. In addition, limited integration into global and regional value chains restricts the transfer of advanced technology and know-how, exacerbating productivity gaps within sectors. 26. Firm and market dynamism is constrained by the rigid business environment. While the composition of economic activities explains part of the productivity gap, market inefficiencies and frictions reflecting barriers to competition play a more significant role. With one of the lowest firm densities per capita in the EU, market dynamism remains subdued, reflecting obstacles to the efficient reallocation of resources toward more productive enterprises. A rigid business environment—shaped by cumbersome insolvency procedures, restrictive regulations in professional services, barriers to services trade, and bureaucratic complexities—allows inefficient firms to persist due to weak competitive pressures. Encouragingly, firm entry has increased in recent years, although rising markups over the past decade show the potential for addressing remaining constraints to meaningful competition. 27. Despite notable progress in lowering administrative and regulatory burdens, firms continue to face cumbersome regulations and market entry restrictions. Croatia has adopted business regulations that follow international practices, for example in advancing digital services for standard government procedures, further digitalizing business permitting, and establishing the START (Plus) platform for online business registration and licensing. However, incomplete or ineffective implementation has resulted in burdensome regulations in practice. Entrepreneurs still face duplicative business registration processes, making market entry more difficult. Notably, Croatia has fewer female entrepreneurs than male entrepreneurs (7.8 percent compared to 16.0 percent in 2023), and female entrepreneurs often lack access to systematic support such as skills development, entrepreneurship, and financial training as well as suitable financial products. 28. Public investment in research and development (R&D) has increased, but it needs to be accompanied by further private investment in research, deeper industry-science linkages, and strengthened managerial capabilities within firms. Gross investment in R&D improved from 0.95 percent of GDP in 2018 to 1.39 percent in 2023 but was below the EU average of 2.22 percent in 2023 and also below the averages for middle-income and upper-middle-income countries based on 2021 data. The research system lacks the capacity to produce cutting-edge and proprietary knowledge from R&D, reflecting gaps in both human and physical capital. Despite ongoing reforms, research excellence is underdeveloped, and knowledge transfer to the private sector is weak, limiting commercialization and the diffusion of innovation. Firms lack the managerial capabilities necessary to integrate new technologies and innovate. The innovation pipeline is also constrained by a gap in public and private funding that is particularly pressing for young, dynamic firms, who are less likely to access private finance and to receive EU funds, thus limiting economic dynamism. 29. Financing options for Croatian firms are limited, restraining investment and innovation. Croatian firms rely less on external financing than their EU peers and have lower levels of capitalization, limiting their growth potential. The financial market remains heavily dominated by banking finance which is often inaccessible to younger and smaller firms that lack collateral or credit histories, creating barriers for entrepreneurship, particularly among vulnerable groups. Capital markets in Croatia are among the smallest in the EU, and the limited availability of capital makes it difficult for start-ups, small and medium-sized enterprises (SMEs), and young and innovative firms to secure the risk financing needed to bring innovations from concept to market. 8 II.4.3. Labor and skills shortages 30. Labor and skills shortages have become a major constraint to raising labor productivity and to achieving sustained and accelerated long-term growth and jobs creation. The share of managers complaining about labor shortages has been on the rise since 2016. In 2023, over 30 percent of managers in the manufacturing and services sectors and over 50 percent of managers in construction identified labor shortages as a critical factor limiting their business growth. Businesses struggle to find workers with the necessary skills to raise their productivity and compete in an increasingly digital and globally integrated economy. According to the Global Competitiveness Report, Croatia ranks 128th out of 144 countries in the skills of the current workforce. These skills challenges have contributed to low labor productivity: in 2022, labor productivity per employed Croatian per hour was only 78 percent of the EU average, making Croatia’s labor productivity among the lowest in the EU. 31. A key factor behind the labor and skills shortages has been demographic change, which has also contributed to other pressing development challenges. Due to low birth rates and high outmigration, Croatia’s population is rapidly shrinking and aging. The population shrank from 4.3 million in 2002 to 3.9 million in 2022 and is expected to decline further to 3.3 million by 2050. Moreover, by 2050, approximately one-third of the population will be age 65 or above. In addition to being a key factor behind labor and skills shortages, demographic change also presents Croatia with other development challenges such as providing better-quality yet affordable health care and long- term care services for an aging population and improving the equity and fiscal sustainability of the pension and social assistance systems. Poverty rates are noticeably higher among the elderly (56.4 percent in 2021) than among the population as a whole (18.1 percent). 32. Increasing labor force participation and managing the need for migrant labor will be critical to addressing labor market shortages. First, labor force participation rates are low, including among women, older workers, and disadvantaged groups such as Roma. The participation of women ages 20–64 in the labor market in 2024 was the 5th lowest in the EU at 74.1 percent, below the EU average of 75.3 percent. Underlying factors include the relatively generous early retirement options in the pension system and the gaps in provision of long-term care which contribute to many Croatians— especially women—leaving the workforce to provide care for elderly family members. Second, while Croatia has recently experienced a significant inflow of foreign workers which has helped relieve acute labor and skills shortages, developing a more systematic strategy for leveraging labor mobility to address shortages remains a work in progress. 33. In addition, significant room remains to further improve the quality, relevance, and efficiency of Croatia’s education, training, and active labor market programs to increase the productive potential of the labor force. Although Croatian students fare well on knowledge tests like the Trends in International Mathematics and Science Study (TIMSS) assessments, further emphasis on foundational skills, better school management practices, and updated teaching methods and curricula are needed to address the consistent underperformance in the Programme for International Student Assessment (PISA) real-world application tests, especially in mathematics. The situation is exacerbated by relatively low tertiary education attainment, quality, and relevance. The share of individuals ages 25–34 with tertiary education credentials in Croatia was 35.5 percent in 2022, compared to the OECD average of 47 percent. The overall share of Croatians with tertiary education and the share of science, technology, engineering, and mathematics (STEM) graduates are below the EU averages, particularly among women. In parallel, the proportion of young people ages 15–29 not in employment, education or training (NEET) at 11.8 percent in 2023 is above the EU average. Croatia also has further room for Technical and Vocational Education and Training (TVET) and active labor market programs to promote employability, especially among excluded or disadvantaged groups. 34. Labor and skills shortages have been further exacerbated by labor mobility constraints 9 related to the lack of affordable housing, especially in thriving areas. Since 2015, house prices have increased by 80 percent, surpassing household income growth, so housing has absorbed an increasing share of household income. Low tax rates on short-term rental income, lack of recurrent taxes on immovable property, government mortgage loan subsidies, and strong foreign demand have all resulted in rising prices and a lower supply of residential housing. The lack of affordable housing has been particularly acute in thriving regions, hindering the internal mobility of workers and exacerbating the labor and skills shortages in those regions. II.4.4. Environmental sustainability and disaster and climate vulnerabilities 35. Croatia’s economic competitiveness is increasingly linked to how well it manages its natural resources and assets. This is particularly the case for the country’s large tourism sector, which is based on the quality of its natural environment. Croatia faces increasing environmental degradation and natural resource depletion resulting from waste and air pollution, marine litter, overfishing, extensive tourism, and coastal developments. This is compounded by insufficient management and protection of natural resources, high water losses, poor waste management practices (including reliance on sanitary landfills and pervasive illegal dumping), and relatively low levels of recycling and circularity. A 2021 World Bank study estimated the annual cost of environmental degradation to be about €150 million per impact area addressed, with the costs related to tourism alone estimated at about €55 million. 36. Compounding this, Croatia is susceptible to a variety of weather-related hazards as well as earthquakes, which pose additional risks to its economic and social resilience. Over the past decade, disasters have had significant physical, social, and financial impacts. Between 1980–2020, Croatia incurred total losses of €2.86 billion (€643 million per capita) due to weather- and climate-related extreme events.3 Overall, Croatia is relatively more vulnerable to changing climate patterns than the average high-income country and most EU countries, while being relatively less ready to face the consequences.4 The 2020 earthquakes further highlighted Croatia’s disaster vulnerability, including for public infrastructure and residential buildings, with reconstruction and recovery needs estimated at €25.9 billion. This series of events highlighted institutional capacity constraints related to disaster and climate resilience and preparedness. Croatia is one of the EU countries most affected by wildfires, ranking 4th in terms of annual average burned areas (as percentage of total country area), with major fire seasons in 2017 (67,666 ha burned) and 2022 (149 fire incidents). 37. To ensure disaster preparedness and increase disaster resilience, Croatia needs to implement a broader disaster risk financing and insurance strategy. Croatia has relatively low levels of insurance to protect against disaster risk such as floods and earthquakes, so its population and businesses are generally less resilient. While the government has prioritized disaster risk financing — including with a new law being put in place to require landlords to have property catastrophe insurance — insurance penetration continues to be below 50 percent for all perils.5 This leaves the financial burden associated with post-disaster recovery to individuals. Furthermore, to finance expenditure after a disaster, Croatia utilizes budget reserves and does not have a fiscal strategy dedicated to disaster risk, which places a significant burden on the budget. 38. Croatia will also need to further prepare its economy and businesses for increasingly stringent environmental regulations, energy price volatility, and an overall shift in global markets toward sustainability. As an EU member state, Croatia has committed to contributing to the EU’s 3 Škrinjarić, T. (2023). What Are the Short- to Medium-Term Effects of Extreme Weather on the Croatian Economy? Croatian Economic Survey 25, no. 1 (June): 33–78. 4 Notre Dame University (2024): ND-GAIN Index. 5 European Insurance and Occupational Pensions Authority Dashboard - Dashboard on insurance protection gap for natural catastrophes. 10 collective 2030 emission reductions target and its 2050 carbon neutrality target. While Croatia’s greenhouse gas (GHG) emissions are below the EU average and only slightly above the worldwide average, the economy’s emissions-intensity (emissions per unit of GDP) is higher than the EU average. As of 2022, energy was the largest contributor to Croatia’s gross GHG emissions (43 percent) followed by the transport sector (27 percent), so these sectors require particular attention.6 39. To increase its economic resilience, Croatia needs to maximize its renewable energy potential and further diversify its energy mix. Croatia’s energy mix in 2023 included 71 percent fossil fuels and 27 percent renewables. Croatia’s energy self-supply has been declining since 2015 and dropped below 45 percent in 2023. As a result, the country’s reliance on imported energy is growing. Although national strategies set an objective for self-supply capacity of over 55 percent by 2030, the growth in self-supply will largely depend on the further development of renewable energy sources. Barriers to accelerating renewables include limited private sector investment, insufficient investment in the grid, challenging administrative procedures, and a regulatory gap for grid connection of renewables. Strategies to manage the impacts of major energy infrastructure investments on future tariff increases on end-consumers are also insufficient and pose a major obstacle to unlocking much- needed grid investments. At the same time, Croatia aims to become a regional energy hub and reduce its energy import dependence. Yet without faster and more significant progress in renewable energy development, continued reliance on imported fossil fuels and hydropower may expose the country to energy security vulnerabilities and potential price shocks.7 40. Croatia can lower its emissions intensity by improving its energy efficiency. On the energy demand side, buildings consume about 40 percent of total energy in Croatia (largely for heating/cooling). While energy efficiency improvements can bring cost savings along with reduced emissions, Croatia is significantly behind in matching the REPowerEU ambitions for renewable heating8, and its building renovation rate lags its targets, as well. Croatia’s transport sector has the lowest share of renewables among EU countries as well as one of the lowest electrification rates. III. COUNTRY PARTNERSHIP FRAMEWORK: SELECTIVITY AND AMBITION III.1. Selectivity Filters 41. The CPF is anchored in Croatia’s development goals and priorities as reflected in government strategies. The NDS 2030, adopted in 2021, outlines a vision for Croatia based on four development pillars: (1) sustainable economy and society, (2) resilience to crises, (3) green and digital transition, and (4) balanced regional development. The Government of Croatia 2024-2028 Program sets five priority areas: (1) successful Croatia (competitive economy, education, science, and digital society); (2) vital Croatia (quality of life and demographic renewal); (3) fair Croatia (transparent institutions and more accessible healthcare); (4) sustainable Croatia (green transition); and (5) sovereign Croatia (secure borders and modern army). The Croatian NRRP, backed by €10 billion of EU financing from 2021 to 2026, supports the furthering of several of these objectives with a focus on enhancing the economy’s resilience and recovery from recent crises and accelerating the transition to a more sustainable, low-carbon, and climate-resilient economy while maximizing the benefits of the digital transformation. 6 Government of Croatia (2024): National GHG Inventory Report. The energy sector covers all activities with combustion from stationary, and fugitive emissions from fuels (that is, emissions that escape during extraction, processing, or transportation of fossil fuels), minus fuel combustion in transport, which are reported separately here. 7 Fossil fuels accounted for 71 percent of Croatia’s total energy supply in 2023, and hydroelectric power accounted for 43 percent of gross electricity supply. 8 REPowerEU is an EU plan aimed at reducing Europe's dependence on fossil-fuel and accelerating the transition to green energy. 11 42. The CPF is structured around the key development challenges that must be addressed to deliver higher, more inclusive, and more sustainable growth, as identified through WBG analytics and consultations with partners. The CPF is informed by analytics undertaken by the WBG (including core diagnostics such as the SCD, CEM, PFR, HCR, and ongoing CCDR) and by partners (including the EC, OECD, and national think tanks). There is broad agreement among stakeholders on the development challenges identified by the analytics, as reflected in consultations undertaken for the SCD and CPF with government, private sector, civil society, and academics. The analytics and consultations underscored the need to address the four broad development challenges discussed in Section II. They also pointed to additional areas requiring policy change and public investment, including agriculture and irrigation, improved rail and logistics infrastructure, and health care reform. While all of these challenges impede Croatia’s growth, the WBG program under this CPF will be highly selective in line with the WBG’s comparative advantage and in complementarity with programs supported by other partners. 43. The core selectivity criteria were applied to determine the Outcomes that this CPF will target. First, the CPF outcomes contribute to the WBG’s goals of reducing poverty and boosting shared prosperity on a livable planet. Second, the selected Outcomes are aligned with Croatia’s national strategic priorities as articulated in its NDS and five-year Government Program. Third, the new CPF capitalizes on the WBG’s comparative advantages and key corporate priorities, including jobs, environmental sustainability, gender, and mobilization of private capital through the One WBG approach. During the CPF preparation process, from the long list of priority areas for addressing Croatia’s development challenges, the aforementioned selectivity criteria were used to determine the key Outcomes and activities for this CPF. 44. As a second tier of selectivity, two filters will be applied to prioritize the most impactful activities contributing to each CPF Outcome. A benefit of the WBG program in Croatia is its ability to generate cutting-edge solutions in a high-income country with relevance to the WBG’s full membership. Also, the WBG country program will be modest in size relative to the needs of Croatia. Given these considerations, any activity undertaken under the CPF must meet at least one of the two filters: (1) it develops innovative solutions that can generate a global public good through knowledge spillovers to other WBG countries, and/or (2) it leverages financing to provide additionality and maximize development impact, through mobilizing private capital and/or leveraging partner financing (including the substantial EU financing available for Croatia in the short to medium term). 45. Applying a One WBG approach ensures an efficient use of resources and more impactful engagements. This is particularly relevant in a country like Croatia, where the economy's size and the number of innovative sectors and firms are limited, making it more challenging and less attractive to private capital than other countries despite the availability of funds in the region. The IBRD lending and knowledge program, along with IFC advisory interventions, will aim to promote a more conducive business environment for IFC investments across a broader range of firms and sectors, and raise the visibility of Croatia in the areas of innovation and clean value chains. Meanwhile, IFC will work on upstream engagements, deepening capital markets and mobilizing private capital for more impactful projects. This will be complemented by credit enhancement guarantees from the Multilateral Investment Guarantee Agency (MIGA) through the WBG Guarantee Platform to facilitate cross-border investment and secure competitive funding for strategic sectors and projects. 46. The CPF incorporates several strategic design elements. These elements have been informed by lessons learned from implementation of the previous CPF. • Focus on results. A greater focus on outcomes will enhance the impact of the WBG program and better capture its results. To this end, the CPF uses indicators that the program will contribute to and indicators that can be attributable to the program. Using indicators that the 12 WBG will contribute to is appropriate given the extent to which the program uses advisory work and leverages partner resources to achieve results. In addition, to the extent possible, the program will use result-based modalities, including Investment Project Financing (IPF) with Performance-Based Conditions (PBC)9, which were successful under the previous CPF in both delivering on reforms while also strengthening institutional capacity. • Engage programmatically. The CPF builds on existing successful programmatic engagements, such as in the areas of land administration and R&D, and seeks to develop new ones. Sustained programmatic engagements, combining analytical and advisory products with financing products, have been effective to date. This approach has also been useful in addressing institutional capacity constraints. • Capitalize on knowledge. As with the previous CPF, the WBG’s knowledge program continues to be a fundamental element under this CPF. The WBG’s analytical and advisory work, particularly through Reimbursable Advisory Services (RAS), can be highly effective in supporting the reform agenda in a high-income country such as Croatia, as also widely recognized by stakeholders in the recent Country Opinion Survey (Box 1). • Leverage partnerships. Partnership will be critical for success. In an EU member state such as Croatia, close partnership with the EC, in particular, has been critical to providing additionality and achieving impact. Partnership has led to joint understanding and coordinated policy dialogue on priority areas. In addition, WBG advisory services can support Croatia to achieve EU-aligned reform priorities, while WBG financing can be used to complement and leverage EC financing or pilot approaches and reforms that can be scaled up using national and EC financing (Box 2). • Deliver One WBG solutions. The One WBG approach will be applied through more intensive common planning and upstream collaboration among IBRD, IFC, and MIGA and closer joint work by sectoral teams. Box 1: Knowledge Focus of the CPF in Croatia Under this CPF, the WBG will build on its impactful knowledge program as recommended by the CLR. Analytical and advisory work under the previous CPF, mainly through the RAS instrument, has successfully supported the delivery of reforms and institutional capacity strengthening and is highly valued by stakeholders as evidenced in the Country Opinion Survey. Support at the strategic level, for example, was provided through a RAS that helped develop Croatia’s NDS 2030 and through a series of technical assistance engagements that helped develop and deliver select reforms under the NRRP. One of the key NRRP reforms — bringing about transparency, simplicity, and equity of the pay system for 250,000 employees of the civil and public services — was delivered with the extensive assistance provided under the Bank’s Reforming the Public Sector Wage Setting Mechanism RAS (Public Wage RAS). The RAS program in Croatia also supported other key areas such as development of lagging regions; agriculture; circular economy; pensions; competitiveness; science, technology and innovation; deinstitutionalization; and long-term care. An assessment of the RAS program’s effectiveness using the World Bank’s Institutional Change Assessment Method (ICAM) highlighted the effectiveness of the program in achieving results and supporting institutional change. Nine out of the eleven RAS activities completed were rated either 5 or 6 on a 6-point scale, with 5 denoting that the RAS successfully informed institutional change that had already started, and a 6 denoting that the RAS successfully informed institutional change that had already led to confirmed benefits and results. The WBG program will also partner with the Government and the EC to combine multiple WBG and EU instruments to synergistically support reforms and increase the effectiveness of public funds . For example, the ongoing “Digital, Innovation and Green Technology” IBRD lending operation provides additionality by linking reforms under the NRRP with advanced soft infrastructure to raise the impact of investments under EC Cohesion Funds, while providing financing grants and infrastructure to support pre-commercial digital and green research, development and innovation. Advisory services advance and deepen reforms on performance-based funding committed under the NRRP and propagate global knowledge through evaluations, while IFC advisory services will support SMEs in adopting digital and new technologies. 9 Until 2020 referred as IPF with Disbursement-Linked Indicators. 13 BOX 2: Partnership for Impact with the European Commission The WBG program under this CPF will continue to leverage partnerships, particularly with the EC, to maximize development impact. A close partnership with the EC was essential for the successful delivery of the last CPF, with the World Bank’s targeted interventions supporting the Government’s key reforms and helping to unlock or leverage a much larger amount of EU funding. In 2021, the WBG provided additionality through advisory services and analytics to the Government as inputs to the process of meeting Croatia’s specific NRRP milestones in the areas of education, innovation, public wage reform, macro-modelling, pensions, and water losses, tied to over EUR1 billion from the RRF, as well as to help the Government meet the enabling conditions set by the EC to unlock the European Social Fund Plus (ESF+) and European Regional Development Fund (ERDF) funding allocated to Croatia for the period 2021–2027 in the areas of deinstitutionalization, long-term care, poverty measurement, and innovation. After the 2020 earthquakes, the World Bank helped draft the two Rapid Damage and Needs Assessments (RDNAs) used by the Government to apply for more than €1 billion in grants from the EU Solidarity Fund, from which the bulk of public buildings reconstruction was financed. The close partnership with the Government and the EC will also allow WBG projects to pilot reform approaches that can subsequently be scaled up using national and EC financing. For instance, the ongoing IBRD education project will continue assisting the Government in the design, implementation, and evaluation of a pilot of a whole day school model in 62 demonstration schools. The learning acquired and capacity built through the pilot will then leverage national and EU funding to scale up the whole day school model to the national level, covering a total of 310,000 primary school students. III.2. Country Partnership Framework 47. The CPF’s overall aim is to foster sustainable and inclusive economic growth in Croatia. To do so, the CPF focuses on supporting the achievement of two Outcomes: (1) increased investment and more productive jobs, and (2) increased environmental resilience. To achieve the first Outcome, activities will focus on modernizing public service delivery, strengthening innovation and scaling up innovative investment, and better aligning skills and labor market needs. To achieve the second Outcome, activities will focus on improving environmental and climate resilience and increasing the sustainability of the energy and transport sectors. Progress toward the two Outcomes will be monitored and assessed against six outcome indicators, as shown in Figure 2. The strengthening of institutions is a cross-cutting objective that is incorporated under both Outcomes 1 and 2 and will be assessed against a customized indicator. Figure 2: Croatia CPF FY25–FY30 14 III.2.1 CPF Outcome 1: Increased Investment and More Productive Jobs 48. The CPF aims to increase investment in a manner that raises productivity and generates more productive jobs. This Outcome is linked to the Corporate Scorecard Outcome Areas More and Better Jobs and More Private Investment. In order to achieve this outcome, this CPF will aim to spur investment in more innovative and higher value-added sectors reliant on higher-skilled labor, including through improved business environment and services, proactive mobilization of foreign and domestic direct investment, deeper diffusion of existing technologies, and better alignment of skills and labor with the economy’s needs. This will be achieved through: (1) modernizing public services to improve the investment climate, (2) strengthened innovation and scaled-up innovative investment, and (3) better alignment of skills and labor with the economy’s needs. The progress toward the Outcome of increased investment and more productive jobs will be tracked by four indicators, of which three are corporate scorecard result indicators: private investment as a percent of GDP (WBG client context indicator), number of new or better jobs (WBG scorecard result indicator), total private capital mobilized (WBG scorecard result indicator), and people using digitally enabled services (WBG scorecard result indicator). Modernized public services to improve the investment climate 49. To achieve Outcome 1, the CPF aims to modernize select public services that are critical for improving the investment climate. Despite progress in recent years, further improvements are essential for businesses to invest or reinvest more efficiently. Croatia has an opportunity to attract greater investment and private capital by strengthening foundational elements to improve the investment climate—namely, by modernizing its institutional framework to enhance coordination, facilitating and better using advanced technology, and improving the user-centric design of services to support the private sector. Strengthening these areas will unlock efficiencies and foster a more business-friendly environment, advancing opportunities for productivity- and job-enhancing investment. 50. The WBG will use a programmatic approach to foster an increase in investment by dynamic firms by strengthening the enabling environment for domestic investment and FDI. Enhancing the business environment to boost investment, business dynamism, global value chain (GVC) integration, and knowledge-intensive FDI is key to closing Croatia’s productivity gap with leading EU states. Strengthening the regulatory framework to enhance competitive pressures will be vital for a level playing field, especially as SOEs remain more prevalent in Croatia than in most EU countries. IBRD and IFC will engage in a program to support the policy efforts in investment promotion through investments, technical assistance, and capacity building activities. The program will focus on improving the investment climate by supporting regulatory reform and strengthening institutional coordination to reduce procedural burdens for investors while supporting proactive outreach to attract investors. IBRD and IFC will explore opportunities at the sector and policy levels to advance the implementation of SOE corporate governance reforms aimed to further improve operational performance, reduce fiscal risks, and attract private investment, in line with the OECD accession- driven SOE governance reform. 51. The WBG will continue its focus on addressing inefficiencies in the justice sector and in land administration. Since the justice sector continues to be a major impediment to the business climate and increased investment, IBRD will support improvements in the justice and land sectors in a programmatic fashion through two ongoing projects, a planned justice sector review, and a possible further project in the outer years of the CPF, building on the progress made in these areas through the existing partnership with the Government. In the justice sector, IBRD will support procedural and structural reforms to increase judicial efficiency in order to advance digitalization and shorten dispute resolution times, while also supporting consolidation of court services. Improved court facilities will 15 enhance the overall functioning of courts (digitalization, operations, safety) and address the needs of women, children, and victims of gender-based violence accessing the justice system. IBRD, together with IFC, will also work on early identification of and support to firms in distress in order to reduce insolvency procedures and alleviate the burden on the judicial system. Land transaction processes will be streamlined and accelerated to optimize land administration in support of business efficiency and spatial and investment planning, reducing a key impediment to the investment climate at both the national and subnational levels. 52. WBG support for the digitalization of public services will be fundamental to strengthening the investment climate for businesses, while also providing better services for the public. Despite significant investments in digital infrastructure, Croatia ranks second to last in government-to- business digital services and third to last in government-to-citizen services among EU member states. These rankings reflect deep-seated inefficiencies that continue to hamper private sector competitiveness and investment potential. Continued digitalization of justice and land processes and services will be essential for more efficient and transparent service delivery and higher labor productivity and is a core element of the WBG’s support to these sectors. In addition, through advisory services and financing, IBRD will support the strengthening of strategic leadership for digitalization, delivery of user-centric services for businesses and citizens, and harnessing of emerging technologies such as artificial intelligence (AI) for the digital transformation of public service delivery. Strengthened innovation and scaled-up innovative investment 53. Leveraging the One WBG approach, the CPF aims to strengthen innovation and scale up innovative firms. Croatia has a pressing need to boost private sector investment, which is currently focused on less productive sectors, disproportionately directed to tangible rather than intangible capital, and not sufficiently focused on innovation. CPF interventions will support the entire business development journey, from the generation of ideas and prototyping to commercialization, scale-up, and potential investments in those with commercial promise. The CPF will leverage the strengths of each WBG institution to provide targeted support in various stages of the innovation and business cycle. This One WBG approach aims to build a deeper and larger pool of productive and innovative businesses that could be integrated into regional and European value chains and benefit from larger market opportunities. It advances this CPF’s effort to support the evolution of Croatia’s growth model while generating knowledge spillovers for the rest of the world. 54. IBRD will continue its programmatic engagement in support of innovation. The innovation agenda has been supported by RAS engagements and lending operations to advance reforms and investments in R&D—including research excellence, industry-science collaboration, and technology transfer. Further engagements (IBRD lending and RAS) will be developed to close funding and knowledge gaps in applied research, creation of proprietary knowledge, business innovation, technology adoption, and support to young and dynamic firms. A new lending operation would focus on complementing EU funds, incentivizing their effective absorption, and crowding in private capital to develop early-stage innovation projects that can advance and scale up through financial instruments. At the same time, the CPF will provide IFC advisory services, together with IBRD, to improve managerial capabilities and facilitate access to high-quality business advisory services. This will help firms adopt new technologies and become more energy efficient. Lessons learnt from these engagements will also provide useful experience and insights relevant for other countries interested in strengthening innovation and scaling-up innovated investments. 55. To support the commercialization and scale-up of innovative ideas and firms, the WBG will offer innovative financial structures. Complementing IBRD’s work on developing the innovation pipeline, IFC will provide long-term capital and leverage existing capital for some of these innovations. Firms will be able to access funds through IFC-supported private equity/venture capital or other IFC- 16 mobilized funds focused on sustainable and clean technologies. IFC would explore participating in corporate bonds and provide equity in growth firms, as well as targeted funding through financial intermediaries via sustainable bonds and risk-sharing facilities to support SMEs and underserved segments. IFC and IBRD will also explore opportunities to support the largest institutional investors in Croatia (pension funds, insurance companies), since they are key participants in the capital market and can promote further private capital mobilization. Better alignment of skills and labor with the economy’s needs 56. The WBG will help improve the quality, relevance, and efficiency of public and private education, training, and active labor market programs to better align labor supply with labor market needs. IBRD and IFC will work on complementary interventions related to improving the productive potential of the labor force by improving skills. IBRD will continue to support strengthening children foundational skills to better prepare them to meet evolving labor market needs through ongoing support of the whole day school reform, as well as through a potential follow-up project. Through the transition from half-day to full-day schools, the project will also allow for increased labor force participation among women, many of whom otherwise may not be able to work due to childcare requirements. In addition, IBRD will support the Government’s efforts to further improve the quality, relevance, and efficiency of higher education offerings and training and active labor market programs through a combination of advisory services and possible financing. To complement these initiatives, IFC will work directly with the private sector to establish upskilling programs for employees in supported firms and sectors, particularly for those willing to embark on green and digital investments. In addition, IFC and IBRD will implement a technical assistance program to enhance managerial capabilities, helping firms retain and attract talent and boost employee productivity. 57. The WBG will also support the Government’s efforts to increase labor supply and better manage internal and international labor mobility, primarily through analytical and advisory instruments. The WBG will build on the analytical support provided under the last CPF on how to make better use of the existing productive potential of the labor force—especially among youth, women, and the elderly—and increase the talent pool through international and internal labor mobility. Priority issues under the new CPF will also include improving the long-term care system to allow for higher female labor force participation and improving support for the elderly (including pensions and healthcare) in a way that improves health and wellbeing and incentivizes labor market participation among this group. The WBG will also continue its advisory services and analytics on international labor migration to help ensure that foreign workers with appropriate skills can help fill labor shortages. Finally, the WBG will look into addressing constraints to internal labor migration, such as the lack of affordable housing in parts of the country with higher growth potential. III.2.2 CPF Outcome 2: Increased Environmental Resilience 58. The CPF aims to help Croatia become more resilient and environmentally sustainable. This Outcome is linked to the Corporate Scorecard Outcome Area Green and Blue Planet and Resilient Populations. It aims to support the government in accompanying economic growth with reforms and measures that will make Croatia’s growth more resilient. To do so, WBG engagement will focus on (1) improving environmental and climate resilience and (2) making the energy and maritime transport sectors more environmentally sustainable, cost efficient, and affordable for people and business. Progress on this outcome will be tracked by two indicators: number of beneficiaries with enhanced resilience to climate risks (WBG scorecard result indicator) and percentage of GHG emissions reduction (custom result indicator). 17 Improved environmental and climate resilience 59. The CPF will focus on addressing Croatia’s environmental and climate resilience, critical to the country’s sustainable growth. Croatia’s growth, particularly of its tourism sector, relies heavily on its exceptional natural resource endowment. Yet Croatia’s environmental resources and rich biodiversity are threatened by over-use, urban and coastal developments, land use change, pollution, and lack of adequate management of resources such as water and waste. Environmental degradation in Croatia is estimated to account for 2-3 percent of GDP, with a significant share stemming from the tourism sector. Based on the latest statistics, waste produced in coastal counties exceeded the national average by 43 percent in 2024 due largely to tourism. About 50 percent of water resources extracted in Croatia are lost due to pipe leakage and poor management, increasing the risk of water shortages. Croatia also fares poorly relative to the rest of Europe on the circularity of its economy, with close to 60 percent of its municipal waste being disposed in landfills,10 well above the 10 percent EU landfill target. Croatia’s geographical location and climate make it highly susceptible to a variety of hazards, including geological, hydrometeorological, and weather-related events as well as wildfires. 60. The WBG will support the increased financial and environmental sustainability of local government investments, contributing to sustainable economic growth and improved quality of life for residents. Both water and waste utilities are the purview of local governments, which lack adequate resources for some of the large capital investments required to stem water losses and better manage waste. The WBG will support the development of financing instruments to leverage private and public financing to improve financial and environmental sustainability across municipalities, including in poorer regions. The WBG will provide assistance to local governments and their utilities to access financial markets to enable increased investments and the implementation of environmental strategies at the local level. IFC will build on its success in supporting the issuance of the first Sustainability-Linked Bond for a municipal utility in the domestic capital market, which increased financing to improve municipal waste management and to develop renewable energy. IFC will also explore innovative financing options to promote resilience, along the lines of its "blue" loan which developed a sustainable tourism venture while supporting maritime and coastal conservation. 61. The CPF will strengthen Croatia’s disaster preparedness and response capacities. IBRD will aim to improve national preparedness and response capacities to ensure that the country can effectively manage and recover from disasters. The program will promote integrated solutions for clean and resilient infrastructure, ensuring that new investments are environmentally sustainable and capable of withstanding climate- and disaster-related shocks. Raising public awareness about disaster risks and resilience strategies will be another critical component, empowering communities to take proactive measures. The program will build on WBG analytics and advisory services that have provided recommendations on strengthening financial resilience and on enhancing risk management and emergency response. The Government may also utilize other crisis financing options available through the WBG’s Crisis Preparedness and Response Toolkit. WBG support in this area will be aligned with the National Disaster Risk Management Strategy and will leverage to the extent possible the limited resources available for this agenda from other partners. More sustainable energy and transport sectors 62. The CPF focuses on making the energy and maritime transport sectors more environmentally sustainable, targeting a reduction in net GHG emissions. The CPF focuses on sectors that are critical to Croatia’s competitiveness and are likely to increase their environmental footprint when the economy grows. Croatia’s GHG emissions intensity is significantly higher than the EU average, with the transport, energy, manufacturing, and buildings sectors being the largest emitters. 10 Eurostat, 2022. Municipal waste by waste management operations. 18 As the economy expands, energy consumption and transport services will rise, necessitating action to reduce GHG emissions and pollution from these sectors. Advancing the transition to cleaner energy resources and promoting sustainable transport will offer important opportunities for creating more productive jobs in multiple fields which will require a more skilled workforce, in alignment with Outcome 1. 63. The WBG will support the development of sustainable solutions and a cleaner energy sector. The WBG will leverage and combine IBRD’s deep global sector knowledge with IFC’s experiences in structuring complex sustainable financing and potentially with MIGA’s guarantees to provide solutions in this space. An important focus for both reducing emissions and making the energy system more sustainable will be strengthening the grid. While IFC explores financing of the grid, IBRD could offer advisory services to improve the tariff system for transmission and distribution to recover the costs of network investments required to scale up renewable generation and support electrification while addressing the needs of vulnerable and low-income households. IFC will support utility-scale renewable generation projects and battery storage and, jointly with IBRD, will explore support for geothermal energy, an untapped resource. IFC will prioritize direct investment in companies investing in energy efficiency, renewable energy, decarbonization of hard-to-abate industries, and green buildings. IFC and IBRD will support SMEs in their efforts to switch to cleaner and sustainable energy sources through financial intermediaries by extending financing and mobilizing private capital through capital markets. To complement this effort, MIGA will explore opportunities to provide credit enhancement guarantees to improve financing terms for priority public sector renewable energy or climate-focused projects, primarily at the subnational and SOE levels, leveraging foreign private financing resources. 64. The CPF will also support sustainability in the transport sector. Building on a long engagement in Croatia’s transport sector focused on public roads and rail, IBRD and IFC are jointly exploring the possibility of providing advisory services and financing to improve the operational efficiency, corporate governance, and carbon footprint of ferry operations that connect Croatia’s islands to the mainland (which is also important for the tourism sector and people mobility). In the longer term, MIGA may engage in port infrastructure as Croatia expands and introduces renewable energy technologies in the ferry sector. IFC will also work on municipal transport with the City of Zagreb to decarbonize its waste vehicles fleet and explore ways to support the electrical vehicle value chain through investments in key infrastructure and components ventures. III.2.3 Strengthening institutions: a cross-cutting area 65. Strengthening institutions will be embedded across the program and will be a cross-cutting area under both Outcomes targeted by the CPF. The CPF will continue to address some of the remaining institutional gaps that Croatia faces as the country increasingly targets more complex development challenges. These challenges tend to be cross-sectoral and thus cross-institutional in nature and require not only stronger individual institutions but also enhanced institutional frameworks and coordination. Under Outcome 1, institutional capacity development will be done through: (1) increasing the Government's capacity for more efficient and effective digital and justice service delivery for businesses and citizens, (2) improving the innovation ecosystem by strengthening supporting institutions, and (3) increasing the effectiveness of higher education services to better serve labor market needs. Under Outcome 2, WBG interventions will focus on: (1) improving the sustainability and efficiency of local governments’ planning and execution capacity to advance infrastructure investments, (2) strengthening civil protection institutional capacity for improving disaster and climate resilience, and (3) improving the governance and effectiveness of the energy and maritime transport SOEs. Progress in institutional strengthening across the CPF outcomes will be measured by an indicator for the number of public bodies with strengthened capacity to implement 19 their objectives thanks to regulatory, efficiency, or capacity gains as a result of WBG technical assistance or lending operations.11 III.3. Implementing the CPF 66. The CPF will be guided by its results focus, with flexibility for adjustments as needed to further the objective of achieving results. The enhanced results focus of this CPF will require adjustments during implementation to ensure that good progress is made toward achieving the Outcomes. To this end, a business implementation planning exercise will be undertaken annually. An “if and then” approach will be used to annually assess and adjust the instrument mix, as well as the precise scope and scale of engagement within each of the two Outcome areas to ensure that CPF efforts are focused on where there is greatest scope for reforms and results. For example, IBRD engagement in the energy efficiency and transmission sectors could start with analytics and policy dialogue in the short term then expand through IBRD lending and IFC financing to support the government’s reform and investment program. 67. The annual business implementation planning exercise will be aligned with the annual Joint Portfolio Review undertaken with the Government. Annex 1 lists two projects which are slated for delivery over the next two years. The annual business implementation planning exercise will be used to agree on the lending pipeline for the latter years of the CPF. A mid-term Performance and Learning Review (PLR) will be developed should there be any important shifts in the program focus and the results framework. 68. A selective and strategic knowledge program will anchor the CPF. In line with the WBG Knowledge focus and building on the achievements and lessons from the previous CPF, the foundation of this CPF will be a knowledge program which includes analytical and advisory work. The knowledge program will have an advisory focus aligned with supporting reforms aimed at achieving the proposed CPF outcomes and results. In particular, the selectivity filters will be applied to RAS engagement to support implementation of reforms and develop institutional capacity. While it delivers on reforms and outcomes, the RAS program will help Croatia achieve the institution building and reform program required to unlock EU financing, in turn helping to unlock private capital. In addition to its largely demand-driven advisory program, the WBG will also continue to finance forward-looking, agenda- setting analytics. Through its analytical program, the WBG will further its policy dialogue and advocacy and provide global expertise in critical areas where, in the WBG’s assessment, further government action is needed. Emphasis will be placed on broader stakeholder engagement by convening events and discussion aimed at raising awareness and developing consensus and coalitions to support CPF outcomes. 69. The WBG will make efforts to ensure optimization of the potential for knowledge spillovers from Croatia to the rest of the world. Croatia’s knowledge program will also support the WBG’s broader knowledge objectives. In supporting a high-income country to design innovative development solutions, the Croatia program will generate knowledge relevant to client countries across the income spectrum that will need to find development solutions to emerging challenges (such as aging and declining populations) or use new approaches (such as more intensive big data, administrative data, and AI solutions). The knowledge program is aligned with global challenges related to digitalization and energy. Partnerships will be leveraged more intensively to jointly build knowledge in addressing 11This indicator is based on the EC Guidance on Indicators of Public Administration Capacity Building (2014). The indicator captures a positive change in the situation or capacity of public body related to its processes, organizational structure, and resources (e.g. introducing new working methods, procedures, management/IT systems, better interaction between institutions and with stakeholders, improved delivery and quality of services, integration of services, e-government, etc., improving administrative structures, and better resource management). 20 complex development challenges and to disseminate knowledge—including working closely with EU institutions, think tanks, and civil society organizations. 70. The lending program will be selective. As in the last CPF, the lending program will remain small and selective, with total IBRD lending of around US$700 million over the six-year period (in the absence of any possible emergency/crisis lending), subject to adjustments through the annual business planning process. To maximize impact with modest financing, investment projects will be selected and designed with a view to serving as innovative demonstration projects that will be used to take interventions to scale using public (internally and externally sourced) and/or private financing. The program will also seek to utilize results-based instruments such as Program for Results (PforR) and IPF with PBC, the latter having worked well in Croatia to support institutional strengthening in addition to reforms. The advancement of new reform-based instruments in the EU further opens the opportunity for the IPF with PBC portfolio in Croatia to leverage significant funds and align reforms synergistically, strengthening scale-up potential and raising the ambition of the overall reform program. The IFC lending program is planned at US$1 billion and will rely heavily on mobilizing private sector financing. It is aligned with IFC’s increased focus on being more present in smaller economies. IFC and MIGA will focus on additionality, supporting projects that need a blend of innovative financial instruments and structuring know-how. IFC and MIGA will also seek to bring innovative lending and guarantee operations which can have a demonstration effect on the market and incentivize additional financing from private sources. 71. A joint WBG country program management team will seek synergies to respond to potential opportunities using the suite of WBG instruments. The WBG will focus on delivering joint programs in specific areas where there is scope for substantial synergies, including in innovation and maritime transport. The IFC will also complement IBRD engagements through advisory and upstream services and by supporting consultations with the private sector to ensure that IBRD engagements (for example, in the area of public service delivery to improve the investment climate) are well-aligned to the needs of firms. IBRD policy dialogue and projects will seek to maximize IFC’s and MIGA’s leveraging of private sector solutions and capital to achieve CPF outcomes. 72. Partnerships will be leveraged to support achievement of the CPF’s Outcomes. The largest share of finance for development in Croatia comes from the EU and private sector. Croatia will have access to significant financing from the EU over this CPF period, so the WBG program will strategically leverage this EU financing toward achieving CPF results. This will call for close continued partnership with the EC (Box 2), including through the next multiannual financial period (2028–35) which will offer additional opportunities to align reforms and investments for scale and mobilize private capital. The WBG will continue to consult and work regularly with relevant EC Directorates—in particular, Directorates General for Regional and Urban Policy (DG REGIO), for Employment, Social Affairs and Inclusion (DG EMPL), for Economic and Financial Affairs (DG ECFIN), and the Reform and Investment Task Force (SG REFORM)—to achieve the defined CPF outcomes. This will include annual consultations with the EC. The WBG will also work closely with and coordinate with other international financial institutions (IFIs), particularly the IMF, CEB, EIB, EBRD, OECD, and UN agencies, as well as bilateral partners. With the private sector, IFC will partner with the key institutional players and commercial banks on the market to complement their activities as well as to maximize demonstration effects by bringing them alongside its investments. On the knowledge agenda, IBRD will partner with the EC as well as with several universities and other stakeholders to generate knowledge and undertake joint events that increase the visibility and dissemination of WBG knowledge work and expand the reach of stakeholder engagement in Croatia and beyond. 21 IV. MANAGING RISKS 73. The overall risk to achieving the proposed program objectives is assessed as MODERATE (Table 2). The Political and Governance risk is rated as low given the record of political stability. All other risk categories using the Bank's Standardized Operations Risk-Rating Tool (SORT) are rated as moderate. Given that WBG interventions are highly selective and focused, the approach to risk mitigation will be tailored to the respective activities and coordinated among the WBG institutions. To address the risks to technical design, project complexity and timelines will be better calibrated to institutional realities with an increased emphasis on building institutional capacity. To address risks to institutional capacity for implementation and sustainability, the CPF aims to address institutional capacity as a cross-cutting theme, including through the design of investment projects and through advisory and analytical work. To mitigate any stakeholder risks, projects and analytic and advisory work that support reforms will include support to stakeholder engagement and consultation. Table 2. Risks to the Croatia CPF FY25–30 Rating  Risk Category (H, S, M, L)  1. Political and Governance L 2. Macroeconomic M 3. Sector Strategies and Policies M 4. Technical Design of Project or Program M 5. Institutional Capacity for M Implementation and Sustainability 6. Fiduciary M 7. Environmental and Social M 8. Stakeholders M OVERALL RISK  MODERATE          Note: H=High, S=Substantial, M=Moderate, L=Low 22 Annex I: Croatia CPF FY25-30 Results Framework CPF Outcome 1: Increased Investment and More Productive Jobs Indicator 1.1: Private investment as a percentage of GDP (WBG client context indicator) Baseline [2023]: 19%12; Target [2030]: Contribution Indicator 1.2: New or better jobs, of which women and youth (WBG scorecard result indicator) Baseline [2024]: 0; Target [2030]: TBD at Year-1 BP Revision after methodology has been created Indicator 1.3: Total private capital mobilized (WBG scorecard result indicator) Baseline [2024]: 0; Target [2030]: US$600 million 13 Indicator 1.4: People using digitally enabled services (WBG scorecard result indicator) Baseline [2024]: 0; Target [2030]: 2,000,000 people Cross-cutting indicator: No. of public bodies [ministries, agencies, or SOEs] with strengthened Baseline [2024]: 0; Target [2030]: 5 (total for Outcomes 1 capacity to implement their objectives thanks to regulatory, efficiency, or capacity gains as a result of and 2) WBG technical assistance or lending operations14 (custom result indicator) Intervention Logic: Productivity and investment in Croatia are impeded by a cumbersome investment climate, lagging innovation and financing for firms, and lack of labor with appropriate skills. The WBG program aims to address these issues by increasing private investment as a percentage of GDP (indicator 1.1) and private capital mobilized (indicator 1.3), with a view to creating more productive jobs (indicator 1.2), including through a more skilled and productive workforce. Increased digitalization, as measured by people using digitally enabled services (indicator 1.4), will improve the efficiency and access of public service delivery to improve the business climate. WBG Interventions: All WBG interventions under Outcome 1 aim at increasing private investment as a percentage of GDP (WBG client context indicator) and creating new or more productive jobs (WBG scorecard result indicator). To this end, the CPF is comprised of the following activities: (1) Support to strengthening the investment climate will focus on enhancing policies and institutions to promote investment, improving the effectiveness, efficiency, and accessibility of critical services for the investment climate–that is, justice sector and land administration –and enhanced digitalization of public service delivery to enhance timeliness and confidence in business processes. Thus, this program will also increase the number of people and businesses that use digitally enabled services (WBG scorecard result indicator). A programmatic approach will build on two ongoing projects, to be complemented by advisory services and two or potentially three pipeline projects over the CPF period; (2) Increased financing to foster innovation and dynamic firms is an area supported jointly by IBRD and IFC to strengthen the innovation ecosystem, close funding gaps in applied research, creation of proprietary knowledge, and business innovation, while also supporting enhanced technology adoption and financing at the firm level, thereby increasing private capital mobilized (WBG scorecard result indicator). The programmatic engagements related to strengthening the innovation pipeline and to facilitating innovative investments in this area will build on one ongoing RAS and one ongoing project, with follow-on RAS activities and one pipeline project envisioned for the outer CPF years. IFC and IBRD will work jointly on the advisory program. With linkages to the IBRD investment, IFC will promote financing options for more innovative and younger firms, as well as technology adoption of firms and their integration into clean value chains; (3) Support for better alignment of skills to match labor market needs will build on the current strong analytical and advisory program focused on human capital and the labor market, including long-term care and managing migration, as well as the ongoing lending engagement on education. In addition to reinforced 12 Source: Eurostat. 13 Measured as the number of unique users benefiting from new or enhanced digital government services. 14 This indicator is based on the EC Guidance on Indicators of Public Administration Capacity Building (2014). The result captures a positive change in the situation or capacity of public body related to its processes, organizational structure, and resources (e.g. introducing new working methods, procedures, management/IT systems, better interaction between institutions and with stakeholders, improved delivery and quality of services, integration of services, e-government, etc., improving administrative structures, and better resource management). 23 analytical and advisory engagement, a potential IBRD pipeline project in education would strengthen skills aligned with the needs of the job market. All interventions contribute to the strengthening of public bodies’ capacities (cross-cutting custom result indicator) in their respective areas. Partnerships: The WBG and EC are aligned in supporting this priority Outcome with coordinated policy dialogue and financing, particularly in innovation, FDI for regional integration in GVCs, labor, education, and skills. For financing, IFC will partner with local commercial banks and institutional investors. In the area of labor mobility, the WBG is coordinating with CEB and exploring joint financing possibilities. For capacity building of firms, the WBG will coordinate with EBRD. Lessons Learned, Risks and Mitigation: Areas where institutional change and strengthening are needed (justice, FDI, R&D, skills) require sustained engagement and can benefit from a sustained programmatic approach. Enhancing productivity requires facilitating entry of productive firms, support to firms for technology adoption, and strengthening of managerial skills and will benefit from a concerted and joint IBRD-IFC program. Policy reversal or weakening reform momentum risks will be mitigated by the strong results orientation of WBG interventions and by development of a broader stakeholder coalition on key reforms and programs. Key Ongoing Engagements (projects and knowledge services): Planned New Engagements (projects and knowledge services): Modernized public services to improve the investment climate Modernized public services to improve the investment climate • Justice for Business (IBRD lending) • Justice Sector Review (IBRD ASA) • Integrated Land Administration and Justice Services Project (IBRD • Public Sector Employment (IBRD RAS) lending) • Early Warning Tools for SMEs (IBRD RAS) • Public Expenditure Management Strengthening Program (IBRD ASA) Strengthened innovation and scaled-up innovative investment • Distressed Assets (DARP) EOS Matrix (IFC) • Innovation ecosystem, funding, and institutional capacities (IBRD RAS activities) Strengthened innovation and scaled-up innovative investment • Growth and Jobs Report (IBRD ASA) • Digital, Innovation, and Green Technology Project (IBRD lending) • Private equity and venture capital investments (IFC) • Helping Enterprises Accessing Liquidity in Croatia (IBRD lending) • Enhancing competitiveness and investment (IBRD-IFC ASA/lending) • Strategic Partnership for Research, Innovation and Growth (IBRD RAS) • Thematic bonds and innovative instruments (e.g. risk sharing facilities) (IFC) • Erste bank sustainable bond—green mortgages (IFC) • Invest in pension funds and insurance companies (IFC) • OTP bank sustainable bond –SMEs climate financing (IFC) • Guarantees through the WBG platform to complement IBRD and IFC • Regional tech focused private equity and venture capital funds engagements in the strategic areas (MIGA) benefiting Croatia (IFC) Better alignment of skills and labor with the economy’s needs • Firm managerial capabilities and technology adoption (IFC-IBRD • Higher education, technical and vocational education and training, and active advisory) labor market programs (IBRD ASA) Better alignment of skills and labor with the economy’s needs • Managing migration (IBRD ASA) • Towards sustainable, Equitable and Efficient Education (IBRD lending) • Improving Employment, Human Capital and Social Safety Nets (IBRD Forward look (beyond the first 24 months): Education (IBRD lending); Justice for ASA) Business II (IBRD lending); Digital Project (IBRD lending); Innovation project (IBRD • Strengthening Long-Term Care Provision (IBRD RAS) lending); Competitiveness and Jobs (IBRD lending and ASA, IFC investments); • Human resource policies and practices in the hospitality sector (IFC) Investment in affordable housing (IBRD, IFC, CEB). 24 CPF Outcome 2: Increased Environmental Resilience Indicator 2.1: Beneficiaries with enhanced resilience to climate risks (WBG scorecard result Baseline [2024]: 0; Target [2030]: 1,300,000 people indicator) Indicator 2.2: GHG emissions reduction (custom result indicator) Baseline [2024]: 0; Target [2030]: 20% Cross-cutting indicator: No. of public bodies [ministries, agencies, or SOEs] with strengthened Baseline [2024]: 0; Target [2030]: 5 (total for Outcomes 1 and 2) capacity to implement their objectives thanks to regulatory, efficiency, or capacity gains as a result of WBG technical assistance or lending operations (custom result indicator) Intervention Logic: To be sustainable in the long run, Croatia's growth must be accompanied by measures that limit environmental impacts and build resilience to climate- and disaster-related shocks. The WBG program will enhance resilience to environmental risks by strengthening climate and disaster risk preparedness, as measured by the number of beneficiaries with enhanced resilience to climate risks (indicator 2.1) and reduced GHG emissions (indicator 2.2) and by reducing the GHG emissions in the two largest emitting sectors, namely energy and transport. The design of these interventions reflects the CCDR’s findings. WBG Interventions: The first set of interventions aims to improve the environmental and climate resilience of Croatia, increasing the number of beneficiaries with enhanced resilience to climate risks (WBG scorecard result indicator). (1) The WBG will support national action plans and sustainable and resilient municipal water and waste management services, including by supporting local governments and utilities to access capital markets and innovative financing through a potential pipeline Municipal Development project. IFC will also explore innovative financing options for the private sector that will support conservation and sustainability. (2) To achieve this outcome, through ongoing advisory work to be followed by a potential pipeline project, IBRD will support national preparedness and response capacities, strengthen financial resilience, and raise public awareness to respond to disaster impacts. The second set of interventions aims to strengthen environmental sustainability by reducing GHG emissions (custom result indicator). To this end, the CPF focuses on the two largest GHG emitting sectors: energy and transport. (1) Decarbonization of the energy sector will be supported upstream through IBRD technical and policy dialogue in areas such as diagnosing and helping address barriers to renewables scale-up and by direct and indirect IFC investments in energy efficiency and renewable energy projects and the strengthening of the electricity grid to scale up renewables generation and deliver clean electricity to customers. Targeted WBG financing is possible in areas requiring concessional finance, including development of geothermal for district heating, and support to housing renovation where there is potential to leverage EU or national funds. Indirect investments will include support from IFC through financial intermediaries to support SMEs. These efforts can be complemented by a program of IBRD and IFC advisory services on transmission and distribution tariffs that recover costs while balancing cost recovery between renewable generators and end-consumers. (2) Decarbonization of the transport sector will be supported by joint IBRD-IFC engagement aimed at improving the efficiency, governance, and environmental sustainability of the ferry sector, which will include advisory services and financing. There is potential for complementary MIGA to support port infrastructure improvements to facilitate the transition. IFC will also support the development of electric vehicle (EV) value chains by investing in battery production, EV charging stations, and green hydrogen. All interventions contribute to the strengthening of public bodies’ capacities (cross-cutting custom result indicator) in their respective areas. Partnerships: The WBG and development partners, in particular the EC and other IFIs, are aligned in this priority Outcome with coordinated policy dialogue and financing, particularly in the areas of reducing the environmental footprint of Croatia's largest emitting sectors, supporting municipalities to address environmental challenges such as water loss, and strengthening the country’s climate and disaster resilience. Private sector players, including banks, have incorporated 25 environmental sustainability as their core strategic focus and would be key partners in achieving the objectives under this outcome area. On both the disaster and resilience agenda as well as on the ferry sector, the World Bank’s advisory work is supported by a bilateral donor (Japan). Lessons Learned, Risks and Mitigation: With Croatia hit by earthquakes and a pandemic during the last CPF period, this CPF will focus on the resilience agenda supporting preparedness. The CLR noted the challenges in gaining sufficient political support for comprehensive cross-sectoral reforms related to the sustainability and resilience agenda and recommended a more targeted approach. This CPF has therefore identified targeted engagements in preparedness and resilience and in the energy and transport sectors where they can be most impactful. The CCDR is providing valuable analytical input for continuing the policy dialogue in the area of environmental resilience and decarbonization and for identifying critical areas for public and private investment. Key Ongoing Engagements (projects and knowledge services) : Planned New Engagements (projects and knowledge services): Improved environmental and climate resilience Improved environmental and climate resilience • Earthquake Recovery and Public Health Preparedness Project (IBRD • Municipal Development Project (IBRD lending) lending) • Zagreb Holding green loan—waste management and clean energy • Reducing Water Losses (IBRD analytics) (IFC) • Sustainable Tourism in Croatia (IBRD ASA) • Blue financing for coastal water and maritime protection (IFC) • Zagreb Holding waste management advisory + carbon credits (IFC) • Financial institutions blue financing to support water supply and • TRP Green Europe Advisory (IFC) ocean friendly projects (IFC) More sustainable energy and transport sectors More sustainable energy and transport sectors • Country Climate and Development Report (IBRD and IFC ASA) • Green and Efficient Ferry Sector (IBRD and IFC lending) • Energy (IBRD ASA) • Energy utility (transmission service operator) and renewable energy • Schwarz green industrial and retail distribution—regional (IFC) generation financing (IFC and IBRD ASA) • Zagreb Airport Equity (IFC) • Manufacturing and services decarbonization—green/sustainable • RBA bank Sustainable bond—SMEs climate and social financing (IFC) financing (IFC) • Erste bank green bond—green buildings/housing (IFC) • Debt and Equity investments in sustainable tourism (IFC) • ALD leasing—green vehicle fleet—global (IFC) • Financial institutions green/sustainable financing for renewable • Adris sustainable tourism—blue/green/sustainable linked loan (IFC) energy, energy efficiency, green buildings (IFC) • Blue finance opportunities regional upstream (IFC) • Invest alongside the electric vehicles value chains (IFC) • Potential credit enhancement through the WBG Guarantee Platform, on loans for eligible SOEs investing in energy sector (MIGA) Forward look (beyond the next 24 months): Preparedness and resilience (IBRD lending); Water Loss and Non-Revenue Water Reduction (IBRD ASA/lending); Energy policy/tariff on renewables scaling (IBRD ASA); Marine and Environmental Protection (IBRD ASA/lending). 26 Annex II: Completion and Learning Review I. INTRODUCTION 1. This Completion and Learning Review (CLR) evaluates the implementation of the World Bank Group (WBG) Country Partnership Framework (CPF) for Croatia for the period FY19-FY24. The Performance and Learning Review (PLR), Report No. 180636-HR, dated March 13, 2023, confirmed the validity of the CPF anchored in the country priorities around the three focus areas: (i) Enhancing public sector performance and institutions and resilience to shocks; (ii) Preserving and leveraging natural capital to ensure low carbon growth; and (iii) Strengthening market institutions to enable a dynamic enterprise sector. The PLR introduced some adjustments to account for the exogenous shocks that hit Croatia in 2020-2022 and marked the first part of the CPF implementation – the COVID-19 pandemic and the devastating earthquakes in March and December 2020. These adjustments were made to better respond to Croatia’s evolving needs and to strengthen its resilience to shocks. This CLR assesses the achievement of the CPF objectives and the performance of the WBG in designing and implementing the CPF program, reviews the CPF alignment with the WBG’s goals, and presents lessons learned to inform the next CPF. Given the CPF goal of strengthening institutions and the emphasis on advisory services, the Institutional Change Assessment Method (ICAM) was applied as a framework to analyze how WBG interventions contributed to institutional strengthening and to derive lessons for future engagement (Annex 3). 2. The CPF FY19-FY24 was informed by the 2018 Systematic Country Diagnostic (SCD) which highlighted the main challenges impeding Croatia’s convergence to European Union (EU) living standards. The SCD demonstrated that the public sector in Croatia plays a prevalent role through its large footprint in the real sector and in the provision of a wide array of services but shows significant weaknesses. The SCD pointed to the need to address Croatia’s institutional weaknesses to achieve productivity growth. Building efficiency-enhancing institutions required changing how the government provides for public services and how it regulates the capital, product, and labor markets. Improvements were needed across many dimensions, including rationalization of structures and functions, strengthened accountability and coordination mechanisms, strengthened human resource management and delivery capacities, and renumeration system reform. Therefore, the FY19-FY24 CPF defined strengthening institutions as the overarching goal of WBG engagement in Croatia, a requisite for Croatia’s sustained development progress. 3. Croatia faced and responded to several shocks during the CPF period. The COVID-19 pandemic caused the biggest GDP decline in the country’s history, reaching 8.1 percent in 2020. That same year, Croatia was also affected by successive earthquakes that hit Zagreb in March and Petrinja in December, causing damages estimated at EUR16.1 billion (equal to 29 percent of Croatia’s 2019 GDP). Record high inflation notwithstanding, economic recovery was quick and strong, due to the government’s large and responsive fiscal and monetary support schemes. Improved resilience to external shocks also reflected the liberalization of labor and product markets and some improvements in the business environment and institutional quality over the last decade. Croatia made substantial progress in living standards, with GDP per capita (in purchasing power parity nominal terms) increasing from 64.8 percent of the average EU27 level in 2018 to 75.5 percent in 2023. Entry into the euro area and Schengen zone on January 1, 2023, completed another important phase in the process of European integration. However, strong growth and income convergence with the rest of the EU cannot be sustained unless Croatia addresses its remaining deep structural constraints, including an inefficient public sector and lagging productivity. Meanwhile, tackling demographic challenges and careful management of its natural resources in the face of climate risks will also be critical for Croatia’s future resilient and inclusive growth. 4. The Government of Croatia (GoC) adopted several strategies over the CPF period to address the evolving development objectives and emerging crises. The GoC 2016-2020 program aimed at reaching stable and sustainable growth, creating new jobs, curbing emigration, and promoting social 27 solidarity. The GoC 2020-2024 program largely centered on efforts to recover from the COVID-19 pandemic and on priorities defined under the National Development Strategy 2030 (NDS) adopted in February 2021. The NDS lays out a vision of Croatia in 2030 as a competitive, innovative, and safe country with a recognizable identity and culture, a country with preserved resources, quality living conditions, and equal opportunities for all. Croatia’s National Recovery and Resilience Plan (NRRP) for 2021-2026 is aimed at achieving post-pandemic recovery, growth, and resilience by undertaking 76 reforms and 146 investments of about EUR5.5 billion (9.5 percent of Croatia’s GDP) in grants from the EU’s post-COVID Recovery and Resilience Facility (RRF). 5. The WBG supported Croatia’s development vision and key strategies, as well as its crises recovery and resilience to shocks. At the GoC’s request, the Bank program focused on supporting the design of key strategic documents for the period – the NDS and the NRRP – and the implementation of essential reforms and investments. The WBG designed and implemented a responsive and impactful program anchored in intensive just-in-time technical assistance, achieving incremental gains toward stronger government institutions. The overall program continued to be selective, prioritizing support for reforms and projects that would have the most impact under the CPF framework. The WBG was also able to provide swift and effective emergency response to the two earthquakes and the COVID-19 pandemic through three new lending operations under the current CPF framework. IFC’s new engagements prioritized projects with clear demand and impact, innovative features, strong demonstration effect, and private capital mobilization. Several regional IFC projects had a notable impact in Croatia as well, namely in the private equity and venture capital (VC) space, green mobility, and asset management space.15 The Multilateral Investment Guarantee Agency (MIGA) did not issue guarantees during the CPF period as favorable market conditions had reduced investors’ appetite for MIGA coverage. 6. Throughout the CPF period, the country saw a high degree of political stability, but frequent cabinet reshuffles impacted the effectiveness of client dialogue. The CPF spanned three governments of broadly similar ruling coalitions under the leadership of the same party. However, several cabinet reshuffles affected the continuity of line ministries and presented challenges for maintaining dialogue with WBG. Government institutions were under increased strain while coping with exogenous shocks and the increased need for investments and reforms in their aftermath. II. PROGRESS TOWARDS CPF DEVELOPMENT OUTCOMES 7. The overall development outcome rating is Moderately Satisfactory. The program achieved most of its objectives. Table 1 summarizes the development outcome indicator ratings. Annex 1 contains the assessment details of each outcome indicator, based on the results framework updated at the PLR, which dropped two indicators, revised seven, and introduced four new indicators. One Focus Area (Enhancing Public Sector Performance, Institutions and Resilience to Shocks) is rated as Satisfactory, one (Preserving and Leveraging Natural Capital to Ensure Low Carbon Growth) as Moderately Satisfactory, and one (Strengthening Market Institutions to Enable a Dynamic Enterprise Sector) as Highly Satisfactory. The Focus Areas had a total of seven objectives: five are rated as Achieved, one as Mostly Achieved, and one as Partially Achieved. The CPF used a total of 19 indicators to measure the achievement of its objectives, of which 16 indicators were Achieved, two were Mostly Achieved, and one was Not Achieved. Annex 1 summarizes the ratings by indicator and Annex 2 has detailed results. Additional evidence is presented under each objective in Annex 2 which is complemented by Annex 3. 15 In the CPF period, IFC engaged in the following regional projects that include Croatia: DCM OTP MREL (45474), DARP SPV EOSII (44378), SCV Fund III (46554), ALD Green Fleet (47306), EUR Food Retail (48827), Evolving Europe II (49908). 28 Focus Area I: Enhancing Public Sector Performance, Institutions and Resilience to Shocks 8. The overall rating for this Focus Area is Satisfactory. The aim of Focus Area I was to address weaknesses in public policy making and public-sector effectiveness and to support capacity enhancement to deliver services and improve human capital outcomes, particularly in the poorest regions. The PLR modified Focus Area 1 from Enhancing public sector performance and institutions to Enhancing public sector performance, institutions, and strengthening resilience. Focus Area I was measured using 10 indicators, of which 9 were Achieved and one was Mostly Achieved. CPF Objective 1 - Improve the efficiency of public administration to implement strategy and deliver services – Achieved 9. The objective was measured through four indicators, all achieved. The Bank helped set the foundations for the national strategic planning system and strengthened core public administration functions. The National Development Strategy (NDS) Reimbursable Advisory Services (RAS) supported the GoC in devising a national system of strategic planning, thus defining core public policy making processes in all sectors and across all levels of government. Under the same engagement, a set of 21 sectoral policy notes supported the development of the first-ever NDS, covering the 2020-2030 period. The Strategic Transformation in Agriculture and Rural Space RAS (STARS RAS) helped the Ministry of Agriculture formulate its strategic vision and roadmap for the programming period 2021-2027 and EU Green Deal implementation. The Bank also helped strengthen the ability of the Ministry of Labor, Pension System, Family, and Social Policy (MLPSFSP) to monitor poverty at the subnational level and effectively implement five national plans in the domain of social policy. 10. The program helped improve the effectiveness and resilience of the health sector and its functioning during the COVID-19 pandemic, as well as broader critical services recovery after the 2020 earthquakes. The first Health Program-for-Results (P4R) in Europe and Central Asia (ECA) helped enhance cost-effective organizational settings and rapid-access care for patients through strengthening primary care practice, day-hospitals, and hospital functional integration. The Earthquake Recovery and Public Health Preparedness Project supported tackling the institutional deficiencies exposed by the 2020 earthquakes and compounded by the COVID-19 pandemic, and provided rapid assistance in the face of the pandemic outbreak, including the procurement of COVID tests, diagnostic equipment, and the provision of training for hospital and emergency medicine staff for rapid response to disasters and disease outbreaks. The Bank-supported Rapid Damage and Needs Assessments (RDNAs) underpinned the GoC’s applications for assistance from the EU’s Solidarity Fund worth EUR1.1 billion, which was used 29 to renovate infrastructure damaged in the 2020 earthquakes.16 The Bank helped restore the country’s ability to provide critical services through the rehabilitation of public health and education buildings, such as the Division of Pediatric Hematology and Oncology of Croatia’s largest hospital Rebro in Zagreb, benefiting a total of 4,100 children for inpatient and outpatient health services. 11. The WBG supported the GoC’s enhancement of services to citizens, particularly in the domains of land administration, sustainable municipal service provision, and small and medium enterprises (SME) financing. The long-standing engagement in land administration helped accomplish a profound transformation in Croatia’s land administration services, greatly improving the efficiency and transparency of government services and reducing the costs to citizens through shorter transaction times. It established a centralized web-based system and expanded online services for citizens, businesses, and government institutions. From 2018 until 2024, Land Registry Offices saw a drop in transaction times from an average of 17 days to 8 days, while Cadaster Offices experienced a drop from 8 days to 6 days. The project catalyzed a major increase in the percentage of e-services use, from 5 percent in 2018 to 68.23 percent in 2024. IFC supported the sustainability of municipal service provision by engaging in the issuing of bonds with the Municipality of Zagreb to scale up the deployment of capital towards the development of waste management and renewable energy projects. Through the application of performance-based conditions, the Helping Enterprises Access Liquidity in the Republic of Croatia project (HEAL) helped strengthen the compliance of the Croatian National Reconstruction and Development Bank (HBOR) with banking standards, including a new risk management system, and improved the ability to apply environmental and social criteria in its operations and its capacity to directly access EU funds. 12. World Bank analytical and advisory support informed critical public administration reforms, including public sector wages and reforms at the subnational level. One of the government’s major reforms – bringing about transparency, simplicity, and equity of the pay system for 250,000 employees of the civil and public services – was delivered with the extensive hands-on assistance provided under the Bank’s Reforming the Public Sector Wage Setting Mechanism RAS (Public Wage RAS). The Bank also helped shape a number of other reforms under the NRRP, including municipal mergers and associations, the revision of the fiscal equalization framework and formula, and job flexibility and security balance under the new Labor Law. CPF Objective 2 - Support policies that reduce fiscal vulnerabilities, with a focus on State-Owned Enterprises – Achieved 13. The World Bank’s support under this Objective focused on strengthening the fiscal sustainability of the transport sector. All three indicators under the objective were achieved. The Sustainable Croatian Railways in Europe project (SUCRE) helped establish the proper institutional mechanisms for public financial participation by introducing a set of contracts between the railway companies and the state. The Modernization and Restructuring of the Road Sector project supported the debt optimization of the road companies, with saved interest payments of EUR400 million over 10 years. The Rijeka Gateway II project helped achieve financial sustainability for Croatia’s main seaport, catalyzing a total of EUR410 million concession and public-private partnership investments for two key terminals. 14. The Bank’s recommendations strengthened the government’s fiscal policy making in the area of macroeconomic forecasting, SOE governance, local government revenues and pensions. Technical assistance on strengthening fiscal capacity supported the Ministry of Finance (MoF) in developing the macro-structural model of the Croatian economy, bringing significant improvements in macroeconomic forecasting within the budget preparation process and policy simulation. The State-Owned Enterprises (SOEs) analytical report informed the preparation of the NRRP chapter on SOEs, enabling the sell-off of 16These funds were used to finance, among others, 18 hospitals and 56 healthcare facilities, 156 schools and kindergartens, 26 higher education institutions, 250 cultural heritage buildings, 100 km of the public water supply and sanitation network, over 600 km of roads and 77 bridges. 30 state ownership in numerous companies and the preparation of the draft law on SOEs. The Public Finance Review 2023 showed how the Croatian tax system can be improved in terms of efficiency and equity and how local government units can raise additional revenues, informing national real estate tax reform and policy actions by several local governments. Two RASs in the area of pensions provided key analytical inputs for the government on NRRP policy measures, which aim at ensuring the pension system's long-term sustainability, adequacy and equity. CPF Objective 3 - Create opportunities for people, particularly in less developed regions — Mostly Achieved 15. The World Bank program enhanced opportunities for Croatia’s children, youth, and disadvantaged groups. The objective was supported by three indicators, of which two were Achieved and one was Partially Achieved. The Bank has been assisting the GoC in addressing a long-standing weak point of Croatia’s education system: its students receive the lowest number of instructional hours in Europe due to a double-shift school system. The project Croatia: Towards Sustainable, Equitable and Efficient Education (WDS) helped the Ministry of Science and Education (MSE) design and pilot the introduction of whole-day-school in Croatia’s primary schools, improve decision-making at the school level, and prepare school infrastructure for the upcoming national scale-up to be financed under the NRRP. An increase in instruction time piloted since 2023/2024 by the Bank is benefiting 62 schools with 11,937 students in 922 classes, 2,023 teachers, 174 expert associates, and 705 administrative-technical staff and is expected to improve student learning and outcomes, with early results showing that pilot- school students require less private tutoring and report better nutrition and physical health compared to the control non-WDS schools. Free meals, free textbooks on the new WDS subjects, and free extracurricular activities have provided additional benefits for disadvantaged children, including those in rural areas and at risk of poverty. Under the Transition from Institutional to Community-Based Care for Children, Youth and Persons with Disabilities RAS, the Bank has helped 38 homes for children and youth, and for persons with disabilities to develop their transformation roadmaps, based on which close to 1,000 persons should exit state residential institutions and return to family and community living by 2027. 16. The World Bank Group program has supported the development of lagging regions. Over the past decade, Croatia has been plagued by population loss, particularly of educated youth, especially in its lagging region in the East of the country. The Growth and Jobs in Eastern Croatia RAS (Pannonia RAS) helped deliver a plan to support and finance the industrial transition in Pannonian Croatia. This pilot, co-financed with EU funds, was subsequently expanded to the Adriatic and Northern Croatia. The CPF indicator of increased private investment in Slavonia was met, and grant schemes were developed under the Pannonia RAS to mobilize additional private capital. The STARS RAS targeted agricultural activities in this rural part of Croatia, supporting the linkage of agricultural producers to value chains and enhancing their access to biophysical information. The emergency Development Policy Financing (DPF) ensured that over 5,500 additional individuals received the national benefit for the elderly during the COVID crisis. The DPF also supported the government’s COVID employment protection scheme, benefiting about 700,000 and 220,000 employees in 2020 and 2021, respectively. IFC also contributed to this Objective by engaging in two regional projects including Croatia with financial institutions to improve access to climate and social targeting finance for SMEs in less economically developed areas. 17. The World Bank project designed to help firms recover from the COVID crisis did not fully achieve the related CPF target, largely due to Croatia’s speedy economic recovery. The HEAL project aimed at providing liquidity and financial restructuring to Croatian firms, including in less-developed regions, as well as those owned or managed by women, to support them to recover from the pandemic crisis. However, the need for working capital was less than initially anticipated given Croatia’s rapid recovery from the pandemic, which was also assisted by a large government program worth EUR3.2 billion in 2020 and 2021, including wage subsidies and tax amnesties. Consequently, the HEAL project was restructured with a partial cancellation. 31 Focus Area II: Preserving and Leveraging Natural Capital to Ensure Low Carbon Growth 18. The overall rating for Focus Area II is Moderately Satisfactory. The aim of this area was to address institutional shortcomings which limit the GoC’s ability to tackle environmental and climate- related challenges. Key program interventions were designed in the energy, waste, and water sectors. Focus Area II was measured using four indicators, of which two were Achieved, one was Mostly Achieved, and one was Not Achieved. CPF Objective 4 - Enhance energy efficiency and energy transition – Partially Achieved 19. The achievement of the two targets under the energy-focused objective was limited. There was little demand for the Bank’s support toward the medium-term strategic needs in the energy sector, in part due to limited institutional capacity being focused on addressing crisis-related needs and absorbing EU funds. Client capacity constraints led to the cancelation of the only energy-related Bank activity during the CPF period, namely technical assistance in designing financial instruments for the energy efficiency renovation of residential buildings. Although the related CPF indicator was not achieved, the Bank did deliver a set of recommendations for a scale-up of energy efficiency investment, which was partially taken on board by key stakeholders. IFC contributed to this CPF objective by continuing its engagement with three private sector producers of wind power generated renewable energy. Over the CPF period, the three projects generated energy of about 943 GWh. Two of these investments (Sibenik Danilo and Rudine) were pre-paid, however, and IFC exited them in 2020, thereby affecting the achievement (Mostly Achieved) of the respective CPF indicator target (Indicator 12). In addition, during the CPF period, IFC invested in Minimum Requirement for Own Funds and Eligible Liabilities (MREL) sustainable-linked bonds and green bonds issued by financial institutions in Croatia. The use of the proceeds of the bonds aimed at increasing renewable energy capacity and improving the energy efficiency of buildings through green housing loans and green mortgages. Additionally, in 2023, IFC invested in the City of Zagreb with an innovative financing structure and private capital mobilization, contributing towards growing the share of renewable energy in overall energy consumption. IFC regional projects including Croatia contributed to this objective and supported green mobility, green retail and buildings infrastructure, and climate finance for MSMEs. 20. The broader CPF program contributed to climate neutral policies and energy transition by helping shape adequate regulatory frameworks and by supporting the private sector. The DPF supported the enactment of the Law on Climate Change and Ozone Layer Protection, which reflected major new EU climate regulations and provided a framework for the country’s transition to a climate neutral economy. HEAL helped strengthen climate change resilience policies in HBOR, the Ministry of Tourism, the Ministry of Economy and Sustainable Development, and the Croatian Agency for SMEs, Innovations and Investments (HAMAG-BICRO) by developing integrated climate resilience procedures and mainstreaming the EU’s Do No Significant Harm (DNSH) requirements. The Digital Innovation and Green Technology project (DIGIT) is funding green pre-commercial research and industry-science consortia, greenfield investments in research infrastructure, capacities to design green programs, and the development of an online diagnostic tool to help firms benchmark their sustainability relative to peers. Climate-friendly research and development was introduced across the seven Thematic Priority Areas of the Smart Specialization Strategy 2029 (S3 2029). 21. All WBG investment operations ensured that financed civil works incorporated the highest climate adaptation standards. The Earthquake project became a platform for strengthening related capacities across the administration, combining seismic safety with energy efficiency and other considerations for adaptation to climate change. A connected Technical Assistance (TA) provided capacity building to key national stakeholders to implement investments related to disaster/climate resilience. It undertook a portfolio analysis, including the costing of energy efficiency costs and benefits, and developed guidelines on integrating Disaster Risk Management (DRM) and climate considerations into regulations, analyses, and financial planning. Calculations of needs for two Rapid Damage and 32 Needs Assessments (RDNAs) were based on building back better, including energy efficiency calculations. CPF Objective 5 - Improve water and solid waste delivery and management – Achieved 22. The program achieved the progress expected and the two related targets under the Objective, including through capacity improvement activities. The Croatia Water Loss Reduction TA helped enhance the capacity of public water service providers and developed a roadmap for investments totaling EUR1.7 billion over the next 15 years that will cut in half Croatia’s water losses (50 percent compared to the EU average of 25 percent) and thus help mitigate the impact of climate change and improve the energy efficiency and environmental sustainability of water delivery. The Circular Economy Approaches in Solid Waste Management RAS (CIRCLE RAS) helped Croatia introduce circular economy approaches and facilitated progress on municipal waste recycling (from 29 percent in 2020 to 36 percent in 2023), and of recycled and reused non-hazardous construction and demolition waste (from 60 percent in 2020 to 66.5 percent in 2022). IFC’s investment in the Zagreb Bond 2023 supported the development of sustainable waste management practices, such as an integral waste management center. In the blue economy space, there were regional IFC advisory contributions in two areas: (i) a mapping analysis of blue finance opportunities for the engagement of the private sector; (ii) delivering jointly with IBRD the Blue Economy Analytical Advisory for Croatia. The reference to wastewater under this Objective was dropped at the PLR stage due to a lack of engagement in this area. Focus Area III: Strengthening Market Institutions to Enable a Dynamic Enterprise Sector 23. The overall rating for this focus area is Highly Satisfactory. The aim of Focus Area III was to address weak market institutions, including regulatory and business environment barriers. Strengthening firm capabilities, innovation, and entrepreneurship helps in enhancing firm-level productivity and improves the composition and resilience of the economy. All five indicators under Focus Area III were achieved. CPF Objective 6 - Improve the business climate and increase the private sector’s role in the economy – Achieved 24. The lending program helped strengthen the business climate through support to the areas of justice, land administration, and SME financing, achieving all three indicator targets under the objective. The Justice for Business Project contributed to improving the quality of justice services to businesses along the service delivery chain and reducing the administrative burden for businesses. Disposition time for the issuance of judicial decisions in cases before the commercial courts was reduced from 320 days in 2018 to 245 days in 2022. The single digital window for registering LLCs without the use of notaries and at reduced cost shortened the registration time from 19.5 days in 2018 to 6 days in 2024. The Integrated Land Administration System project (ILAS) resulted in a dramatic increase in the speed of land administration services, the introduction of e-services, clear land titles and easier access to land documents which assisted private sector development and competitiveness, cutting the time needed to register property from 62 days (Doing Business 2018) to 15 days (BReady 2024). The HEAL project has enhanced the quality of services that HBOR provides to SMEs and has helped build the longer-term resilience of the private sector by enhancing credit rating methodologies and credit scoring for private entrepreneurs. IFC contributed to this objective by engaging in two regional projects including Croatia with financial institutions to improve access to climate and social targeting finance for SMEs, and a regional VC fund to increase the availability of scarce equity- and risk-based finance. In the period 2019-2023, a total of 14,112 jobs were supported by IFC clients, exceeding the related indicator target and reflecting the increase of IFC engagements especially in the financial sector and municipal service delivery in the second part of the CPF period. 25. A set of advisory and analytical tasks helped shape a more favorable private sector regulatory environment. Croatia Business Environment Reform I, II & III helped lower compliance costs for the private sector through integrated and digitalized service delivery and provided more predictability and 33 fewer opportunities for corruption through accurate, up-to-date online resources for Business-to- Government business processes. It also improved the GoC’s capacity to exchange information on the private sector, design policies based on comprehensive data on businesses, and implement risk-based approaches to regulation. While in 2019 Croatia lagged behind ECA in the time needed to obtain an operating license, in 2023 this trend was reversed.17 Overall, a range of digital solutions implemented under this Objective delivered significant benefits for both businesses and citizens by streamlining government services and improving access to official documents and highlighting the transformative impact of digitalization as a cross-sectoral enabler. CPF Objective 7 – Promote entrepreneurship, competition, and innovation – Achieved 26. The program strengthened and scaled-up the Bank’s long-standing contribution to Croatia’s research and innovation agenda through a synergy of advisory and lending activities, meeting both indicators under this CPF objective. During the CPF period, the Bank continued assisting the GoC in producing high-quality research and in establishing effective linkages with the business sector. This required tackling challenges such as lack of funding, outdated infrastructure and equipment, and a suboptimal governance and institutional framework. Two RASs on innovation helped strengthen the Croatian National Innovation System and design the two consecutive Smart Specialization Strategies (S3), the country’s overarching research, development, and innovation (RDI) strategies, improving their intervention logic, entrepreneurial discovery process, and governance. The SPRING RAS supported the development of programs which have so far funded 121 firms and 353 young researchers through a total of 523 research, development, and innovation projects. The Second Science and Technology Project (STPII) strengthened core innovation policy capacities18 and supported the design of novel R&D instruments, widening the net of beneficiaries and addressing funding gaps. The ongoing DIGIT Project provides targeted funding to innovative companies to facilitate digital transformation and green transition. This set of the Bank’s innovation engagements helped the country improve its innovation policy performance as evidenced by Croatia’s score on the European Innovation Scoreboard Summary Innovation Index, which increased from 61.1 in 2019 to 76.6 in 2024. 27. The Bank’s analytical work supported improvements in the competition framework. Based on a review of anti-monopoly policies and a survey of Croatian companies, the 2022 Country Economic Memorandum (CEM) made implementable recommendations for improving Croatia’s competition regulation. Boosting Croatia’s Economic Resilience report pointed to services and professions in which competition was severely restricted. The Croatia Occupational Regulation Reform TF tackled Croatia’s excessive regulatory barriers in services by helping to identify restrictions and supporting their removal in 50 regulated professions, thus facilitating services market entry, boosting productivity, and helping reduce Croatia’s regulation of professions by 20 percent over the past five years. 28. IFC leveraged its IFC 3.0 solutions to promote entrepreneurship, competition, and innovation in Croatia. IFC supported the financing of banks by investing in their capital market instruments (sustainability linked bonds and green bonds), targeting SMEs in the bank portfolio to invest in green buildings, renewable energy, and sustainable production. IFC also supported a regional VC alongside investment in regional private equity funds focused on digital and tech industries. In addition, IFC invested in a regional platform, covering Croatia, aimed at working out the distressed assets portfolios of banks to help strengthen banks’ balance sheets to free up capital and generate liquidity and capacity to originate new loans. III. WORLD BANK GROUP PERFORMANCE 29. The overall World Bank Group performance is rated Good. The selection of CPF objectives and the design of WBG interventions under the CPF objectives were appropriate, with a high 17Croatia 35,6 days vs. 34,4 days for ECA in 2019, Croatia 32 days vs. ECA 40 in 2023. 18Capacities of the Ministry of Science and Education, the Croatian Science Foundation, and The Croatian Agency for SMEs, Innovations and Investments (HAMAG-BICRO). 34 complementarity of instruments, integration of lessons from the previous CPS FY14-FY17, and a clear articulation of risks and mitigation measures. The CPF period saw strong demand for the whole range of the Bank’s instruments and the Bank responded with selectivity, speed, and impact. The WB program focused on institutional strengthening, supporting key complex reforms of the period to build institutional capacity and enhance public services provision. By providing highly impactful technical assistance in meeting EU reform conditionalities, the Bank helped unlock and leverage unprecedented amounts of EU funds, generating knowledge spillovers and global public goods. Collaboration between the Bank and IFC, as well as development partners, was appropriate, and the quality of supervision was strong. The Bank provided a rapid and effective response to the changing circumstances and needs of the country during the COVID crisis and in the aftermath of the 2020 earthquakes. A sound program of ongoing activities remains in place for the next engagement period. Design and Relevance 30. The CPF integrated the lessons learned from the previous Country Partnership Strategy (CPS) and introduced CPF filters as critical program guideposts. Key lessons included maintaining the flexibility of instruments, focusing on leveraging EU funds, and using the Bank’s strengths of engaging in complex areas and scalable operations. The CPF introduced criteria for a selective lending program in a high-income country, which provided critical guidance during CPF implementation. New IBRD financial support had to demonstrate that it was building essential institutional capacity. In addition, at least one of the following filters was applied: (i) provide innovative solutions that benefit the marginalized, most poor and vulnerable; (ii) catalyze private sector investment or leverage additional resources, including access and efficient utilization of European Union funds; and/or (iii) contribute to regional and global public goods. 31. The CPF design closely followed the development priorities identified in the SCD. At the time the CPF was being written, Croatia was still recovering from the global financial crisis and a six-year recession, which resulted in a loss of economic output of 12 percent and one of the largest increases in poverty among the EU member states. The SCD defined priorities for addressing underlying vulnerabilities and for spurring convergence with the EU: (i) enhancing the performance of the public sector; (ii) boosting participation and the contribution of individuals to economic and social development; and (iii) enabling the emergence of a dynamic enterprise sector. The selection of instruments was adequate and complementary. The CPF appropriately envisioned a sustained level of lending and strengthening of the RAS program. 32. The presentation of synergies across the WBG, namely between IBRD and IFC, and cooperation with development partners was solid but relatively unambitious. In areas where IFC had a significant role, planned activities and instruments were outlined in a coherent and detailed manner. However, the CPF fell short of promoting a more intensive integration of activities and devising joint results indicators. The CPF outlined well the main features of coordination with other development partners, primarily the European Commission (EC), the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD). 33. The quality of the CPF results framework was uneven. Several original CPF indicators were unattributable to the WBG program or had too optimistic target dates. In some areas (for example, under Objective 4) the program was overly ambitious based on a too optimistic projection of client demand in sectors with a challenging political economy. These inadequacies were addressed at the PLR stage, with two indicators dropped, seven revised, and four newly introduced. Some deficiencies remained after the PLR stage. Most of the indicators remained process oriented or outputs, and, in some cases, did not measure all the dimensions of the objective (for example, under Objective 7). In addition, some indicators were not designed to track results by type of beneficiary and the results framework missed the opportunity to measure outcomes for the lowest-income, vulnerable groups, and women. 35 34. The risks to the CPF objectives identified were valid for most of the CPF period and were adequately finetuned at the PLR stage. The overall risk in achieving the CPF objectives was appropriately assessed as Moderate throughout the duration of the CPF. Institutional capacity risk remained Substantial and mitigation measures identified for its management were followed and proved to be effective. Political and governance risk was revised from Substantial to Moderate at the PLR stage due to political stability and the steady implementation of the program. With a prudent fiscal policy, decisive reaction during the COVID-19 crisis, and Eurozone entry reforms, the macroeconomic risk was also revised from the original rating of Substantial to Moderate. All ratings confirmed at the PLR stage remained valid until the end of the CPF period. Program implementation 35. The WBG lending portfolio remained modest and selective over the CPF period. In line with the CPF criteria, World Bank lending was selective and adaptable to emerging needs, tackling challenging reform areas requiring active implementation support and providing a critical basis for leveraging much larger amounts of EU funds. In response to the COVID-19, regional shocks, and earthquake crises, there was an uptick in WB financing in 2020 and 2021 with three crisis response operations.19 Over the CPF period, IBRD approved eight new projects totaling US$1.144 billion, and eight projects were closed. Over this period, the IFC program totaled US$785.7 million, comprising US$453.2 million on the IFC’s own account and core mobilization of US$332.5 million. The IFC’s Croatia program consisted of four projects focused on financial markets and the delivery of green municipal services, while several regional IFC projects also had a notable impact in Croatia.20 The program was responsive to emerging government demands, with the adjustments adequately reflected in the PLR and the results matrix. 36. The World Bank Group portfolio included a mix of instruments including IPF, IPF with performance-based conditions (PBCs), the program for results (PforR), DPF, and a growing RAS program, complemented by IFC’s traditional and innovative instruments. IPFs sought to include institutional and policy reform elements through institutional strengthening and technical assistance components, and PBCs were particularly useful in this regard. The DPF helped cushion Croatia from the pandemic and earthquake shocks and contributed to fiscal sustainability while supporting inclusive and sustainable economic recovery. In addition to lending, the RASs were particularly relevant to support the GoC reform agenda and to strengthen public institutions. IFC used its portfolio of traditional financing instruments, such as long-term loans for project finance projects and corporate loans. As a novelty, IFC invested in innovative climate instruments, such as sustainability-linked bonds, a municipal green bond (the first of its kind in Central and Eastern Europe), and a MREL green bond, promoting thus a more dynamic corporate market in the country. IFC participated in a regional VC fund, covering Croatia, which aims to provide early-stage capital to start-ups and SMEs. 37. The IBRD portfolio performed generally well throughout the CPF. Out of seven projects implemented under the CPF and evaluated by IEG, five were rated Satisfactory or Moderately Satisfactory for both Outcome and Bank Performance. However, two transport projects (SUCRE and MARS) were rated Moderately Unsatisfactory and Unsatisfactory for Outcome and Unsatisfactory for Bank Performance due to their unrealistic ambition, inadequate results frameworks, and their failure to account for institutional weaknesses, while having also suffered serious setbacks from the COVID crisis. Three out of thirteen21 projects under implementation were flagged as problem projects for a short 19 Crisis Response and Recovery Development Policy Operation (DPO) (US$300 million), the Earthquake Project (US$200 million), and HEAL (US$242.1 million), the latter of which was envisaged in the CPF, but was adjusted to support COVID-19-affected firms in lagging regions. 20 This included the private equity space, the food supply chain sector, and the acquisition of distressed assets under the IFC Distressed Assets Recovery Program. 21 Excluding Integrated Land Administration and Justice Services Project (P180605), which was approved in late FY24 but became effective only in FY25. 36 period during their lifetime and were subject to mostly timely and effective proactivity measures. Implementation problems originated primarily from a lack of institutional capacity in administration to implement projects in a timely manner while at the same time coping with the effects of multiple crises. Slow disbursement under emergency projects was also due to the stretched capacity of the client to secure and coordinate various funding sources for significant recovery investments. The Bank mitigated these effects through project restructurings, intensified hands-on project supervision support, high- level client dialogue, and close coordination with the EC. 38. An important feature of this CPF has been the delivery of a selective and impactful knowledge program, supporting some of the most critical and difficult reforms while building institutional capacity. During the CPF period, the Bank undertook 10 new RASs, a significant increase from the four RASs under the previous CPS. The RAS program leveraged the Bank’s role as a global knowledge provider in areas of strategic planning, lagging regions, agriculture, innovation, the circular economy, public wages, deinstitutionalization, pensions, and long-term care. The RAS program helped the GoC meet Croatia’s need for hands-on technical assistance to undertake its ambitious reforms. All RAS engagements adhered to the selectivity criteria and CPF filters and complemented other technical and financial assistance along CPF priorities. The CPF also encompassed 34 BB-funded ASAs, which addressed most of the knowledge gaps indicated in the SCD and were conducted in close consultation with line ministries to provide policy advice in areas such as SOE reforms, fiscal policies, productivity policies, local government mergers, and fiscal decentralization. The ASA program also included tasks financed under EU Trust Funds.22 Eight such tasks – in the areas of the business environment, macro- fiscal policies, poverty, water, and energy efficiency – helped the GoC achieve its reform milestones. All categories of ASAs had an impact on government programs and policies and were essential in promoting close policy collaboration with the client. 39. A close partnership with the European Commission (EC) was essential for the successful delivery of the program. The Bank and EC Directorates (mainly, DG REFORM, DG REGIO, DG EMPL) had a close and continuous dialogue on the constraints and opportunities in Croatia and the progress of reforms, including those GoC reforms supported by the Bank towards achieving Croatia’s NRRP milestones or meeting European Regional Development Fund (ERDF) and European Structural Fund (ESF+) enabling conditions.23 In 2021, the Bank provided inputs to the GoC to help articulate select segments of the NRRP. The Bank provided advisory services and analytics to the GoC as inputs to their process of meeting Croatia’s specific NRRP milestones, in the areas of education, public wage reform, pensions, and water losses, tied to significant investment funds from the EC.24,25 Croatia’s implementation of its NRRP allowed it to access EUR10 billion (EUR5.8 billion in grants and around EUR4.2 billion in favorable loans) from the RRF. Other RAS and TF engagements supported the GoC in making progress in the areas of deinstitutionalization, long-term care, and poverty measurements, meeting the related enabling conditions set by the EC and thereby unlocking ESF+ and ERDF funding allocated to Croatia for the period 2021-2027. After the 2020 earthquakes, the World Bank helped draft the two RDNAs used by the GoC to apply for more than EUR1 billion grants from the EU Solidarity Fund, from which the bulk of public buildings reconstruction was financed. 40. Regular coordination with other development partners supported the CPF implementation. Besides the EC, regular consultations were held with other development partners such as the IMF, the local representation of the EBRD, the EIB, the Council of Europe Development Bank, and foreign embassies in Zagreb. The Bank also nurtured close collaboration with UN agencies in several relevant topic areas, including, for example, the United Nations Children’s Fund and the United Nations High 22 The Technical Support Instrument (TSI) and its predecessor the Structural Reform Support programme (SRSS) are EC TF instruments which finance tailor-made technical expertise to help EU member states design and implement reforms. 23 The four horizontal and 16 thematic enabling conditions ensure that implementation of operations financed from EU funds comply with the EU regulatory framework. 24 EUR1.3 billion (education), EUR6.8 million (public wage reform), EUR3 million (pensions), EUR139 million (water losses). 25 Source: Croatia National Recovery and Resilience Plan 2021-2026, July 2021; Amendment to the Croatia National Recovery and Resilience Plan 2021-2026, November 2023. 37 Commissioner for Refugees regarding the deinstitutionalization of social services. In the aftermath of the 2020 earthquakes, the Bank initiated and led a local UN and IFIs coordinated response platform. 41. Lending, RAS, and TF programs undertaken in Croatia generated important knowledge spillovers and Global Public Goods. For example, the advanced land administration Joint Information System developed under the ILAS project linking data from the multiple registries informs the development of two pipeline projects in Bosnia and Herzegovina and Türkiye, and the development of geospatial information systems in Kosovo. The STARS RAS, with its innovative approach to short value- chains, informed lending and advisory activities in Mexico, Serbia, Georgia, Kazakhstan, Greece, and Bulgaria. EU accession countries are using the lessons learned on setting up science, technology, and innovation funding from the Croatia Public Expenditure Review in Science, Technology and Innovation RAS (PER STI). Work under the Public Wage RAS has benefited from cross-fertilization with similar work in Romania and has served as an example of good practice in Ethiopia, Peru, Paraguay, Cambodia, Montenegro, Moldova, Kazakhstan, Egypt, and Somalia. The subnational poverty diagnostic TF led to similar Bank engagement encompassing all EU countries. 42. The CPF made an important contribution towards strengthening public institutions and policy. The program closely followed the IBRD capital package requirements for countries above the Graduation Discussion Income level.26 In line with the CPF’s overarching objective of institutional strengthening, the program built capacities for service delivery and increased institutional efficiency, accountability and transparency, the effectiveness of organizational arrangements, and promoted stakeholder participation and ownership. By using the ICAM framework, Annex 3 captures the main contributions made towards the institutional change objectives of the Bank’s lending, RAS and TF activities. 43. During the CPF period, IFC engaged in Croatia in projects with clear additionality. IFC interventions played a counter-cyclical role and strengthened the capital position of financial institutions through otherwise scarce MREL instruments. IFC supported capital market development through a pioneering sustainability-linked bond issuance with a financial institution with proceeds to be used in key areas such as green and social projects, including healthcare, basic infrastructure and affordable housing, as well as anchoring the first sustainability-linked bond issued by a municipality in Central and Southeastern Europe, aimed at supporting its green and climate investments. In terms of non-financial additionality, IFC helped clients adopt environmental, social, and governance standards (ESG), Excellence in Design for Greater Efficiencies (EDGE) standards, and strengthened capacity building with a subnational government. 44. IBRD and IFC collaborated to jointly deliver on several results, with IFC augmenting the impact of the WBG program through its work with the private sector and mobilization of additional capital (see Section II above). In several areas, IBRD and IFC worked jointly, with IFC contributing to the IBRD program and IBRD supporting new IFC investment opportunities. For example, under the Pannonia RAS and HEAL project, IFC provided expertise regarding the assessment of companies' project proposals (Pannonia RAS) and knowledge sharing on the risk rating of client companies (HEAL). IFC and IBRD also worked jointly on the Circular Economy RAS resulting in a follow-up IFC engagement with the City of Zagreb on the development of waste management capabilities. In addition, IBRD and IFC worked jointly on a Blue Economy ASA, followed by IFC implementing the first blue loan framework financing for a hospitality group with tourism properties on the coast and in maritime protected areas. 45. Procurement, financial management, and social performance are assessed as Satisfactory, while environmental performance is assessed as Moderately Satisfactory. Project Implementation Units (PIUs) are staffed with experienced experts with adequate technical knowledge, although 26The IBRD Graduation Policy emphasizes two key criteria: (i) access to external capital markets on reasonable terms; and (ii) progress in establishing key institutions for economic and social development. While WBG financing prioritizes countries below GDI, engagement continues with clients across the income spectrum, as does lending for crisis response to countries above GDI. 38 unattractive employment conditions for these positions often result in strained capacities. The current social safeguards risk profiles of the existing operations range between Substantial and Moderate on account of the occupational and community health and safety risks associated with civil work activities in built environment settings, limited stakeholder engagement, outreach, as well as a lack of accessibility to grievance redress mechanisms. There is still insufficient appreciation of the role of environmental protection and safeguards in contributing to human health and societal wellbeing. Procurement-related complaints were occasional, and usually not substantiated. The main hindrance to achieving the optimal performance of procurement under Bank-financed projects was the recurrent longer evaluation time and the recurring conflict of interest situations in consulting services contracts. The financial management arrangements of all projects are considered adequate and satisfactory for project implementation. There is adequate financial management expertise within the implementing ministries and the PIUs. Country systems were not used during the CPF period, although the use of national procurement and social safeguards systems was explored. IV. ALIGNMENT WITH CORPORATE GOALS 46. The program was aligned with the WBG mission of eliminating extreme poverty and boosting shared prosperity on a livable planet. The Pannonia RAS and the STARS RAS targeted Pannonian Croatia, a lagging region in which seven out of eight counties have the highest poverty rates in the country. Projects in education, railways, land, and justice sought to improve access to services by poorer populations. The analytical and advisory program also had a strong poverty focus, with annual poverty monitoring updates as well as the Croatia: Support to Improve Poverty and Social Policies Monitoring TF, which developed a methodology for the measurement of poverty and social exclusion at the sub- national level to fill a critical evidence gap in Croatia’s poverty-reduction policy. The two pension RASs were aimed at increasing the adequacy of pensions for Croatia’s rapidly aging population, living at a significantly greater risk of poverty and social exclusion compared to EU peers. 47. The program made progress on the climate agenda, but there is scope to be more effective in the future. In the absence of broader client demand, the program had relatively modest results under climate-related objectives (energy transition, water, and solid waste). However, investment projects such as the Earthquake project, Justice for Business, and the WDS project bring buildings up to the top EU green standards, while the railway project generated reductions of CO2 emissions quantified at 3.452 million tons-km in 2022. With a share of 60 percent of total commitments, IFC’s climate-related investments had a leading role and included climate finance, improved waste management practices, enhanced circularity, and new renewable energy generation. IFC investments in three wind projects resulted in a reduction of emissions of 59,590 tons CO2 per year and also increased the availability of climate finance instruments. The Country Climate and Development Report (CCDR), currently underway, is expected to inform and open engagement areas under the new CPF, subject to client demand. Climate co-benefits have been steadily on the rise and have reached 50 percent under the last approved operation under the CPF. The Bank has also supported the MoF in introducing green budget tagging to align Croatia’s budgeting processes with its climate and sustainability goals. 48. The WBG delivered relevant gender-focused analytical work and promoted women’s entrepreneurship. In addition to a flagship Country Gender Assessment (2019), the Bank produced analytical pieces looking at different gender dimensions, including women’s economic opportunities (2020), the impact of the COVID pandemic on women (2020), and women’s labor force participation (2024). While gender analytics had limited traction through broader policy dialogue, the program had more effect on gender outcomes through its project engagements. Four out of eight lending operations delivered under the CPF were gender-tagged. The WDS project is expected to have a notable impact on addressing Croatia’s gender inequality given the projected increase in female labor market participation; the DIGIT project provides tailor-made support to female applicants for RDI programs; while the Integrated Land Administration and Justice Services project is expected to improve court 39 facilities to address the needs of women accessing the justice system. IFC supported a regional VC fund focused on women-led or women-owned technology and innovative start-ups. 49. The CPF program met corporate requirements related to citizen engagement. A citizen- oriented design and a beneficiary feedback indicator were included in all investment projects, and the country program showed progress against the citizen engagement indicators in the implementation status and results reports. The quality of citizen engagement improved in the second half of the CPF cycle, with all projects approved since FY21 scoring highly on all four quality attributes of citizen engagement. In the next CPF cycle, additional efforts should be made to enhance the inclusion of other vulnerable groups in planned citizen engagement activities. 50. The WBG program supported the mobilization of private sector financing . While all lending operations approved under the CPF helped leverage additional EU funds, Rijeka Gateway II catalyzed EUR410 million public-private partnership investments to two terminals of Croatia’s largest seaport. During the CPF period, IFC mobilized US$332.5 million spread across projects related to the greening of municipal infrastructure, renewable energy generation, and increased financing for social projects such as employment generation, the protection of MSMEs’ financing, and climate finance. V. LESSONS LEARNED 51. The flexibility of the World Bank program, including use of a range of instruments, allowed the Bank to support Croatia overcome multiple crises and increase resilience while helping address its long-term reform agenda. The Bank’s program maintained a focus on the medium-term objectives defined by the CPF, but the framework also allowed the Bank to respond quickly to the multiple crises that faced Croatia during this period. To do so, the WBG used a suite of instruments including a DPF, IPFs with PBCs, and innovative climate products, as well as advisory services, including demand-driven and timely RASs to support the GoC to develop and implement elements of its NRRP. The new CPF should draw on these lessons to strengthen the program’s readiness to respond to shocks and offer the additional flexibility now available under the Rapid Response Option. 52. The World Bank Group’s knowledge program, and particularly RASs, can be highly effective in supporting the reform agenda in a high-income country such as Croatia. There was new impetus to the GoC reform program with the development of its NRRP. The RAS instrument has allowed the Bank to provide its deep knowledge on development solutions and policy reforms on a timely basis and with significant impact, with Bank advisory inputs supporting the design of new policies, programs, and institutional approaches. Beyond the RASs, the Bank advisory services have been important to draw policy makers' attention to issues, help set agendas and position the Bank as a trusted advisor. For IFC, upstream and advisory services fill capacity gaps on the market, which are not being addressed by other institutions, in addition to helping identify a pipeline of investment projects. The new CPF should continue to rely on a strong RAS and knowledge program to support reforms, institutional development, and market creation to deliver on impactful results in a higher income country such as Croatia. 53. The success of a country program with a strong knowledge focus is highly dependent on local presence. Given its strong knowledge focus, the Croatia program facilitated plenty of knowledge transfer on critical development issues, requiring a great deal of contextualization and tailoring of global knowledge to address country needs while taking into account the local context (for example, actual and pending legislation, the political economy, partner activities, and so on). Country Office based staff have been critical in this sense, allowing for continuous dialogue and support to counterparts as they undertook reforms. The CPF experience therefore suggests that the staffing model of covering tasks solely with hub-based staff may curtail the ability of the program to respond to emerging new areas and to provide adequate just-in-time support to client needs. Ensuring an appropriate locally based staffing contingent is critical for the success of a knowledge-based program that supports reforms. 54. RASs and other ASAs are successful generators of important knowledge spillovers and Global Public Goods. The experience of providing hands-on support in complex reform processes in Croatia 40 strengthened the ability of the Bank’s regional and global teams to devise and implement highly effective, tailor-made development solutions. Advisory services provided in a HIC context and with the aim to help meet EU development milestones generated cutting-edge knowledge (see Annex 8 on Knowledge Spillovers). This knowledge has proven to be highly relevant for the EU countries and beyond, as well as for aspiring MICs. Generating and documenting knowledge spillovers in a systematic way should be a priority under the next CPF. 55. Project design and use of instruments need to better account for institutional capacity constraints, including through increased use of results-based and programmatic modalities where possible. While selective and ambitious, projects in Croatia need to be designed to realistically consider institutional weaknesses, to carefully measure outcomes attributable to the project, as well as to recognize and address capacity constraints. These challenges can be addressed by moderating ambition or by adjusting design, while ensuring a quality results framework. In particular, results-based instruments such as IPF with PBCs or PforRs can be used in the future to further strengthen institutional capacity. Such instruments can support longer-term engagements for sustained institutional capacity strengthening and institutional reform, while calibrating the pace of implementation to capacity. For IFC to deliver innovative climate products, it needs to couple the investments with technical support in order to address the capacity constraints of the clients. 56. Identifying and delivering on few but actionable high-impact areas of engagement have a better chance to advance the green agenda than defining the WBG interventions in a broad and all- encompassing manner. Most of the originally envisaged activities in the CPF to advance the green agenda (Green DPO, Energy RAS) were broadly defined and overly optimistic in their ambition. They did not materialize due to their overall complexity and the lack of political willingness to pursue large all- encompassing cross-sectoral or multi-faceted reform in sectors with multiple stakeholders. However, the CPF proved that more targeted engagements such as supporting the transition to low emission maritime transport or the introduction of green budget tagging can generate better traction and yield concrete results. Going forward, instead of pursuing large and all-encompassing reforms in the areas of green transition and climate, the WBG should try to make use of the granular picture provided by the upcoming CCDR to explore a selective set of targeted high-impact interventions. 57. Close partnership with the EC is critical to maximize the Bank’s impact in an EU member state such as Croatia. Croatia’s broad policy directions are significantly guided by longer-term EU commitments as well as by EC financing and the requirements to access such financing. The EC is the largest source of external financing for Croatia. The Bank has increased its impact through close collaboration and coordination with the EC to support Croatia achieve important reforms and milestones, both through WB investment projects and advisory services, and by leveraging EC financing. For both IBRD and IFC, this requires close partnership with different parts of the EC, good command of EU programs and instruments, as well as an understanding of best comparative practices in other EU member states. 58. There is a need to galvanize the One World Bank Group approach in Croatia. While IBRD and IFC coordinated efforts and in several instances also worked together over the current CPF period, the approach to exploring joint initiatives and joint delivery of the program was not systematic. Over the upcoming CPF period, there is scope for more synergy and impact by bringing together IBRD, IFC and MIGA financing instruments (investment project financing, IFC investment and advisory services, and MIGA, IBRD, and IFC guarantees) to achieve targeted objectives and to further leverage private capital. Open and continuous active engagement and knowledge sharing among WBG institutions is essential going forward to deliver more optimal and timely solutions for our clients. This will require more intensive common planning and upstream collaboration between IBRD, IFC and MIGA, closer joint work by sectoral teams, and strengthened sectoral staff presence on the ground. 59. A more outcome-focused results framework could better capture the contributions of the Bank Group program. The current CPF envisioned a stronger shift towards a knowledge-based program 41 with a results framework focused on immediate outputs, making it difficult to track and account for desired outcomes. Defining outcome-oriented indicators for the program, including knowledge activities, would increase the results focus of the program and facilitate the assessment of its success. This would also align program contributions to feed into the Corporate Scorecard during the FY25-30 period. Such an approach would require closer downstream monitoring of impact, including beyond the termination of tasks. 42 CLR ANNEXES CLR Annex 1. Summary Table: Status of Croatia FY19-FY24 CPF Results Matrix Overall Description Status at CLR rating CPF Objective 1: Improve efficiency of public administration to implement strategy and deliver services Indicator 1: NDS is implemented as evidenced by Government monitoring macro-governance variables Achieved across strategic areas Indicator 2: Strategic Plan for Agriculture and Fisheries under implementation and M&E framework Achieved Achieved developed (as required by CAP) Indicator 3: Adoption of the new regulatory framework for a more equitable, transparent and Achieved competitive public wage system Indicator 4: Assessments of the post-earthquake damages, losses, and needs developed by the Achieved Government across different ministries and level of governments CPF Objective 2: Support policies that reduce fiscal vulnerabilities, with a focus on State-Owned Enterprises Indicator 5: Preparation of the multi-annual Achieved infrastructure contract (MAIC) Indicator 6: Ability of MSTI to monitor and enforce performance of Road Sector SOEs using Key Achieved Achieved Performance Indicators (KPIs) Indicator 7: Introduction of the new macroeconomic model of the Croatian economy into the budget Achieved process CPF Objective 3: Create opportunities for people, particularly in less developed regions Indicator 8: Implementation of Whole Day School Achieved model in demonstration schools Indicator 9: Private capital mobilized for investments Mostly Achieved Achieved in Slavonia Indicator 10: Number of firms financed with HEAL in underserved segments (owned/ managed by women Mostly Achieved and young enterprises) and lagging regions 43 CPF Objective 4: Enhance energy efficiency and energy transition Indicator 11: Introduction of financial instruments for energy efficiency renovation of residential buildings Partially Not Achieved (targeting multiapartment buildings or single-family homes) Achieved Indicator 12: Cumulative RE energy generation from Mostly Achieved existing IFC RE investments between 2019 and 2023 CPF Objective 5: Improve water and solid waste delivery and management Indicator 13: Adoption of the new Waste Management Plan (2023-2028) Achieved Achieved Indicator 14.: National Water Loss Reduction Action Plan (NWLRAP) for the reduction of water losses Achieved developed, including requirements for new infrastructure CPF Objective 6: Improve business climate and increase the private sector’s role in the economy Indicator 15: Number of professions with removed licenses, quotas, price regulation, or other Achieved unnecessary restrictions to competition. Achieved Indicator 16: Reduced transaction processing times in Achieved land registry Indicator 17: Number of Total Direct Jobs Supported Achieved by IFC clients CPF Objective 7: Promote entrepreneurship, competition and innovation Indicator 18: Value of research and innovation Achieved Achieved support programs informed Indicator 19: Number of IFC investments in innovative capital market and private equity Achieved instruments (local currency bonds, covered bonds, green bonds, equity funds) 44 CLR Annex 2. Croatia FY19-FY24 CPF Results Matrix Evaluation Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Focus Area 1. Enhancing Public Sector Performance, Institutions, and Resilience to Shocks CPF Objective 1: Improve efficiency of public administration to implement strategy and deliver services (Rating: Achieved) Indicator 1. NDS Baseline: No Achieved. Objectives and scope of strategic and LENDING is implemented (2019) multi-sectoral TA projects need to be - Health System Quality as evidenced by The NDS has been under implementation since February clearly communicated to the client and Efficiency Government 2021. The Ministry of Regional Development and the EU and stakeholders in order to manage Improvement monitoring Target: Yes Funds is monitoring macro-governance variables across expectations, including using a (P144871) macro- (2022) strategic areas of the NDS, including through an online Public communication strategy and - Earthquake Recovery governance Policy Monitoring Dashboard. publishing outputs right after and Public Health variables across delivery. Preparedness Project strategic areas Source: Croatian Parliament adopts National Development (P173998) Strategy Until 2030; Government of the Republic of Croatia, Develop a strong working - Croatia: Towards The NDS Annual Implementation Report for 2021; Ministry of relationship with the client; be Sustainable, Equitable Regional Development and EU Funds, Public Policy responsive to country needs while and Efficient Education Monitoring Dashboard. maintaining selectivity; initiate Project (P170178) Indicator 2. Baseline: Achieved. introduction of government - Integrated Land Strategic Plan for No (2019) intersectoral coordination Administration Project Agriculture and The Bank provided advisory support for the formulation of mechanisms with clear distribution (P166324) Fisheries under the strategic vision for the 2030 Agriculture Strategy, which of roles and responsibilities; share - Integrated Land and implementation Target: Yes the Parliament adopted in February 2022. The Strategy is information on best practices from Justice Services for and M&E (2022) under implementation through the Croatia’s CAP (EU EU Member States. Citizens Project framework Common Agricultural Policy) 2023-2027 Strategic Plan, (P180605) (FY24) developed approved by the EC in October 2022 and monitored by the EC Coordination is key: introduce strong EC DG for Agriculture and Rural Development, result mechanisms to implement the RAS Indicators Dashboard. reform including a coordinating body - Support for (ministerial level), working group Establishing the System Activities planned under the Strategy/CAP are carried out by (technical officials), Sector network for Strategic Planning the Paying Agency for Agriculture, Fisheries and Rural (across Government), in addition to and the Preparation of Development through public calls for proposals funded by the internal WB coordination. the National European Union. To date, the Paying Agency for Agriculture, Development Strategy – Fisheries and Rural Development carried out public calls on Include emphasis on ‘soft aspects’: 2030 (P166454) local development strategies (LEADER - EUR 103 m; eligible deliberate hands-on support to 45 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF local action groups - LAG27 ), education and training for analyze the political economy, - Strategic advisory services in agriculture (EUR 7 m), agriculture primary develop a strategic communication Transformation in production (EUR 75 m; eligible agriculture producers entered and change management strategy, Agriculture and Rural in the Register of Framers and producer organizations), and develop a wide and deep Space (P167852) participation in quality schemes (EUR 3.8; eligible agriculture stakeholder engagement at the - Reforming the Public producers entered in the Register of Farmers), upgrading of outset. Sector Wage Setting public infrastructure (EUR 30 m; eligible local self- Mechanism (P173346) government units), energy from renewable sources (EUR 10 In projects with the involvement of - Supporting the m; eligible nature and legal persons entered in the Register of numerous Ministries and Transition from Farmers) and participation in insurance of agriculture stakeholders, coordination and Institutional to production schemes (EUR 13.3; eligible nature and legal timely communication is key. Community-Based Care persons entered in the Register of Farmers) (source: Ministry for Vulnerable Children of Agriculture, Rural Development Program tenders). GoC needs to improve its capacities and Persons with for conducting post-disaster needs Disabilities (P179065) Three public calls are ongoing: participation in European assessments. Lack of such technical Innovation Partnership – EIP (EUR 3.5 m; eligible EIP capacity is a significant gap in the TF operational groups established after January 1, 202328), system’s readiness for the next Poverty Diagnostic and upgrading of skills of agriculture advisors (EUR 4.5 m; eligible disaster. Social Monitoring TSI private and public entities providing advisory services in (P178975) agriculture) and participation in insurance of agriculture Local level challenges may not always production schemes (EUR 13.3; eligible natural and legal be readily apparent to the national ASA (BB) persons entered in the Register of Farmers) (source: Ministry level, especially in the aftermath of a - Costing and of Agriculture, Rural Development Program tenders). disaster. Granular analytics can play promotion of a a crucial role in providing evidence to comprehensive A related M&E framework developed in cooperation with the highlight and address local level education reform in World Bank informed the 2030 Agriculture Strategy, which challenges at the national level. Croatia (P172410) contains a dedicated M&E framework. - Strengthening Public Adopting a programmatic multiyear Sector Efficiency and Source: Croatian Parliament adopts Agriculture Strategy and flexible approach to producing 2030; EC Croatia’s CAP Strategic Plan (summary); Croatian 27 LAG is a European tool included in the Program LEADER+, aimed at promoting and strengthening the development of the rural areas of a given territory (source: EAPP). LAG membership is normally open to individuals and representatives of organizations and businesses living and / or working within the LAG (source: LEADER Toolkit) 28 European Innovation Partnership (EIP). EIP groups are intended to bring together multiple actors such as farmers, researchers, advisers, businesses, environmental groups, consumer interest groups or other NGOs to advance innovation in the agricultural and forestry sectors (EIP-AGRI Operational Groups) 46 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Parliament, the 2030 Agriculture Strategy; Croatian analytics is the right instrument for a Accountability in Government, the Agriculture Implementation Report. high-income country like Croatia. Croatia (P175259) - Croatia - Key Once a policy reform area is Institutions for Building identified, investing in strong just-in Resilience of the time (programmatic) analytics pays Economy (P169670) Indicator 3. Baseline: No Achieved. off, even if the reform path is not - Enabling Resilient Adoption of the (2022) fully clear. Reconstruction and new regulatory The new Law on Wages in the State and Public Services was Sustainable framework for a Target: adopted in December 2023. Revitalization in Sisak- more equitable, Yes (2024) Moslavina County transparent and The new Law on Wages in Civil Service and Public Services (P177383) competitive was approved by Parliament in December 2023, followed by public wage the following regulations in February 2024: Regulation on system method of Applying Standard Criteria for Job Evaluation and Job Classification in the Civil Service and Public Services; Regulation on the Ranges of Coefficients in Pay Grades in the Single Pay Scale in the Civil Service and Public Services; and Regulations on Job Titles, Job Assignment Requirements, and Coefficients for Salary Calculation in the Civil Service & Public Services. The Bank’s recommendations under the Reforming the Public Sector Wage Setting Mechanism RAS (P173346) resulted in a newer, simpler, and more transparent system which affected over 240,000 employees in the public sector. The public wage reform has had a direct impact on horizontal equity across much of the public sector by adopting features conducive to the "same pay for the same job" principle. It adopts many best practices of mature public administrations that will contribute over time to higher public sector efficiency across agencies and institutions. The new features adopted include an analytical job evaluation methodology, new salary coefficients, a single, narrow-graded structure with 16 grades, the consolidation of job titles (from 3,163 to 1,375), reduction of job specific 47 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF supplements (from 619 to 0), the establishment of a central government body, and the introduction of a performance- related pay system. The institutional coordination included 28 government stakeholders (e.g. ministries and agencies with approximately 240,000 employees) and key trade unions (e.g. civil service, education, health and judiciary). Source: Croatian Parliament adopts Act on Wages of Public and Civil Servants and Civil Service Act. Indicator 4. Baseline: 0 Achieved. Assessments of the post- Indicator added at PLR, although without baseline and target earthquake Target: 2 years. Years to use: 2019 (year prior to earthquakes) and damages, losses, 2021 (year after earthquakes). and needs developed by the The World Bank supported the Government in undertaking Government two multi-sectoral post-earthquake assessments of damages, across different losses, and needs for Zagreb (2020) and Petrinja (2021). ministries and level of Based on the RDNAs (March 2024 earthquake; December 2024 governments earthquake) written with WB TA support, the GoC prepared two applications for assistance from the EU’s Solidarity Fund and was allocated a total of EUR 1.1 billion, which were used to renovate damaged infrastructure, including 18 hospitals and 56 healthcare facilities, 156 schools and kindergartens, 26 higher education institutions, 250 cultural heritage buildings, 100 km of public water supply and sanitation network, over 600 km of roads, 77 bridges, 40 passes, 6 km of tram tracks, and 4 railway buildings, and to provide temporary accommodation for displaced persons, equip firefighting brigades, and secure embankments and potential landslides. EUSF allocation was fully absorbed. RDNAs were also used for planning the financial allocations in the NRRP (Buildings Renovation Initiative component), ESIF 2021-2027, and the state budget. WB helped strengthen the coordination and 48 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF implementation role of the Ministry of Physical Planning, Construction, and State Assets for any future potential post- disaster assessments. Source: Ministry of Physical Planning, Construction and State Assets, Croatia Earthquake RDNA 2020; Ministry of Physical Planning, Construction and State Assets, Croatia December 2020 Earthquake RDNA Additional evidence: • NDS 2030 RAS: The new national framework for strategic planning and the establishment of strategic planning structures within all state administration bodies was developed based on the outputs of this RAS. The RAS also provided inputs for the development of the Regulation on the Guidelines for Development of National Strategic Planning Acts and Local/Regional Strategic Planning Acts and the Strategic Planning Manual. In practice, Croatia’s new strategic planning and development management system enables a h ierarchical and practical interlinkage between different categories of strategic planning documents (long-, medium-, and short-term strategies, as well as EU-funds related strategies) and the state budget. This ultimately improves the efficiency of public administration and public spending through a more targeted and transparent allocation of available resources. The new system includes strategic planning coordination units in each ministry whose aim is to facilitate, coordinate, and streamline the strategic planning and development management process. The RAS provided a comprehensive library of indicators which is used for monitoring progress and effects of public policies. Source: MRDEUF, Strategic Planning System description; MRDEUF, Public Policy Monitoring Dashboard; MRDEUF, Regulation on the Guidelines for Development of Strategic Planning Acts. • NDS 2030 RAS: 21 sectoral policy notes delivered in 2019 under the RAS enabled the Government to develop the 2030 National Development Strategy (NDS) which was adopted by the Parliament in 2021. The 2030 NDS is the umbrella national strategy which guides the preparation and implementation of all national development policies. In this sense, it provides a unified development framework including the highest-level objectives and targets which then facilitates and streamlines the preparation of all other sectoral strategies. By 2023, within the 2030 NDS framework, a total of 27 sectoral strategies were prepared by various line ministries and another 36 strategies were in preparation. Sources: The 2030 NDS; The 2030 NDS Annual Report (pages 85-90). • NDS 2030 RAS: the NDS policy notes were used as key sectoral inputs for the preparation of Croatia’s (NRRP) enabling Croatia to utilize EU facility for post-COVID recovery with a national allocation of EUR5.8 billion in grants and around EUR4.2 billion in favorable loans. Source: The NRRP 2021- 2027; the NDS Policy Notes. • Poverty and social monitoring TSI: WB has developed a methodology for the poverty and social exclusion database system at sub-national level for the Ministry of Labor, Pension System, Family and Social Policy (MLPSFSP). The database is planned to be built by 2028. The MLPSFSP's efforts to build this database for poverty and social exclusion are a national priority since it will enable evidence-based diagnostic of poverty and social exclusion which is an enabling condition (ENC) for the use of European Social Fund Plus in the EU’s cohesion policy 2021-2027 period. The WB proposed methodology for tracking poverty and social exclusion is available at: Register-based Measurements of Poverty and Social Exclusion. Source for ESF+ enabling condition: Enabling Condition. Press release about the project. 49 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF • Poverty and social monitoring TSI: The team also successfully supported the MLPSFSP in advocating for the inclusion of crucial information related to poverty and households in the MoF’s Draft Law on Population Register. The final draft Law has been debated in the Parliament in December 2024; however, the law has not yet entered into force. • Poverty and social monitoring TSI: the WB helped produce a harmonized tool to collect data inputs from stakeholders and to monitor the implementation progress of 5 national plans in domain of social protection, tracking nearly 300 outcome and results indicators, as well as a national mechanism for stakeholders engagement to monitor these plans, thus enabling a more evidence-based and coordinated implementation of key national strategies in domain of social services. Source: five national plans with related action plans and progress reports. Project results were presented at the final dissemination conference. • Supporting Disaster Resilience in Croatia BETF: The WB facilitated a national-level Ready to Respond self-assessment on strengths/weaknesses in the disaster risk management system, which has informed the Civil Protection Plan adopted in September 2023. In parallel, the Ready to Respond self-assessment was also conducted at Zagreb city level, and informed the Urban Security Strategy 2025-2030 for the City of Zagreb, which went through public consultations and was adopted in December 2024. The TA project has also conducted a portfolio-review of over 60 assets in CP and critical emergency response assets (fire stations, 112 and 195 centers), collecting data for these assets, assessing their vulnerability to seismic hazard, and quantifying costs/benefits related to upgrading/reconstruction of key assets at risk. This was the first ever such analysis conducted in Croatia and has strengthened the ability of both the national and City of Zagreb to undertake such assessments on their own in the future. • Strengthening Public Sector Efficiency and Accountability ASA: WB recommendations from the main analytic studies “ Fiscal Decentralization in Croatia” and “Municipal mergers and associations: Experience and lessons from EU/OECD countries ” on enhancing the intergovernmental fiscal transfer were adopted, including through an ongoing NRRP incentive program to promote municipal mergers and associations of EUR13 million for the next three fiscal years. Some of the recommendations pertained to: 1. Establishing a fund to incentivize municipal mergers and associations; 2. Development analytics to review fiscal capacity and the fiscal equalization formula; 3. Clarifying the minimum financial standards for decentralized functions; 4. Introducing the real estate tax at the local level. The MoF published a public call for funding of voluntary functional or real mergers of municipalities in 2022 and, so far, a total of EUR3.8 million has been paid out to municipalities which applied. • Key Institutions for Building Resilience of the Economy ASA: Subsequent changes in the Labor Law introduced a number of amendments in line with the recommendations from the WB report aimed at achieving better balance between flexibility and security of jobs. • Functional Areas TF: City of Zagreb used World Bank TA to apply for EUR600,000 of HORIZON funding (Call for Pilot Cities Cohort 2 (2023) (NZC-SGA- HE-202309) to finance pilot program on greening urban courtyards for carbon neutrality. The scale up of the proposed program will reduce annual GHG emissions by an estimated 3,750 to 5,000 tons of CO2 per year (Pilot Cities Program; EC TAIEX) • Earthquake Recovery and Public Health Preparedness Project: The Division of Pediatric Hematology and Oncology of the KBC Zagreb (KB REBRO – the largest hospital in Croatia) is a Reference Center of the Ministry of Health and the only hospital in Croatia where allogenic bone marrow transplantation is performed. The loan financed the development of a new modern, safe, energy-efficient department, critical for most vulnerable patients across the country. The department is open since October 2024. The services are expected to directly benefit a total of 4,100 children for inpatient and outpatient health services and some 57 health specialist/employees (working there daily). In addition, the project also strengthened administrative and technical capacity of engaged institutions, including integrating innovative approaches such as Building Information Model (BIM) 50 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF for the construction of REBRO Phase 3 Hospital building, planned to be used also for the designs of the Technical Engineering Faculty (FER). Several rounds of trainings have been provided to Government officials related to BIM. • Earthquake Recovery and Public Health Preparedness Project: To address the challenges posed by the COVID-19 pandemic, consumables (including NSG reagents and COVID tests), decontamination tents and insulation tents worth 685,000 Euro were procured and delivered under the project in 2022. Full population coverage has been achieved for reporting and investigating suspected cases as per the approved protocol. As part of the results framework of the project, the national COVID-19 surveillance guidelines were adopted by the Croatian Institute of Public Health (CIPH) in 2020 and updated through several revisions to date. Two sentinel sites for respiratory viruses are currently providing quarterly reports on respiratory viruses, strengthening the monitoring of chronic non-infectious diseases and certain infectious diseases, and abilities of health institutions to plan actions against disease outbreak. The procured diagnostic equipment is used in 19 reference laboratories by 77 employees of the Microbiology Service covering the entire country. As of November 13, 2024, a total of 240 hospital staff and emergency medicine staff (including managerial staff) have been trained under the project, strengthening the capacity of these staff for effective and rapid response to disasters and making the public service delivery more resilient in face of disasters and disease outbreaks which have a potential to create mass casualties. • Earthquake Recovery and Public Health Preparedness Project: The reconstruction of Petrinja vocational school resulted in the development of a modern, safe, energy-efficient school facilities, critical for the area and students in this lagging region and across Croatia seeking vocational education. The school has been opened since September 2024. The school already benefits over 250 students and 50 employees (teachers and other staff), with student numbers expected to increase in coming years. Indirectly, 19,950 people – i.e. the population of the City of Petrinja will benefit from the school facilities – especially the sports hall which will also provide space for clubs/activities related to the City of Petrinja, as well as sports events/competitions. • Rijeka Gateway II: The project achieved several improvements in the quality of intermodal connectivity. The Port of Rijeka Authority (together with a Railway Infrastructure Company) obtained the grant financing from the EU for the construction of two intermodal yards as a result of the project support on Environmental Impact Assessment for Reconstruction of railway stations Rijeka and Rijeka Brajdica related to construction of the new (Zagreb Container Pier) and extension of existing (Brajdica) container terminal. The grant covered loading/unloading of containers; reconstruction of the railway station Rijeka-Brajdica; the construction of a new track in the connecting tunnel, and project management. • Health P4R: All 33 acute care hospitals assessed in December 2018 met or exceeded 80% compliance with mandatory quality standards, exceeding the original target of 50% and revised target of 80% (DLI 6). As a result of these improvements, 13 of the 15 hospitals with the worst in-hospital mortality rates were able to substantially reduce mortality between 2015 and 2018, with mortality reductions ranging between -4% and -52%. The number of counties with specialized services for palliative care increased from one in 2012 to 19 in 2019, exceeding the target of 15. The percentage of best-performing rationalized hospitals with publicly disclosed results improved from zero in 2012 to 90% (28 of 31 hospitals) in 2019, exceeding the target of 40% (DLI 5). • ILAS: LROs experienced a drop in transaction times from an average of 46 days (baseline in 2011) to 8.08 days (primarily for sales and mortgages), exceeding the revised target of 10 days and almost fully reaching the original target of 7 days, while COs experienced a drop from 30 days baseline to 6 days, surpassing both the revised End Target of 10 days and originally set target of 7 days. By the end of ILAS’s implem entation, the IR Indicator “Percent of LROs processing transactions in 10 days or less” reac hed 76.85 percent, against a baseline of only 40 percent at the project start. • ILAS: The project catalyzed a major increase in the percentage of e-services use, with 68.23 percent of all customers lodging requests online, significantly exceeding the target of 20 percent set under the associated PDO Indicator. The use of the digital land records information supported 51 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF via ILAS is also evidenced by the 6,769,000 requests for information processed online via the Geoportal (vs 850,000 requests at the project start in 2010). • ILAS: By the time of ILAS’s closure, 152 government agencies/ministries were using shared spatial data due to ILAS investment s, thereby exceeding the End Target of 30 agencies under the associated PDO Indicator. • MARS: The TA also assisted in the successful consolidation of the motorway companies, improved accounting and maintenance standards and launched loan funds to carry out operational restructuring studies. The most significant measure is the introduction of an e-tolling system, developed under the project and with implementation funded under the NRRP and set to be completed at the end of 2025. The contract for the development of a new toll collection system in Croatia with Slovakian company Sky Toll worth 80 million euros was signed in September 2024. The system will cover the entire network of motorways in Croatia after the summer of 2026, enabling users to pay using an ENC device or through automatic registration plate recognition via cameras, thus enhancing the efficiency and convenience of toll collection, and reducing operational costs by 15% (Government of Croatia, New Toll System) • MARS: The project strengthened the ability of Ministry of Sea, Transport and Infrastructure (MSTI) to plan road sector investments by supporting the establishment of a directorate within the MSTI, establishment of standardized accounting practices, development of a road transportation strategy, and establishment of a single database of public roads as a basis for a new platform for spatial monitoring of all road activities. • CIRCLE RAS: Under the RAS, the CE Committee (CEC) was successfully established to facilitate Croatia’s CE transition and achieve the EU waste management / recycling targets, as an entity that will remain in effect well beyond the project’s lifetime. Led by the lien ministry, the CEC includes 19 members from 14 organizations and professional associations representing the public and private sectors, academia, and civil society, whose cooperation will strengthen the coordination and stakeholder buy-in needed to implement the reforms. • CIRCLE RAS: Six in-person trainings on sustainable CDW management in six Croatian cities, three webinars on selected CE topics and two study visits showcasing good practice examples of Slovenia and the Netherlands engaged over 300 participants (over 100 in-person + over 200 online) from state institutions, regional and local governments, private sector, business associations, academia and NGOs, providing tools and methods for accelerating circularity and transferring knowledge on best resource circulation practices (regulatory and licensing environments, market mechanisms, etc.) (Ministry of Economy, CE Training). • STARS RAS: Capacity for evidence-based strategic planning, implementation, and monitoring has been increased in the Ministry of Agriculture, the Paying Agency and other sector stakeholders (e.g. academia, producers, Chamber of Agriculture, private sector) through numerous seminars, workshops, consultations, discussions in different parts of the country and with different sets of participants, bringing expertise and examples from other parts of Europe and globally. The RAS also established the national technical capacity to use the agroecological zoning (AEZ) platform on strategic planning of agriculture production under different climate change scenarios. CPF Objective 2: Support policies that reduce fiscal vulnerabilities, with a focus on State-Owned Enterprises (Rating: Achieved) Indicator 5. Baseline: No Achieved. -Regular crisis coordination with LENDING Preparation of (2019) development partners leads to good - Sustainable Croatian the multi-annual The Ministry of Sea, Transport and Infrastructure finalized the alignment on support agenda and Railways in Europe infrastructure drafting of the Multi-annual Infrastructure Contract (MAIC) in increases the impact of the EU (P147499) contract (MAIC) August 2023. The MAIC is a contract between the 52 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Target: MAIC Government and the rail infrastructure management to policies and funding package, and - Modernization and prepared improve the quality and maintenance of infrastructure in the country’s fiscal stimulus program. Restructuring of the (2024) sector. It introduces conditionalities for the public sector -It is important to carry out an Road Sector (P155842) long-term financing of rail infrastructure (maintenance and independent evaluation on the - Crisis Response and new investments), moving away from unconditional subsidies outcome of policy changes, Recovery Development and providing more solid cost control. MAIC is set to be regardless of government own Policy Operation signed and implemented in early 2025. estimates. (P173996) -Allow more time for complex reform Source: World Bank (ICR); Ministry of Sea, Transport and and infrastructural activities in the RAS Infrastructure, Multi-annual Infrastructure Contract (MAIC). transport sector, such as - Analysis and Proposals Indicator 6. Baseline: Achieved. implementation of tolling and RAMS for the Improvement of Ability of MSTI to Inadequate and strategies development in the the Long-Run Adequacy monitor and monitoring The service-level agreements (SLAs) between the Ministry of roads sector. Sustainability of the enforce system (2019) Sea, Transport and Infrastructure and the Croatian road SOEs -Avoid adopting fixed ratios as Croatian Pension performance of were signed in Q2 2022. SLAs defined the KPIs for the road indicators and adopting indicators System (P178457) Road Sector sector companies and established their monitoring and that depend on activities beyond the - Supporting the SOEs using Key Target: reporting obligations. project’s influence. Development of the Performance Integrated -Before committing to using the Pension Simulation Indicators (KPIs) monitoring This helped reduce fiscal vulnerabilities in several ways: 1) Bank’s PROMIS pension Model and the system in Improved Financial Planning and Budgeting: SLAs include microsimulation model, one should Individual Pension place by detailed cost structures and performance metrics, which can test whether it is feasible to apply it Calculator (P178456) December help governments and road companies plan and budget more in a particular country context due to 2021 effectively, and reduces the risk of unexpected expenses and both the specificities of the model TF financial shortfalls; 2) Enhanced Efficiency and Accountability: and the potential specificities of - Strengthening the By clearly defining the responsibilities and performance national pension systems. If there is Fiscal Capacity and expectations of road companies, SLAs improve the efficiency ambiguity that Bank's Institutions in Romania, of road maintenance and construction projects, which leads to microsimulation model may entail Croatia, and Portugal cost savings and better use of public funds; 3) Debt difficulties, the team should factor in (P176830) Management: SLAs can help road companies manage their sufficient time and/or consider using debt more effectively by providing a predictable revenue the PROST macrosimulation model. ASA (BB) stream and reducing the need for costly renegotiations or -Politically difficult reforms such as - State-Owned refinancing, which can lower the overall cost of borrowing and changes in taxation that adversely Enterprises in Croatia – improve the financial stability of the companies; and 4) Long- affect specific groups in the general An Overview (P167346) term Financial Sustainability: By ensuring that road population can only be implemented maintenance and construction projects are completed on time 53 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF and within budget, SLAs contribute to the long-term financialif there is a critical mass in the -Croatia Public Finance sustainability of the road network, which can reduce the need general public calling for the reform. Review 2021 (P172617) for emergency repairs and costly overhauls in the future. -Hands-on support in technically Overall, SLAs provide a structured framework for managing challenging projects is crucial for -Public Finance Review road projects, which can help mitigate financial risks and success and sustainability of the 2023 (P180009) enhance the fiscal stability of both governments and road supported reform. - Croatian Railways companies. -Presence of a strong local staff who Policy Update can provide support on daily basis is (P166331) Source: World Bank (ICR; ICR IEG Review) key. - Fiscal & Public Indicator 7. Baseline: No Achieved. Expenditure Introduction of model in Management the new place (2019) The World Bank supported the development of CARMEN Strengthening Program macroeconomic (Croatian Structural Macroeconomic Model) in collaboration (P501636) model of the Target: Fully with MoF under Strengthening the Fiscal Capacity and Croatian operational Institutions in Romania, Croatia, and Portugal TF (P176830). economy into model that The model was first used to perform modelling projections the budget supports for the 2023 state budget and for the Stability Program for process budget the period 2024-2026. preparation (2024) Source: Ministry of Finance, Stability Program for 2024-2026. Additional evidence: • SUCRE strengthened the public railway sector’s long-term financial viability, helping ensure that the revenues of the companies cover its costs without relying on GoC subsidies or facing insolvency. The project has contributed to decreasing the operating cost of the railway companies, including through resizing its personnel and reducing labor costs. HZPP operating expenses per train-km decreased to its target of 41.4 HRK/train- km, controlled for inflation. The PSO signed in December 2019 provided a financial framework with the aim of achieving transparent allocation of public resources by 2028. HZI now moves more trains with less resources – from 4,032 train-km per employee to 4,322 train-km per employee, which is a 96 percent achievement of the indicator’s target. SUCRE also financed the European Rail Traffic Management System (ERTMS) plan, with automation improvements allowing the company to reduce fixed costs. HZC’s improved financial situation, owing to the support from SUCRE, resulted in profit of EUR 14million in 2023 with current market share of 55 percent, making it much more attractive to prospective strategic partners. SUCRE clarified the financial relationship between MSTI and the railway companies, helped improve asset management in the three rail companies, and strengthened the capacity of MSTI to set sectorial policy. At the end of the project, both HZPP and HZC were operating without financial losses (World Bank, ICR). • MARS: Debt refinancing and rescheduling carried out between 2017 and 2019 supported through a debt optimization strategy prepared by the financial advisor were extremely successful. The target was achieved and refinancing and rescheduling were successfully completed without the Bank’s guarantee. Without the transaction services provided under the project, the sector was in precarious situation due to the huge impending 54 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF debt repayments. Sovereign bond issuance in November 2017 used to refinance EUR1.275 billion was the most favorable one realized in the international capital markets with the 12-year maturity. Rescheduling was done in April 2018, with the same maturity. Net interest savings for road sector companies are EUR56 million per year. • Rijeka Gateway II: The original and unmodified targets related to the Port Rijeka Authority (PRA) financial performance were both overachieved. The ratio of the operating expenses to total operating revenues of PRA is of 93.2 percent at project completion compared to the target of 120 percent, while the subsidies for interest as percentage of operating revenues are of 0.3 percent compared to the target of 10 percent. PRA operating ratio improving from 153 percent in 2007 to 120 percent in 2014. Subsidies for interest reduced from 46 percent of operating revenues in 2007 to 10 percent in 2014. The achievement of these indicators shows an improvement in the revenues stream from the port activities and PRA’s ability to service its debt without additional contri bution from the Government. These accomplishments are particularly important in the context of the market confidence to attract additional private sector investment. • Rijeka Gateway II: The project contributed significantly and specifically to the institutional strengthening of the PRA in several aspects of its activities: (i) management of large civil works contracts and management of contractors in general; (ii) monitoring of the PRA financial performance; (iii) management of environmental aspects in port activities; (iv) management of business relationship with port operators, especially with Luka Rijeka (the Clean start initiative reviewing the basis on which the priority concession was extended in 2012 for another 30 years); (v) capacity to prepare and manage projects and work effectively with other IFIs and EU organizations (enhanced capacity led to preparation of application for EU grant funds port investments); (vi) engaging with all the port community actors in developing the Port Community System; and (vii) managing the bidding process for concession of terminal infrastructure. • Pensions Calculator RAS: Individual pension calculator for which the WB developed a calculation model enables all the insured persons and the broad public to access 1) timely information about the probable amount of pension at the time of retirement, 2) simulating various options of the time and form of retirement, personal income and contributions, implications of higher or lower rates of return on the funds at the individual account in the second pillar, the desired amount of pension, and 3) strengthening the pension and financial literacy of the broad public and insured individuals. The goal of using the calculator is to initiate personal action towards raising the adequacy of the pension through a longer period of work compared to the period of retirement, higher payment of contributions and personal savings, and in general stronger personal responsibility for own social security in the old age (Central Registry of Affiliates, MyPension Platform). • Pensions RAS: The analytical document developed using a pension microsimulation model of the Croatian pension system proposed measures to increase long-term adequacy of pensions in the context of budgetary and fiscal constraints, and intergenerational equity. The document will inform the work of a MLPSFSP-led multi-stakeholder working group which will propose amendments to the Law on Pension Insurance, planned for Q4/2025 under the NRRP. • State-Owned Enterprises in Croatia – An Overview: The activity supported the Ministry of Physical Planning, Construction and State Assets in the preparation of the NRRP chapter on SOEs enabling sell-off of state share in more than 100 companies under an NRRP measure, reducing in this way the state's presence in the economy and promoting efficiency (NRRP; CERP 2022 Annual Report). • State-Owned Enterprises in Croatia – An Overview: several recommendations from the report have been introduced to the new law on SOEs – draft law prepared and undergoing public consultations from December 2024-January 2025, which will result in improved corporate governance of SOEs and support Croatia's accession to the OECD. The law adopted recommendations from the report on ownership policy, a need to define 55 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF rational for state ownership and KPIs for the relevant stakeholders (Government of Croatia on the new legal SOE framework; Croatia’s OECD membership). • Public Finance Review 2023: The ASA showed how the Croatian tax system can be improved in terms of efficiency and equity by stronger taxation of income generated by short-term rental activities in tourism and real estate and further reduction in labor taxes. The report also showed how local government units can raise additional revenues if needed and has simulated how revenues of different local government units would be affected under several reform scenarios. Several local government units have subsequently raised the lump sum tax in line with recommendations from the report (City of Zagreb, decision on lump sum tax). In addition, in September 2024 the Government of Croatia has proposed a tax reform that will be implemented as of January 2025 with changes along the lines of the PFR. The local government will now have the opportunity to substantially increase taxation of short-term rental income and further reduce labor income tax rates. In addition, the Government has taken the first step towards a modern value based real estate tax which is again in line with the recommendations from the PFR. • Health P4R: The percentage of total public spending on medical consumables, drugs, and medical devices for hospital services made through centralized procurement reached 44.53% in 2019, exceeding the revised target of 32.34% (DLI 8). The number of hospital beds in rationalized hospitals classified as acute care beds decreased from 15,930 in 2012 to 12,315 in 2019, exceeding the target of a reduction to 12,800 beds (DLI 1). • MARS: Before project start, road safety audits or inspections as per the European Union (EU) Directive 2008/96 directive were not carried out. At project closing, 100 percent of the roads of TEN-T network were safety audited or inspected according to the EU directive requirements. • MARS: Before the start of the project, the annual operating cost of the two companies was 823 million Croatian kunas. At project closing, annual operating cost dropped to 765 million kunas —a 7.05 percent reduction, with further significant reduction in operating costs expected through introduction of a new automated tolling system in 2026. • MARS: Staff per kilometer of road under operation (motorways). The baseline values for HAC and ARZ were 2.7 and 3.2, respectively. The target was to decrease this ratio to less than 2.2 for each company. The achievement was 2.4 for HAC, which was better than the baseline but short of achieving the target value. • CIRCLE RAS: During the preparation of the 2023-2028 Waste Management Plan, a more detailed and reliable investment planning process was undertaken to avoid underestimating investment costs. Previous financial gap analyses conducted under the RAS revealed such underestimations in the Waste Management Plan for the 2017-2022 period. For the development of the 2023-2028 Plan, an analytical study was prepared to inform the competent Ministry about cost estimates. As a result, the Croatian Waste Management Plan for 2023-2028 outlines significant capital investments amounting to EUR2.18 billion over six years—more than three times the investment of the previous period. Additionally, the investment estimation for managing construction waste and establishing re-use centers developed under RAS project was used. • Fiscal & Public Expenditure Management Strengthening Program PASA: The World Bank has supported the MoF with the preparation of the “Guidance Note on the Green Budget Tagging Methodology for the Republic of Croatia”. Green budget tagging helps identify, qua ntify, and report expenditures related to environmentally sustainable initiatives, aligning Croatia’s budgeting processes with the European Union (EU) and global environmental commitments. The methodology is expected to be adopted in 2025 and applied for the preparation of the national budget 2026. • CPF Objective 3: Create opportunities for people, particularly in less developed regions (Rating: Mostly achieved) 56 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Indicator 8. Baseline: 0 Achieved. In preparation of a lending project as LENDING Implementation (2019) a response to crisis, it is essential to - Helping Enterprises of Whole Day Target exceeded. Piloting of WDS model supported by WB design the project fast so it can Access Liquidity in the School model in Target: 50 was introduced in 62 demonstration primary schools across quickly provide support to those in Republic of Croatia demonstration schools Croatia in September 2023. (Originally, the decision was need. (P172024) schools (2024) made for 64 schools but 2 schools withdrew from the - Croatia: Towards program before the piloting started). Innovative approach to use of PBCs Sustainable, Equitable, in the lending operation has proved and Efficient Education Source: World Bank (ISR); Ministry of Science and Education, to be a useful tool to support and Project (P170178) Decision on Pilot Schools. speed up the reform agenda of the - Earthquake Recovery Indicator 9. Baseline: Achieved. Borrower. and Public Health Private capital 2018 value Preparedness Project mobilized for Based on the proxy indicator for private investments Flexibility in adjusting certain criteria (P173998) investments in Target: 10 (Investment in new fixed assets minus Investments in for sub-loans to new developments Slavonia29 percent Buildings, spaces and structures) in 5 Slavonian counties, and new crisis, can help in faster increase between 2018 and 2023 these investments grew by 60% or disbursement of funds. RAS (2024) EUR 184 million (from EUR 306 million to EUR 490 million). If - Growth and Jobs in this growth rate is adjusted for price growth during this period In preparation of large reforms, it is Eastern Croatia (which was more than 18%, using an investment deflator), essential to establish shared (P167067) then we could say that private investments increased by understanding regarding adequate - Strategic approximately 42% (41.8%). No data on investments is stakeholder engagement and public Transformation in available for 2024. communication standards. Agriculture and Rural At the same time (2018-2023), total number of employed in Space (P167852) the five Slavonian counties increased by 8.5% (from 193 Role of the Bank in designing thousand to 211 thousand employed). politically sensitive reforms should TF be based on clearly defined role, -Croatia: Support to Source: Croatian Bureau of Statistics, Gross Investment, 2018, protocol of engagement and hands- Improve Poverty and Gross Investment, 2023, and Employment and Wages – on support. Social Policies Review by Counties 29 Definition from the CPF: Calculated as the co-financing portion from SME grant schemes (plus financial instruments), and any new major direct investments (e.g., FDI) in Slavonia. The co-financing figures can be obtained from Ministry of Regional Development and EU Funds or Ministry of Economy, Entrepreneurship and Crafts and the FDI figures can be obtained from Croatian National Bank. 57 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Be ready to be flexible to changing Monitoring (P178975) For the implementation of the Industrial Transition Plan for client needs, but also consider Pannonian Croatia (which covers Slavonia) developed under canceling the RAS if the client’s Growth and Jobs in Eastern Croatia (P167067), four grant enabling environment is substantially ASA (BB) schemes worth 200 million EUR targeting this lagging region curtailed. - Costing and have been developed. First call to mobilize private capital has promotion of a been finalized (projects worth over EUR 300 million have In cases when the client is pressed by comprehensive mobilized private capital in the amount of EUR 118.4 million in external deadlines (such as EU education reform in three Croatian regions). The other calls are planned to be commitments), the Bank should be Croatia (P172410) implemented throughout the programming period (until end careful to manage expectations in - Enabling Resilient 2029). terms of delivery timeline in order Reconstruction and not to compromise quality of outputs Sustainable Source: EU Fondovi (Call for Proposals: Strengthening Strategic Revitalization in Sisak- Partnerships for Innovations in the Industrial Transition Manage the client’s expectations at Moslavina County Process) concept stage and throughout (P177383) 10. Number of Baseline: 0 Mostly Achieved. implementation, that the WB will act firms financed (2021) as an advisor, not as a consultant. with HEAL in By December 2024, 29 firms (23 SMEs and 6 mid-caps) in underserved Target: 50 underserved segments have received working capital in the Be ready to actively disseminate RAS segments (2024) amount of EUR 25,2 million under the Project: 21 are from outputs that can be valuable as (owned/manage lagging regions, 7 of which are women owned/managed public goods. d by women and firms, and 1 young enterprise. young enterprises) and Source: World Bank (ISR) lagging regions Additional evidence: • WDS: Whole Day School (WDS) model developed with Bank funding and guidance was adopted by the Government in January 2023, defining the new national curriculum to be introduced once all Croatian primary schools transition from double and triple shifts (2027/2028), i.e. structure of compulsory and optional classes, program of support, supported and enriched learning, and extracurricular activities. By increasing instructional time, introducing new subjects, introducing targeted supplementary learning support, and various extracurricular activities in the afternoon without any additional costs for parents, the model is set in a way to improve the learning outcomes of all Croatian students, especially the disadvantaged ones. The WDS model was introduced in 62 pilot schools in school year 2023/2024 with 11937 students in 922 classes, 2023 teachers, 174 expert associates, 705 administrative-technical staff (Ministry of Science and Education, WDS Experimental Program; World Bank, ISR). • WDS: A vast majority of the demo schools are situated in the rural areas and in the lagging region of Slavonia. Also, these school have 1281 students with special pedagogical needs, 11 with limited mobility, 7 migrants and 495 national minorities students, 935 students are at risk of poverty. Free 58 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF meals have been introduced in most schools, with a warm lunch introduced in all schools as soon as infrastructural preconditions under the project are created. Children also benefit from free textbooks from the new WDS subjects and from free extracurricular activities. Early results show that students in demo schools require less private tutoring, requiring less out-of-pocket payments from parents. • WDS: 62 focus groups held in all demo schools with 737 teachers (4844 comments collected) and 549 parents (3115 comments collected) in the period from November 2023 until June 2024 captured perception of progress in the following areas: increase in hours of teaching for certain subjects, financing of extracurricular activities, free meals in schools, relevance of A2 program, introduction of new subjects (especi ally ‘World and I’ and ‘Practical Skills’), socialization of children, introduction of professional physical training teachers, as well as an overall positive attitude towards the introduction of WDS schools and increase in salaries and opportunities of professional development of teachers. • WDS: The project has helped strengthen and upgrade the capacities of the professional staff in schools. During 2023 and 2024, 2303 teachers and expert associates have received training on the WDS model and on the introduction of new subjects. Also, 68 additional teachers and expert associates have been employed in the demo schools. • WDS: As of Nov 2024, 77% of funds for infrastructural upgrades of demo schools have been committed and 32% spent. Infrastructure upgrades prioritize those directly benefitting children’s health such as increasing capacities of school kitchens and dining rooms ( 2mil EUR), and sports halls or courtyards (1.7mil EUR). Consequently, at the end of first year of piloting students in WDS schools displayed higher levels of physical well-being: 1) physical activity: 59% of 4th grades in WDS schools report doing physical activity 4 or more time per week, vis a vis 28% in non-WDS schools; 2) nutrition: students in WDS schools also report better nutrition (more vegetables, more warm meals, less fast food) than in control non-WDS schools. • WDS: National infrastructure guidelines developed under the project provided a basis of the public call for EUR302 million fr om EU’s RRF to be utilized by Croatian primary schools in order to prepare their infrastructure for a single shift and for the national roll out of the WDS system in 2027/2028. The guidelines development of new infrastructure standards and quality planning with greater energy efficiency and better resilience to climate-induced hazards, and include an advanced design of learning spaces (Ministry of Science and Education – new infrastructure standards). • Pannonia RAS: Based on the methodology for the Industrial Transition Plan for Pannonian Croatia worth EUR200 million (see indicator 9), the Ministry developed two more plans for industrial transition - for the Adriatic and the Northern Croatia regions, worth 140 million EUR and 100 million EUR respectively, thus covering all Croatian regions aside from City of Zagreb. • Enabling Resilient Reconstruction and Sustainable Revitalization in Sisak-Moslavina County: Key activities of the analytics included support to local authorities to undertake localization of the results of the December 2020 RDNA and an assessment of local government finance and sustainability of service delivery in the medium-long-term. These analytics assisted local level authorities to understand better their gaps/needs related to the recovery and reconstruction process and elevate local gaps/needs to the national level through policy dialogue. • SUCRE: The project financed the rehabilitation of 284.6 kilometers of Zagreb-Savski Marof line (10 percent of the Croatian network), strengthening connectivity of surrounding rural areas with Zagreb, increasing train speed from 60 km/h to 140 km/h and reducing travel time by reduction to 22 minutes. Safety has been improved at the national level by reducing accidents to 1 in 2023 from 10 (per 10 million train-km) in 2014. • STPII: The share of HAMAG-BICRO projects submitted by female applicants rose from 0 percent in the baseline to 25.2 percent by the project closing date. The share of UKF/CSF grants assigned to female researchers rose from 10 percent in the baseline to 43.7 percent, while the share of HAMAG- BICRO projects assigned to female applicants rose from 0 percent in the baseline to 19.3 percent. 59 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF • DPF: The elderly living in single person households are deemed the most vulnerable group for at-risk of poverty in Croatia. RI5 helped insure 5,696 vulnerable elderly (age 65+) became recipients of the national benefit for the elderly during the COVID crisis, of which 65 percent were women. The measure particularly benefited single person households (about 48 percent of the recipients). • DPF: PA1 protected incomes through wage subsidies to employers (including coverage of social security contributions) across different contract types, including self-employed and seasonal workers, in a context where employment was severely under threat by the pandemic. The country's large tourism sector was particularly vulnerable as many countries had introduced travel bans. Analytical work by the World Bank estimated that more than 20 percent of employees in the economy were likely to lose their jobs, whereas tourism was estimated to lose more than 50 percent of its. The introduction of wage subsidies early in the pandemic significantly protected employment and contributed to mitigating the pandemic's social and economic impacts. RI1 exceeded the target of at least 50 percent of workers in tourism being employed in 2020 with a significant margin as 83,806 or 72.9 percent retained employment in 2020. • ILAS: The processing times of land transactions and backlogs decreased in underperforming LROs (Split, Rijeka, Dubrovnik, Zadar, Šibenik, Varaždin) whose territories extend into lagging regions, benefitting persons in remote areas because they no longer have to travel long distances to LROs or COs (eliminating time and financial costs). Field cadaster surveys were implemented in the following CMs in lagging regions (the benefit is accurate surveys, so if land transactions take place in the future beneficiaries do not have to pay for survey corrections, and the public display mitigates against future boundary disputes): CM Viduševac , CM Dvorište (Sisak-Moslavina County), CM Garešnica (Bjelovar-Bilogora County), CM Forkuševci, CM Ivanovci Đakovaćki, CM Mrzović and CM Donja Motičina (Osijek Baranja County), CM Draganić and CM Mala Švarča (Karlovac Cou nty), CM Gorica Nova and CM Subotica Podravska (Koprivnica-Križevci County). • ILAS: Given the relatively high level of gender parity in terms of land and property ownership in Croatia, ILAS focused on monitoring and supporting the number of female technical staff at MoJPA and SGA who participated in capacity building programs during project implementation. By project completion, 435 women at MoJPA and 461 women at SGA were trained. • DI RAS: The WB helped 38 homes for children and youth and for persons with disabilities which provide institutional form of care to over 5,000 persons to produce their individual Deinstitutionalization and Transformation Plans. The plans provide a roadmap for the return to community living, with adequate support, of close to 1,000 persons over the period between 2024-27, to meet the Government targets set in the Operational plan for deinstitutionalization, prevention of institutionalization and transformation of social service providers in the Republic of Croatia 2022-2027 accepted by the EC. These plans enable the institutions to apply to EU funds calls worth 150 million EUR to adjust their infrastructure and develop community-based services. First EU Call for Proposals were published in November 2024. • DI RAS: The RAS supported the development of the DI monitoring system aimed at tracking the transition to community-based care solutions and which will provide a first precise and coherent beneficiaries data system combining data of the Ministry, 69 social welfare institutions, 117 Croatian Institute for Social Work branch offices, and 21 family center regional branches. The indicators dashboard will be publicly available via the Tableau platform and will form the evidence base for social policy making. • Focus Area 2: Preserving and Leveraging Natural Capital to Ensure Low Carbon Growth CPF Objective 4: Enhance energy efficiency and energy transition (Partially Achieved) 60 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Indicator 11. Baseline: No Not Achieved. TF Introduction of financial Future indicators should avoid using - Technical Assistance financial instrument In December 2023, the Ministry of Physical Planning, measurements which could be in Facility to Support instruments for available/impl Construction and State Assets informed the Bank that it will danger of not being reached if the Renovation Wave under energy efficiency emented postpone the introduction of financial instruments until the IFC investments are pre-paid. It is Cohesion Policy in renovation of (2022) end of 2027, prioritizing the programs under the National better to use indicators such as RE Select EU Member residential Recovery and Resilience Plan. The Bank’s TA contributing to Mw installed with GWh capacity as States (P177061) buildings Target: At this indicator - Technical Assistance Facility to Support results of IFC investment. (targeting least one Renovation Wave under Cohesion Policy in Select EU Member multiapartment financial States (P177061)- was thus discontinued. IFC projects buildings or instrument - Rudine WPP single-family (2024) Source: World Bank P177061 (ACS) (34079) homes) - Jelinak (32218) Indicator 12. Baseline: No Mostly Achieved. - Sibenik WPP Cumulative RE (2019) (31606) energy 63% by 2023 (calendar year). The renewable energy generation from Target: 1500 generated (aggregate) for the period 2018-2023 (calendar existing IFC RE GWh (2023) years) totaled 943 GWh. This activity was not supported by a investments Bank advisory / project. between 2019 and 2023 Source: IFC Internal Systems https://dotsreadonly.ifc.org/ and IFC dashboard (IFC projects: RP Global, Jelinak d.o.o, Rudine d.o.o.) Additional evidence: • Renovation Wave TF: After the completed diagnostics assessment, the main objective of the TA second phase was to assist the Ministry of Construction in designing and developing programs and financial instruments for multiapartment buildings (MAB) as targeted sub-segments. However, due to a shift to short-term priorities to meet the commitments under the Recovery and Resilience plan —including REPowerEU— the technical assistance in Croatia was discontinued in December 2023 at the request of the government counterparts. Despite the cancellation, the Bank team completed and shared a deliverable report based on the initial concept presented and discussed with the line ministry. The report included i) an estimate of the financing gap necessary to achieve the set energy efficiency targets and ii) an outline of a proposed financial instrument, combining a grant component and financial instrument to leverage available public financing. Despite the limited progress under the second stage, the Bank observed several developments proposed and implemented by the stakeholders in which were aligned with the Banks’ recommendations— such as i) addressing energy poverty in building renovation, ii) development of guidelines for the energy renovation of buildings with the status of cultural good, iii) launch of the program for adequate skills in the context of green jobs, including building reconstruction, and iv) additional allocation for energy renovation of public buildings under the Energy Service Company (ESCO) model (World Bank, ACS). 61 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF • IFC continued its exposure to three renewable energy private sector investments in wind power generated energy in the tune of an aggregate 100 MW. The emissions reductions because of these three wind projects were 59,590 tCO2/ year (28,004 tCO2 / year for Sibenik Danilo, 14,548 tCO2 / year for Rudine and 17,038 tCO2 / year for Jelinak). Two of these investments (Sibenik Danilo and Rudine) were pre-paid and IFC exited in 2020. CPF Objective 5: Improve water and solid waste delivery and management (Rating: Achieved) Indicator 13. Baseline: No Achieved. Implementation of the Circular Adoption of the (2022) Economy agenda in waste RAS new Waste The Waste Management Plan was officially adopted in July management requires significant - Circular Economy Management 2023. financing, possibly including from Approaches in Solid Plan (2023- Target: Yes IFIs. Waste Management 2028) (2023) Source: Ministry of Economy and Sustainable Development, RAS (P173141) Waste Management Plan 2023-2028. Close and continuous coordination Indicator 14. Baseline: No Achieved. with the client is a precondition for a TF National Water (2019) successful delivery. - Croatia Water Loss Loss Reduction The final draft of the Plan supported through Croatia Water Reduction TSI Action Plan Loss Reduction TF (financed by EU and not supported by WB Knowledge and understanding of (P178797) (NWLRAP) for Target: lending) was developed and published on MESD web in local conditions is fundamental for the reduction of December November 2023. The document provides guidance on key preparation of national policy ASA water losses (2023) considerations when planning interventions for new documents Supporting the developed, infrastructure. The Plan was adopted by the Government in preparation of the including June 2024, meeting the related NRRP milestone. Early inclusion and broad Waste Management requirements for consultations with final beneficiaries Infringement Action new Source: Ministry of Economy and Sustainable Development, are essential for building their trust Plan (P166456) infrastructure Report on inputs for a final draft of the Plan; Croatian Waters, and ownership. NWLRAP Additional evidence: • CIRCLE RAS: the RAS provided recommendations for the revision of the National Waste Management Plan (NWMP) of the Republic of Croatia for the period 2017- 2022 and its Implementing Decision (NWMP ID) in line with the newly updated waste-related EU Directive as part of the EU Circular Economy Package, which led to the formal amendment of NWMP 2017-2022 in December 2021, and the adoption of new Waste Management Act in July 2021 (Ministry of Economy: strategies, plans and programs; Waste Management Act). • CIRCLE RAS: Building on the recommendations and results of the RAS, a new Waste Management Plan for the Republic of Croatia for the Period 2023-2028 (OG 84/23) was adopted in July 2023. Some of the key recommendations that were adopted and integrated into the 2023-2028 National Waste Management Plan include: 1) the Plan emphasizes waste prevention as a foundational goal, alongside improving systems for re-use, recycling, and the management of hazardous waste. It also aims to ensure the sustainable and cost-effective handling of residual waste, while tackling the remediation of waste-polluted sites. Additionally, the plan prioritizes advancements in the waste management information system to enhance data 62 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF accuracy and accessibility; 2) the implementation of a landfill fee —as outlined in the Waste Management Act—is recognized as economic tool that could play a crucial role in advancing the country’s transition to a circular economy and achieving EU targets. In October 2024, a draft Regulation on the landfill fee was prepared and underwent public consultation. The government adopted the Regulation in November 2024, with implementation set to begin on January 1, 2025. • CIRCLE RAS: The RAS’ initiatives supported the trend of rising recycling of municipal waste, which increased significantly from 29 perc ent in 2020 to 36 percent in 2023. By strengthening the policy framework until 2028 and encouraging improvements in recycling practices, further increases in the recycling rate of municipal waste can be expected based on RAS outputs. • CIRCLE RAS: The 2023-2028 Waste Management Plan directly integrates certain measures and investments from the 'Circular Economy Action Plan on Construction and Demolition Waste,' developed under the RAS project. These measures address critical gaps identified in the Action Plan, including enhancing the availability and quality of construction and demolition waste (CDW) data, reducing illegal CDW dumping, improving the efficiency of CDW management and recovery, fostering a green market for construction materials, and minimizing CDW generation. • CIRCLE RAS: With 60 percent of recycled and reused non-hazardous CDW in 2020 Croatia failed to achieve EU target for 70 percent of recycling and re-use of the CDW. However, progress has been recorded and in 2022 Croatian target achievement was 66.5 percent. With a strengthened legislative framework resulting from RAS activities, further progress is expected. In line with this plan, the Ministry of Environment and Green Transition published in late October 2024 a public call for funding applications from micro, small, medium, and large enterprises . These funds, totaling €58 million in non-repayable grants, are intended for projects that contribute to meeting EU recycling targets for packaging waste, municipal waste, and CDW. • Water TSI: The TA provided inputs for the first-ever National Water Loss Reduction Action Plan (NLRAP), setting the foundations for water loss management in the country. The TA gave an initial assessment of water supply systems and water losses in the country and of technical capacities of Public Water Service Providers (PWSPs). Key elements of the action plan include the establishment of a uniform loss reduction methodology, the introduction of measures and definitions of priorities for water loss reduction, a time frame for implementation, an analysis and proposal of potential financing sources and co-financing ratios, an assessment on the effects on the price of water and affordability in the context of required measures and activities, as well as the establishment of indicators to monitor the implementation of the Action Plan. The Action Plan was adopted by the GoC in Q2 2024. • Water TSI: Under the TA, recommendations were delivered for setting up a national monitoring body in charge of water losses, key for strengthening the management in the sector through increased coordination and oversight. The proposal entailed details of a mandate for monitoring the preparation and implementation of individual ULRAPs, organizational structure, reporting responsibilities, jurisdiction/activities, timing, coordination mechanism, etc. This Body was established by the line ministry in Q4/2024, meeting the related NRRP milestone. • Water TSI: The Bank also strengthened the capacities of the water utilities by providing capacity building, organizing a peer-to-peer study visit to Portugal, learning materials and a toolkit for supporting utilities in the preparation of individual Utility Loss Reduction Action Plans. In total, 18 capacity building and consultation workshops were organized with public water service providers. The study visit to Portugal allowed to showcase and share relevant practical experiences in water sector reform agendas and approaches on water loss reduction with representatives from Croatia, including from the Ministry, Croatian Waters, as well as participating utility experts. • Water TSI: A follow-up TSI task (P505592) started in June 2024 focuses on further equipping of water utilities with the needed knowledge and skills to enable them to prepare their individual water loss reduction plans. Scheduled to be completed by November 2025, these individual plans will 63 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF define in detail the 1.7 billion EUR of investments which would need be undertaken to reduce Croatia’s water losses by half o ver the next 15 years (as estimated in NLARP). Focus Area 3: Strengthening Market Institutions to Enable a Dynamic Enterprise Sector CPF Objective 6: Improve business climate and increase the private sector’s role in the economy (Rating: Achieved) Indicator 15. Baseline: 1 Achieved. -Linking improvements in the justice LENDING Number of (2018) sector with the business - Integrated Land professions with Target exceeded. Based on the regulatory analysis of environment compounds the reform Administration Project removed professional services under the Croatia Occupational impact. (P166324) licenses, quotas,Target: 8 Regulation Platform (P165139), measures for services market -Anchoring reforms in national - Modernization and price regulation,(2021) liberalization have been implemented through government justice reform plan and EU related Restructuring of the or other action plans since 2019. By the end of November 2024, 300 obligations provides leverage and Road Sector (P155842) unnecessary measures were implemented (restrictions removed) in about momentum. - Integrated Land and restrictions to 50 service activities and professions. -Setting international standards (for Justice Services for competition justice infrastructure) for promoting Citizens Project Source: Ministry of Economy, Services Market Liberalization benchmarking with aspirational (P180605) (FY 2024) Policy Overview and Services Market Liberalization (website); countries enhances the impact. - Justice for Business World Bank (Final Report) -Client’s Technical unpreparedness (P167247) Indicator 16. Baseline: 18 Achieved. can delay implementation of digital - Helping Enterprises Reduced days (2018) solution and hesitation to embrace Access Liquidity in the transaction Target exceeded. The target for reduced transaction recommendations. Republic of Croatia processing times processing time in land registries was exceeded by 2022. At Legal changes entail a lot of time and (P172024) in land registry Target: 10 project closing in January 2024, it takes 8 days for land coordination with other institutions days (2023) registry and 6 days for cadaster offices to process to streamline overlapping TF transactions. regulations. - Croatia Business -Occupational licensing and conduct Environment Reform II Source: World Bank (ICR) regulations for professionals are & III (P171119) often overlooked but not less 64 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Indicator 17. Baseline: Achieved. important than restrictions on - Croatia Occupational Number of Total 5,600 (2017) businesses. Regulation Platform Direct Jobs Target exceeded. In the period 2019-2023, a total of 14,112 -Portfolio approach to reforms - (P165139) Supported by IFC Target: 8,000 jobs had been supported by IFC clients by 2023. Of this, 6,553 ensuring that analytical work on clients (2023) were female employees. business environment and ASA (BB) competition, while being selective, Croatia Firm Level Of which Source: IFC internal systems (DOTS, Iportal) covers a sufficiently broad range of Productivity Project female https://dotsreadonly.ifc.org/, IFC dashboard (Projects: E&S issues - can help to maximize (P169432) employment Bank, RP Global, Jelinak d.o.o., Atlantik Trade, ZAIC, Rudine chances of reforms and hedge - Strengthening supported doo, Raiffeisen Croatia, Zagreb Bond 2023) (data refers to the against vested interests. Consumer Protection latest available year in the period 2019-2023 with a data through Structured Baseline: point). Data driven analysis and a Creditworthiness in 2,700 (2017) comprehensive dissemination Croatia (P171378) process can bring challenging topics -Croatia Country Target: 4,000 to the focus of the policy makers and Economic (2023) professional public which can Memorandum 2.0 facilitate the reform process. (P175222) Additional evidence: • HEAL: Based on the fulfillment of PBCs, HBOR has adopted its credit rating methodologies and credit scoring for private entrepreneurs and has integrated in HBOR’s procedures the OECD’s recommendations in the area of export financing. Improved methodologies for credit rating and credit scoring ensure that the credit risks are properly identified, evaluated, and priced, strengthening private sector’s access to finance by more informed and speedier lending decisions. Integrating OECD's recommendations in HBOR’s procedures ensures the application of common approaches for addressing the environmental and social impacts of projects that are facilitated by officially supported export credits. This standardized procedures benefit internationally oriented business from officially supported export credits and strengthened HBOR’s sustainability and climate change resilience policies. HBOR has also submitted the completed questionnaires for the pillar assessment and obtained the accreditation by the EC to directly manage InvestEU Fund, paving way for more innovative financial instruments and enabling investments that could not otherwise secure market financing on reasonable terms (HBOR accreditation). Developed integrated climate resilience procedures for the EU’s Do No Significant Harm (DNSH) requirements and the corresponding self-assessment questionnaire, helped to increase the understanding of the requirements for the use of the EU funds (NRRP and MFF) by the private sector. NRRP financial instruments for private sector (loans for special SMEs segments and interest rate subsidies), worth 120 million euro, have been fully utilized. • BER I SRSS: The BER I SRSS TA provided GoC with implementable recommendations for the development of a modern central digital platform for business registration, addressing traditionally high compliance costs and red tape in starting a business, a complex legal framework, and a lack a national interoperability technology platform. These recommendations provided the basis for the design of the START platform launched in November 2019, which enabled virtual integration between the key stakeholder agencies for business registration (e.g. the court registry, the financial agency, ministries, agencies, tax administration, among others), speeding up and simplifying business registration. Instead of the previous 65 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF series of steps and visiting various institutions in person, citizens were able to start business digitally, in one place (Government Decision on the START platform). • Justice for Business: Under the project, the START Platform was enhanced through the implementation of a Single digital window for registering LLCs, which enabled streamlined online services for company registration without the use of notaries and at reduced cost for company registration. Today, START Platform operates with significantly reduced cost of registration and has led to a reduction in registration cost - from 19.5 days and 6.2% of GNI per capita (Doing Business 2020) to 6 days and 5.5% of GNI per capita in 2024 (Subnational B-Ready in the EU – Croatia). Furthermore, in Subnational B-Ready 2024, all Croatian cities achieved an Operational Efficiency score of 99.5 points out of 100 which confirms the streamlining of the process as assessed by the private sector. • BER SRSS II and III: Croatian businesses were traditionally subject to complex mandatory licensing procedures and legal requirements, while up-to- date and accurate information on these requirements (administrative regulations, procedures, fees etc.) was not readily available. In 2023, based on recommendations provided under BER SRSS II and III and as part of the Justice for Business project, the Ministry of Economy introduced START Plus platform – containing a business licensing inventory with a mapping of the 170 business licenses in Croatia, providing all information on the process of obtaining them and making 20 of those licenses fully digitalized, all linked to eCitizens portal. Based on the WBG Enterprise survey, in 2019 Croatia lagged behind Europe and Central Asia (ECA) in time needed obtain operative license (Croatia 35.6 days vs. 34.4 days for ECA), while last year this trend has been reversed in Enterprise survey 2023 data (Croatia 32 days vs. ECA 40) • Subnational B-Ready in the EU-Croatia (P179952): The Subnational B-READY in Croatia 2024 delivered a rigorous, data-driven analysis of business climates at the local level, offering actionable insights for policy makers. By examining key areas of the life cycle of the firm—Business Entry, Business Location (Building Permitting, Environmental Permitting, and Property Transfer), Utility Services (Electricity, Water, and Internet), Dispute Resolution, and Business Insolvency—this report offers a road map for improving administrative processes and regulatory frameworks that directly affect businesses at the local level in five Croatian cities: Osijek, Rijeka, Split, Varaždin, and Zagreb. • Justice for Business: A platform for digital issuing of construction permits (eConstruction permit) further simplified the process for obtaining construction-related licenses by enabling fully digitized service for special conditions (eConference module) and by introducing eConstruction logg - a service intended for monitoring the construction process from the notification of the start of construction to the issuance of the Use Permit. The service enables the construction diary to be kept electronically, raising the level of construction quality and increasing the transparency of the construction process, supporting more than 1500 users (institutions, companies and professionals). After the implementation of eConstruction permit in the City of Zagreb, prior 22 steps have been reduced to 14 steps, mostly due to the introduction of electronic filling and eConference module. The time has been reduced from 146 days spent in the interaction with the building authorities and different administrative offices involved to 126 days in total. Furthermore, reduction in cost of the basic requests for building conditions, construction and use permits are cut i.e. cost after the implementation of the ePermit is down by 20%. • Justice for Business: By 2022, all municipal courts (total of 34) and nine commercial courts were integrated in the Integrated Case Management System (ICMS), also known as e-File. The integration covered all four (4) administrative courts and the High Administrative Court. All first-instance cases started using the ICMS, and 31 municipal courts started using the E-communication platform. Digitalization of courts makes communication between justice service providers and with the public faster and more efficient and contributes to making the delivery of justice services simpler and faster. 66 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF • Justice for Business: Following the initial reduction during 2021, during 2022, the number of cases older than 10 years was reduced from the 9,131 cases (baseline) to 7,909, that is 13.38% with respect to the baseline (the data during 2023 saw no improvement due to the justice strike; and official data for 2024 will be published in April 2025 in a Supreme Court publication.) • Justice for Business: By the end of 2022 disposition time (DT) for the issuance of judicial decisions in cases before the commercial courts was reduced to 45 days - a substantial improvement over the 2018 baseline of 320 days, a total 23.44% reduction. The backlog and DT figures had a partial setback during 2023 due to the justice strike but are expected to improve further by the end of 2024. • Rijeka Gateway II: the project was key in creating the conditions for the concessioning of the Rijeka Zagreb Container Terminal (ZCT) as the project: (i) financed the expansion and transformation of the terminal into a deep sea port terminal, improving the viability of a future concession; (ii) financed the preparation of the concession bidding documents; (iii) supported the PRA in their effort toward financial sustainability (important factor for potential concessionaires to consider the ZCT concession). The improvements in the port and in PRA helped leverage a total of EUR 410 million concession and public-private partnership investments to two terminals in Rijeka (Brajdica and Zagreb), thereby additionally fortifying the financial sustainability of Croatia’s main seaport. Component 2 of Rijeka Gateway II included support in concessioning selected terminals. Following a challenging construction of the terminal (disruptive weather condition, complex underwater construction, financial difficulties of lead JV member), the container capacity was substantially enhanced (from 150 kTEUs to 400 kTEUs) with the construction of the terminal infrastructure completed in May 2019 and the approved concession to APM TERMINALS / ENNA LOGIC Consortium in June 2021. • ILAS: ILAS investments contributed to the agenda of maximizing finance for development and mobilizing private sector capital. The renewal of land books and homogenization of cadastral maps with ready access to accurate and reliable data by businesses and the public via the JIS can be seen as de-risking interventions that promote increased private sector activity domestically and increased the appetite for foreign direct investments. Benefits from ILAS’s investments include (i) increased access to appropriate documentation to obtain commercial bank loans fo r activities such as starting or expanding a business; and (ii) establishing a more reliable basis for inv estment in Croatia’s market economy given higher investor confidence due to lower risks pertaining to factors such as land disputes. According to DB 2018, it took 62 to register property, while in Bready2024 this number is 15. B Ready 2024 also reports 8/8 score for Croatia on Sub-Category: Property Transfer – Coverage of the Land Registry, which can be interpreted as a full coverage as Croatia scores maximum points in this subcategory. • DPF: RI4 target was significantly met as the number of incoming bankruptcy cases decreased rather than increased from 2019 to 2020. Given the feared impact of the pandemic, the target had been to limit the rise in the number of cases to no more than 30 percent, but the number actually decreased by 46 percent (4,796) as the suspension of bankruptcy proceedings was prolonged from a three-month to a six-month period in line with the legal amendments. • DPF: RI8 met the objective of above 35 percent of OP Competitiveness and Cohesion (OPCC) funds paid out to beneficiaries and absorbed into the economy, in order to improve governance and management of EU funds and unlocking major investment resources to the public and private sectors. From a baseline of 26.2 percent, cohesion funds paid out reached 50.43 percent evidencing an effective removal of bottlenecks in the flow of OPCC funds towards the economy. • CIRCLE RAS: Building on the recommendations and results of the Circular Economy RAS, a new Waste Management Plan for the Republic of Croatia for the Period 2023-2028 (OG 84/23) was adopted in July 2023 in a way which sought to promote and strengthen the role of the private sector. Under the previous waste management plan, the waste management system relied almost entirely on public funding, with 98% of investment 67 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF planned to come from the public sector. Guided by RAS recommendations, the new Plan sets a target for 38% of total investments to come from private sources by 2028, fostering a more sustainable funding model and enhancing the role of the market in Croatia’ s waste management sector. CPF Objective 7: Promote entrepreneurship, competition and innovation (Rating: Achieved) Indicator 18. Baseline: 0 Achieved. Strong ownership across LENDING Value of research (2019) stakeholders can compensate for - Second Science and and innovation Target exceeded. World Bank innovation RASs (P170711 and shifts in institutional set-up during Technology Project support Target: USD P177150) supported and informed EUR 1.27 billion in research implementation. When possible, (P127308) programs 830 million and innovation programs by July 2023. These include NRRP fewer implementing bodies should - Digital Innovation and informed (2021) instruments, as well as those from the previous European be used. Green Technology Structural Investment Fund perspective and the Smart Project – DIG-IT Specialization Strategy. Through P170711, a comprehensive Given the complexity of EU funding (P180755) analysis of 68 support programs for research, development disbursement, implementation and innovation, whose total budget was EUR 1.16 billion, was procedures should ensure speed, RAS conducted. Additionally, the findings of this RAS supported the flexibility, and discretion in decision- - Public Expenditure design of EUR 114 million worth of innovation programs in the making. Review in Science, NRRP, implementation of which is supported through the Technology and ongoing P177150. The Bank provided inputs such as program High awareness of project activities Innovation (P170711) background guides, tentative results frameworks, proposals among key stakeholders is crucial to - Strategic Partnership for M&E improvements, and capacity building efforts. expanding the pool of beneficiaries for Research, and catalyzing private capital Innovation and Growth Source: World Bank (ACS) mobilization. (P177150) Indicator 19. Baseline: 0 Achieved. - Strategic Number of IFC (2019) Transformation in investments in Target exceeded. 3 IFC investments in innovative capital Agriculture and Rural innovation Target: At market and private equity instruments took place by June Space (P167852) capital market least 2 IFC 2024. The activity was not supported by a Bank and private investments project/advisory. TF equity (2022) - Croatia Occupational instruments Source: IFC Internal Systems (DOTS, Iportal), Regulation Platform (local currency https://dotsreadonly.ifc.org/ (IFC Projects: Erste Bank Green (P165139) bonds, covered Bond (44745), Raiffeisen Sustainability MREL Bond (46592), bonds, green Zagreb Bond 2023 (48368)) ASA (BB) bonds, equity Croatia Firm Level funds) Productivity Project (P169432) 68 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF Croatia Country Economic Memorandum 2.0 (P175222) Croatia – Boosting Economic Resilience of the Economy (P169670) Additional evidence: • Boosting Croatia’s Economic Resilience: The report analyzed in detail the OECD’s 2018 data on product market regulation and concluded that while product markets in Croatia have been noticeably liberalized over the previous years, large presence of SOEs still weighs on t he economy’s resilience, and some services and professions in Croatia remain closed to competition, in particular notaries, lawyers and pharmacies. These findings were further developed under the TA on Occupational Regulation and were later used to define the so-called prior commitments or policy measures that Croatia committed to implement before joining the ERM II, the first official step in the accession to the euro area. • DPF: The project supported the Government’s COVID employment protection scheme that allowed companies that met the requirements to use grant funding to finance wages and social contributions; about 700,000 and 220,000 employees in 2020 and 2021 respectively (out of some 1.59 million employed citizens) benefited from the scheme; about 44 percent of subsidies went to micro entrepreneurs, 22 percent to small businesses, and 17 percent to medium and large companies each, on average (2020-2021); by 2020, 83,806 tourism employees (72.9 percent of the total) seen as particularly vulnerable were covered by employment scheme protections; by the end of 2020, under the Loan Program for COVID-19 Measures, HBOR had approved almost EUR 172.6 million - 43 percent of all approved loans under the Program; technical assistance supported amendments to the Consumer Bankruptcy and Bankruptcy Acts and as a result, at the end of 2020, 4796 bankruptcy cases had been filed, with a decline of 47 percent from the baseline. • STP2: The project contributed to improving the competitiveness of the Croatian economy by enhancing Croatia’s innovation ecos ystem. Specifically, the project closed funding gaps, improved the innovation policy mix, and enhanced institutional capacities for innovation policy. The project helped launch several pioneering R&D financing programs, some of which continue to be financed to this day through EU structural funds and national sources. The project provided EUR 28 million in R&D funding for Croatian SMEs and researchers, and unlocked additional financing from EU structural for EUR 301 million worth of projects. Additionally, the project provided funding for the preparation of four research infrastructure projects, which subsequently received EUR 170 million in EU funding. The infrastructure will support Croatia’s innovation ecosystem in conduc ting advanced applied research. • PER in STI RAS: The PER in STI RAS provided a thorough review of innovation policies in Croatia, which are crucial for enabling a more competitive economy. Following a significant inflow of innovation funding from EU structural funds, the RAS provided crucial advice on improving the composition and quality of innovation spending, its efficiency and effectiveness. Additionally, the RAS analyzed in depth the key policy in Croatia’s innovation system—the Smart Specialization Strategy (S3) 2016-20—including its intervention logic and governance. The RAS also explored novel areas such as skills for smart specialization. The analytical work and advisory support provided through the RAS helped reorient Croatia’s innovation policies towards addressing identified gaps such as those in applied research, industry-science collaboration and technology transfer. As a result of the advice 69 Baseline/ Lessons and Suggestions for the Indicator Status at CLR WB Program Target New CPF provided through the project, Croatia has committed to investing over EUR240 million in programs to support applied research, collaborative projects and technology transfer, which is two-and-a-half times more than the investment in the 2016-20 period. • SPRING RAS: The RAS provides tailored advisory related to the design and implementation of innovation policies. Utilizing the knowledge built up within the PER in STI, STP2, and other World Bank engagements, the RAS provided inputs for the design of Croati a’s new S3 2029 (adopted in December 2023). The RAS focused on improving the strategy’s intervention logic, entrepreneurial discovery process, governance , and M&E framework. The Strategy guides public investments and reforms in research and innovation, with an emphasis on digital and green technologies, thus supporting the development of Croatia’s innovation ecosystem. Additionally, the RAS provided advice on the design of inn ovation funding schemes (EUR110 million in 2023), flagship reforms in the research and innovation ecosystem (performance-based funding in public research institutes), and policy initiatives (technology transfer policy, research infrastructure policy, expansion of capacities of the Croatian Science Foundation, implementation of a comprehensive M&E framework for research and innovation policy). As of December 2024, the innovation funding schemes whose design was informed by the RAS supported a total of 523 research, development, and innovation projects. So far, these programs reached 121 firms and supported the development of 353 young researchers. The engagement on this RAS, as well as RAS PER in STI and STP 2, helped Croatia improve its innovation policy performance as evidenced by the European Innovation Scoreboard Summary Innovation Index, which has increased from 61.1 in 2019 to 76.6 in 2024, and has grown faster than the EU average. • Occupational Regulation SRSS: In 2019, Croatia had the highest level of restrictiveness of regulation in professional services in the Central and Eastern European region. The number of regulated professions in Croatia (approximately 300) was significantly higher than the average of 200 regulated professions in the EU. As noted by the EC, inadequate regulation of professions “creates obstacles for the functioning of the Single Market and holds back the potential for growth and job creation in the EU economies. Thus it is vital to work on the reduction of burden to regulated professions to enable equal market participation and competition”. The TA was successful in identifying restrictions in regulated profession s and in supporting the GoC in removing these restrictions by adopting ambitious Action Plans for the administrative burden reduction. The Bank's recommendations were included in Croatia's reform commitments as part of the Eurozone accession process and the European Commission's reform recommendations as part of the European Semester process. Over the past 5 years, Croatia has achieved a 20% reduction in regulation (PMR 2019, PMR 2023), and the level of regularity was lowered from 1.72 to 1.39. Compared to the OECD average (1.34), the regularity of the Croatian economy is 4% higher, which is practically within the stated average. Regarding the main market professional services (accountants, architects, engineers, real estate agents and lawyers), Croatia with 1.11 is almost 25% below the OECD average and almost 30% below the EU average. • STARS RAS: The food hub approach to producer organizations in agriculture (developed under Pilot 1 of Output 4) was a key input for the formulation of the Agriculture Chapter of the NRRP - component C1.5. R1 Establishing a logistic infrastructure network to strengthen the production market chain in the fruit and vegetables sector worth EUR90 million for the construction and equipping of logistic distribution centers for fruit and vegetables; strengthening the position and visibility of producers in the food supply chain. To date, two centers have been constructed and one project has been nominated. • STARS RAS: Changes in the national regulation (Rulebook on Producer Organizations) for producer organizations (changing their legal status from non-profit organizations to for-profit entities) were partly influenced by recommendations from Pilot 1 of the RAS to address legal limitations which constrained the access to finance by producer organizations. In addition, the process of consolidation of production, developed under Pilot 1 is being adopted under the Operational Programme for strengthening the market capacity of the fruit and vegetables sector for the period 2021-2026 under the EU Common Market Organization (CMO). 70 CLR Annex 3. Contributions of the WBG Program to Institutional Strengthening under the CPF FY19-FY24 The Institutional Change Assessment Method (ICAM) was used to assess how the WBG program contributed to institutional strengthening in Croatia. The ICAM assumes three basic types of institutions, drawing on concepts presented in the World Bank’s 2002 World Development Report, Building Institutions for Markets, and on subsequent research to refine these definitions.30 Progress is measured toward addressing three types of institutional challenges 31: • Inefficient formal incentives (supply side)—Existing policies, strategies, regulations, and administrative rules are not efficiently guiding stakeholders’ actions to ach ieve the development goal  • Ineffective organizational arrangements (supply side)—Personnel, systems, or other resources do not reflect adequate capacity for performing a key function related to the development goal     • Inadequate stakeholder ownership (demand side)—Informal incentives provide weak support for and/or direct barriers to the achievement of the development goal. These might include non-supportive social norms, a lack of commitment by political and religious leaders, inadequate participation in decisions by key stakeholder groups or other characteristics   The six-point ICAM rating scale tracks incremental progress towards institutional change achieved by empowering change agents through knowledge transfer. “Knowledge” is a broad label that refers not only to traditional knowledge and skills, but also to disposition (e.g., confidence and motivation) and to relationships (e.g., networks and coalitions).    ICAM Ratings of Progress Toward Institutional Change  1. Demand identified   2. Change supported  3. Knowledge gained  4. Knowledge used   5. Institutional change started   6. Benefits confirmed from institutional change   Planning stage—limited Activities or products Early results indicate New knowledge, skills, Actions have been taken to Evidence confirms benefits or no actions taken for delivered but no emerging changes in or connections are improve legal-regulatory from changes to improve legal- addressing identified evidence yet of results  knowledge, skills, or being applied to work framework and/or organizational regulatory framework or institutional challenge  connections of potential towards institutional performance    organizational performance    change agents  change  30 The justification for and further explanation of these definitions can be found in: Hodgson, Geoffrey M. 2006. What Are Institutions? Journal of Economic Issues, 40:1, 1-25. Islam, Roumeen. 2018. One More Time: What Are Institutions and How Do They Change? Policy Research Working Paper; No. 8422. World Bank, Washington, DC. 31 The ICAM is an adaptation of the Capacity Development Results Framework (CDRF) developed by the World Bank Institute. 71 Evidence of Progress, by CPF Objective Institutional Change ICAM Description of Progress WBG Program Objective Rating Focus Area 1. Enhancing Public Sector Performance, Institutions, and Resilience to Shocks CPF Objective 1: Improve efficiency of public administration to implement strategy and deliver services Improved quality of 6 - benefits The government improved healthcare quality with the Project’s support, evidenced by: (i) 33 acute care health care confirmed hospitals meeting over 80% compliance with quality standards in December 2018, surpassing targets; (ii) 13 from of the 15 hospitals with the highest mortality rates significantly reducing mortality by -4% to -52% between institutional 2015 and 2018; (iii) counties with specialized palliative care services increasing from one in 2012 to 19 in change 2019; and (iv) best-performing rationalized hospitals rising from 0% in 2012 to 90% (28 of 31 hospitals) in Health System 2019. Quality and Improved efficiency of 6 - benefits The health sector's efficiency was enhanced through the Project with the following results: (i) Efficiency health services through confirmed implementation of a hospital rationalization plan, feasibility studies for "hospital reshaping schemes," higher Improvement strengthened from payments for outpatient procedures, expanded centralized procurement, improved financial audits in (P144871) management capacity institutional tertiary hospitals, annual medicine price calculations, and public tenders by the Croatian Health Insurance and reorganized structure change Institute (HZZO), and ongoing analysis of diagnosis-related group costing; (ii) centralized procurement for and activities of health hospital services reached 44.53% of total public spending on medical consumables, drugs, and devices in care institutions 2019, surpassing targets; (iii) acute care beds in rationalized hospitals decreased from 15,930 in 2012 to 12,315 in 2019, exceeding targets. Improved institutional 6 - benefits The project strengthens the administrative and technical capacity of institutions by implementing capacity for post-disaster confirmed reconstruction projects, sharing best practices, and introducing innovative approaches like Building reconstruction from Information Model (BIM). Institutions participated in five sub-investments in health and education, institutional enhancing seismic safety, energy efficiency, and functionality. Completed projects include Petrinja Vocational change School and KBC REBRO hematology and oncology ward (serving beneficiaries since November 2024). Upcoming projects for FY25 include REBRO KBC Phase 3, Croatian Public Institute for Health, and Petrinja Dormitory, along with design development for the Faculty of Electrical Engineering in Zagreb. The project Earthquake also facilitated international knowledge exchange in Istanbul and provided BIM training for government Recovery and Public officials. Health Preparedness Strengthened national 6 - benefits As of November 13, 2024, Croatian health institutions have strengthened their capacity to respond to Project (P173998) system for public health confirmed disasters, including COVID-19, by: (i) procuring consumables, decontamination tents, and insulation tents; (ii) preparedness from achieving full population coverage for reporting and investigating suspected cases; (iii) adopting and institutional updating national COVID-19 surveillance guidelines by the Croatian Institute of Public Health; (iv) establishing change two sentinel sites for respiratory viruses, providing quarterly reports, and enhancing disease monitoring and outbreak planning; (v) utilizing procured diagnostic equipment in 19 reference laboratories with 77 Microbiology Service employees covering the entire country. 72 Institutional Change ICAM Description of Progress WBG Program Objective Rating Strengthened capacity of 4 – The project enhanced MSE institutional capacities for designing, implementing, and monitoring large-scale Croatia: Towards the Ministry of Science knowledge education reforms by providing best practices, strengthening staffing, and improving procurement. The WDS Sustainable, and Education to scale up used model, adopted by the Government in January 2023, involves: (i) defining a new national curriculum for all Equitable and the WDS system and Croatian primary schools transitioning from double and triple shifts by 2027/2028, including compulsory and Efficient Education implement sector reforms optional classes, support programs, and extracurricular activities; (ii) increasing instructional time, Project (P170178) introducing new subjects, and offering supplementary learning support and extracurricular activities at no additional cost to parents; (iii) ultimately improving learning outcomes for all Croatian students, especially the disadvantaged. Modernized land 6 - benefits The project resulted in a significant increase of the speed of land administration services, introduction of e- Integrated Land administration and confirmed services, and easier access to land documents. Ministry of Justice and Public Administration and the State Administration management system from Geodetic Administration invested in capacity building programs for their technical staff, with training plans Project (P166324) ensuring efficient, institutional developed and 4,736 SGA staff and 1,598 MoJPA staff trained throughout the project which helped ensure transparent and cost- change that staff using the Joint Information System understood the new business procedures. effective government services Strengthened 6 - benefits The RAS has supported building the capacity of the Ministry of Regional Development and EU Funds government’s strategic confirmed (MRDEUF) to perform the central role of a national body overseeing the entire strategic planning and Support for planning and policy from development management process. Changes to the regulatory framework for strategic planning and Establishing the implementation institutional development management have been introduced and the national roll-out has started in 2021. In addition to System for Strategic capabilities change the MRDEUF as the central body, there are strategic planning coordinators in each ministry. Thanks to the Planning and the improved capacity for strategic planning, all state administration bodies, as well as local and regional Preparation of the authorities, have drafted their strategies in line with the new system and they are being implemented. National Croatia's National 5- The 2030 National Development Strategy has been adopted in 2021 and is currently in implementation. The Development Development Strategy institutional Strategy serves as a guiding strategic document for all other national strategic and policy documents. In the Strategy – 2030 adopted and successfully change first years of its implementation, benefits of the 2030 NDS and commitment of all national actors to it have (P166454) implemented started been recorded in the annual report; however, given that the implementation period is until 2030, full benefits cannot be assessed yet. Increased capacity of the 5 - The capacity in the Ministry of Agriculture, Croatian Agency for Agriculture and Food, and the academia was Ministry of Agriculture for institutional developed through targeted trainings on evidence-based planning and monitoring of implementation; and Strategic evidence-based strategic change the use of Agricultural Spatial Land Use Planning Tool (NAEZ), as well as the involvement of the Ministry in Transformation in planning, implementation started drafting the strategic vision and roadmap for agriculture sector. The benefits of built capacities were put to Agriculture and and monitoring in practice by the Ministry's drafting and passing of the Agriculture Strategy and launching its implementation. Rural Space alignment with EU CAP The Strategy is being implemented through the EU Common Agricultural Policy 2023-2027 Strategic Plan. The (P167852) full benefits of its implementation will be able to be measured only upon the completion of the implementation period. 73 Institutional Change ICAM Description of Progress WBG Program Objective Rating A new public pay system 6 - benefits With the inputs and support of this RAS, the government adopted a reform on the new public pay system. introduced by the confirmed The new Law on Wages in the State and Public Services was adopted in December 2023 followed by the government from following regulations in February 2024: Regulation on method of Applying Standard Criteria for Job institutional Evaluation and Job Classification in the Civil Service and Public Services; Regulation on the Ranges of change Coefficients in Pay Grades in the Single Pay Scale in the Civil Service and Public Services; and Regulations on Reforming the Job Titles, Job Assignment Requirements, and Coefficients for Salary Calculation in the Civil Service & Public Public Sector Wage Services. Setting Mechanism Capacity of the 6 - benefits The RAS supported the development of a built in ‘Institutional mechanism’ for the management of the new (P173346) government for designing confirmed wage system, it helped increase capacity on aspects related to strategic communication, change and implementing a new from management and stakeholder engagement, and developed inter-institutional coordination mechanisms public pay system institutional which then designed and launched the reform (Working Group, Coordinating Body). improved change Successful transition from 5 - The RAS supported the MLPSFSP in the transformation of 38 homes for children and youth, and for persons institutional to institutional with disabilities, that provide institutional form of care to over 5,000 persons. The WB helped these community-based care change institutions produce their individual Deinstitutionalization (DI) and Transformation Plans. These plans enable Supporting the for children, youth, and started the institutions to apply to calls worth 150 million EUR of EU funds (ERDF and ESF+) to adjust their Transition from persons with disabilities infrastructure and develop community-based services. The plans provide a roadmap for the return to Institutional to community living, with adequate support, of close to 1,000 persons over the period between 2024-27. Community-Based Institutional change has started with the drafting and the adoption of plans, while full benefits will be seen Care for Vulnerable during and after implementation. The first EU Call for Proposals will be published in December 2024. Children and Stakeholder ownership of 6 - benefits Through the RAS, directors and staff from social welfare institutions providing care were trained to prepare Persons with directors and staff from confirmed them for engaging in the transformation planning of their individual institutions. This process has built Disabilities social welfare institutions from stakeholder ownership of the transformation process which is key for a successful implementation of (P179065) to engage in the institutional transitioning to community-based care. transformation planning change built Capacity of the MLPSFSP 4 – The project provided the MLPSFSP with a methodology for a sub-national poverty and social exclusion Poverty Diagnostic to monitor poverty and knowledge database system. This supports MLPSFSP in monitoring poverty reduction, understanding spatial disparities, and Social social exclusion and to used and informing poverty-targeted policies and investments. It also helps meet the EC's conditions for Croatia to Monitoring TSI monitor social policies access the ESF+ fund. The Project also recommended a monitoring system for five national plans, tracking (P178975) enhanced nearly 300 indicators. It provides MLPSFSP with a harmonized tool for data collection and monitoring, and improves stakeholder engagement to align national plans with people's needs. The Ministry plans to put in practice the new methodology for tracking poverty and social exclusion, and the social policy monitoring system in the coming period. 74 Institutional Change ICAM Description of Progress WBG Program Objective Rating The government's 6 - benefits The operation expanded social assistance programs, supporting marginalized and vulnerable populations. It Crisis Response and capacities to mitigate the confirmed addressed institutional weaknesses by boosting EU fund investments, activating a credit registry, and Recovery economic and social from suspending bankruptcy obligations. It also promoted investments in climate-neutral and circular sectors. Development Policy impact of the COVID-19 institutional Wages and social contributions were secured for about 700,000 employees in 2020 and 220,000 in 2021. Operation pandemic and to advance change Subsidies were distributed to micro entrepreneurs (44%), small businesses (22%), and medium and large (P173996) inclusive and sustainable companies (17%) on average (2020-2021). By 2020, 83,806 tourism employees (72.9% of the total) were recovery enhanced covered by employment protections. Under the COVID-19 Loan Program, HBOR approved nearly EUR 172.6 million, making up 43% of all loans granted to entrepreneurs in Croatia. Technical assistance led to amendments in the Consumer Bankruptcy and Bankruptcy Acts, resulting in a 47% decline in bankruptcy cases by the end of 2020, with 4,796 cases filed. CPF Objective 2: Support policies that reduce fiscal vulnerabilities, with a focus on State-Owned Enterprises Capacity, financial 6 - benefits The Rijeka Gateway II project improved intermodal connectivity, securing EU grants for constructing two Rijeka Gateway II performance, and quality confirmed intermodal yards and enhancing railway stations. It covered container handling, station reconstruction, new of services in the port of from track construction, and project management. The project exceeded financial targets for the Port Rijeka Rijeka developed to meet institutional Authority (PRA), reducing operating expenses and subsidies, improving revenue streams, and enhancing debt growing traffic demand, change servicing without government aid, boosting market confidence for private investments. It strengthened PRA through public-private institutionally in contract management, financial monitoring, environmental management, business partnerships, while relations, project preparation, and port community engagement. The project facilitated the concessioning of facilitating urban renewal the Rijeka Zagreb Container Terminal (ZCT), financing terminal expansion, concession documents, and PRA's by enabling the relocation financial sustainability, attracting EUR 410 million in investments and significantly increasing container of port activities capacity. Improved operational 5- The project supported the public railways sector's financial sustainability by ensuring revenues of the Sustainable Croatian efficiency and financial institutional railways companies cover its costs without relying on government subsidies or facing insolvency. It has Railways in Europe sustainability of the public change helped decrease their operating costs including through resizing its personnel and reducing labor costs. The (P147499) railway sector started project also supported the Ministry in developing key strategic documents including PSO, MAIC, the Railway Strategy 2022-2032, the National Plan for the Development of Railway Infrastructure, and the National Management Plan for Railway Infrastructure and Service Facilities. Strengthened institutional 5 - The project addressed institutional weaknesses of the MSTI and the roads sector and improved prospects to effectiveness and institutional increase return on public investment. Institutional mergers of Croatian Motorways – Maintenance and Toll Modernization and operational efficiency of change Collection (HAC-ONC) and ARZ with HAC brought efficiency and institutional gains, thus strengthening the Restructuring of the the roads sector started capacity of the road companies to benefit from significant EU funds. A significant measure is the introduction Road Sector of an e-tolling system. The also project helped with the introduction of Service Level Agreements (SLAs) with (P155842) road companies which helped reduce fiscal vulnerabilities. The project also supported road safety of TEN-T network as per EU directive. 75 Institutional Change ICAM Description of Progress WBG Program Objective Rating Increased debt service 6 - benefits A €350 million IBRD guarantee supported the debt optimization of road companies, saving €400 million in capacity of the road confirmed interest payments over 10 years. Debt refinancing and rescheduling between 2017 and 2019, guided by a sector from financial advisor's strategy, were highly successful. The target was achieved without the Bank’s guarantee.. A institutional sovereign bond issued in November 2017 refinanced €1.275 billion with a favorable 12 -year maturity, and change rescheduling in April 2018 had the same maturity. Net interest savings for road sector comp anies are €56 million per year. Policies developed that 3 - knowledge The RAS prepared an analytical document on the Croatian pension system including policy proposals and Analysis and improve the Croatian gained recommendations which would increase long-term adequacy of pensions in the context of budgetary and Proposals for the pension system's long run fiscal constraints, and intergenerational equity. The document is aimed to inform the work of a MLPSFSP-led Improvement of the sustainability, adequacy multi-stakeholder working group which is tasked with analyzing the current situation of the pension system, Long-Run Adequacy and equity developed by assessing the impacts of the 2019 reform and identifying options for future pension system improvements, Sustainability of the the MLPSFSP including raising the pension adequacy. The Ministry and the multi-stakeholder working group have Croatian Pension considered the Bank's proposals, however, they have not yet developed the new pension policy and the System (P178457) pension system reform proposal (this is planned for end of 2024/beginning of 2025). Developed Pension 4 - knowledge The Pension Simulation Model developed under the RAS has been used by the Central Registry of Affiliates Supporting the Simulation Model for the used (REGOS) to develop their Individual and anonymous pension calculator on their MyPension Platform. REGOS Development of the Individual Pension has only partly implemented the simulations for pension calculations prepared by the RAS in their pension Pension Simulation Calculator within a digital calculator platform. Given that would still need to implement the remaining simulations, improve its internal Model and the Pension Tracking System processes for implementing the calculator and updating it, as well as raising public awareness and promoting Individual Pension platform and its public its use, the assessment is that the institutional change has not yet started. Calculator use (P178456) CPF Objective 3: Create opportunities for people, particularly in less developed regions Private sector exporters 3 - Knowledge Through the Project, HBOR has adopted its credit rating methodologies and credit scoring for private Helping Enterprises recovered from the used entrepreneurs and has integrated OECD’s recommendations on export financing in its procedures. These are Access Liquidity in economic impact of the beneficial for export-oriented businesses. The project aimed to provide liquidity and financial restructuring to the Republic of COVID-19 pandemic and Croatian firms, especially in less-developed regions and companies owned or managed by women. However, Croatia (P172024) access to finance for firms due to Croatia's rapid recovery from the pandemic, the need for working capital was less than anticipated, in underserved segments leading to a partial cancellation of the project. The Project also produced a Financial Inclusion Study which and lagging regions provided insights into the barriers faced by SMEs in lagging regions. enhanced Improved learning 5– WDS model developed with Bank’s support was adopted by the Government in January 2023 and rolled out Croatia: Towards environment in select institutional in September 2023 in 62 pilot schools across the country. The pilot includes around 12 000 students, and Sustainable, schools under the Whole change most pilot schools are in the lagging Slavonia region or rural, less developed areas. By increasing instructional Equitable, and Day School (WDS) system started time, introducing new subjects, introducing targeted supplementary learning support, and various Efficient Education Project (P170178) 76 Institutional Change ICAM Description of Progress WBG Program Objective Rating extracurricular activities in the afternoon without any additional costs for parents, the model is set in a way to improve the learning outcomes of all Croatian students, especially the disadvantaged ones. Increased capacity of the 5 - The RAS built MRDEUF's capacity through knowledge exchange with regions like Emilia Romagna and the Growth and Jobs in government to deploy ESI institutional Basque Country, and study visits to these regions and Germany. The project strengthened MRDEUF's Eastern Croatia Funds with the ultimate change institutional capacities for developing lagging regions and enhanced regional authorities' capacities through (P167067) goals of increased started stakeholder meetings and project prioritization. Private sector representatives were also prepared for the investment, productivity, industrial transition process through workshops. As a result, MRDEUF prepared EU-funded industrial and jobs in Eastern transition plans for three regions, which are now being implemented. Croatia Focus Area 2: Preserving and Leveraging Natural Capital to Ensure Low Carbon Growth CPF Objective 4: Enhance energy efficiency and energy transition Government capacities to 3 – The TA aimed to help the Ministry of Construction design programs and financial instruments for Technical Assistance decarbonize building knowledge multiapartment buildings (MAB). However, the technical assistance in Croatia was discontinued in December Facility to Support stock by scaling up gained 2023 at the government's request. Despite this, the Bank team completed and shared a report with the Renovation Wave building renovations ministry, including an estimate of the financing gap for energy efficiency targets and an outline of a proposed under Cohesion enhanced financial instrument combining grants and public financing. Policy in Select EU Member States (P177061) CPF Objective 5: Improve water and solid waste delivery and management Government of Croatia 5 - The RAS provided recommendations for the revision of the National Waste Management Plan for the period has delivered on its institutional 2017- 2022 and its Implementing Decision in line with the newly updated waste-related EU Directive as part commitments to comply change of the EU Circular Economy Package, which led to the formal amendment of the NWMP 2017-2022 in with the EU directives in started December 2021, and the adoption of new Waste Management Act in July 2021. Building on the Circular Economy the waste sector recommendations and results of the RAS, a new Waste Management Plan for the Republic of Croatia for the Approaches in Solid Period 2023-2028 was adopted in July 2023. Waste Management Circular Economy 5- Under the RAS, the CE Committee (CEC) was successfully established to facilitate Croatia’s CE transition and RAS (P173141) Stakeholder committee institutional achieve the EU waste management / recycling targets, as an entity that will remain in effect well beyond the group formed and change project’s lifetime. Led by the relevant ministry, the CEC includes 19 members fr om 14 organizations and operational started professional associations representing the public and private sectors, academia, and civil society, whose cooperation will strengthen the coordination and stakeholder buy-in needed to implement the reforms. Institutional capacity of 5 - The TA enhanced public water service providers' capacity and developed a roadmap for EUR 1.7 billion Croatia Water Loss relevant public institutional investments over 15 years to halve water losses, currently at 50%. The TA provided inputs for the first Reduction TSI authorities and public change National Water Loss Reduction Action Plan (NLRAP), assessing water supply systems, losses, and providers’ (P178797) water service providers to started technical capacities. Key elements include a uniform loss reduction methodology, measures and priorities, reduce excessive losses implementation time frame, potential financing sources, and monitoring indicators. The Plan was adopted by 77 Institutional Change ICAM Description of Progress WBG Program Objective Rating from water supply the Government in June 2024. Also, recommendations were made for establishing a national monitoring systems improved body for water losses by Q4 2024. A follow-up TSI task (P505592) started in June 2024 to equip water utilities with the skills to prepare individual water loss reduction plans. Focus Area 3: Strengthening Market Institutions to Enable a Dynamic Enterprise Sector CPF Objective 6: Improve business climate and increase the private sector’s role in the economy Modernized land 6 - benefits The Project benefits for private sector are: (i) increased access to appropriate documentation to obtain Integrated Land administration and confirmed commercial bank loans for activities such as starting or expanding a business; and (ii) establishing a more Administration management system from reliable basis for investment in Croatia’s market economy given higher investor confidence due to lower risks Project (P166324) ensuring efficient, institutional pertaining to factors such as land disputes. The B Ready 2024 report in the relevant category confirms this transparent and cost- change improvement. effective government services Improved business 6 - benefits The Project achieved its objective through several initiatives: (i) the START Platform was enhanced with a Justice for Business regulatory procedures confirmed Single digital window for registering LLCs, reducing registration costs and streamlining online services; (ii) a (P167247) and justice service from digital platform for issuing construction permits (eConstruction permit) simplified the process by enabling standards for businesses institutional fully digitized services for special conditions (eConference module) and introducing eConstruction log; (iii) by and citizens change 2022, all 34 municipal courts and nine commercial courts were integrated into the Integrated Case Management System (ICMS), reducing the number of cases older than 10 years by 13.38% (from 9,131 to 7,909); (iv) by the end of 2022, the disposition time for judicial decisions in commercial courts was reduced to 45 days, a significant improvement from the 2018 baseline of 320 days, representing a 23.44% reduction. HBOR's institutional 5- The Project has helped strengthen HBOR's compliance with banking standards, including new risk Helping Enterprises capacity as a institutional management system, application of environmental and social criteria in its operations, and direct access to Access Liquidity in development bank change EU funds. It helped strengthen climate resilience policies in HBOR through climate resilience procedures and the Republic of strengthened started the EU's DNHS requirements which has been applied to the NRRP and MFF 2021-2027. The quality of HBOR's Croatia (P172024) policies has been enhanced through better credit rating methodologies and credit scoring for private entrepreneurs. Introduced reforms 6 - benefits The BER I SRSS TA provided the GoC with recommendations for developing a modern central digital platform Croatia Business related to improving key confirmed for business registration, addressing high compliance costs, red tape, a complex legal framework, and the Environment business regulatory from lack of a national interoperability technology platform. These recommendations led to the design of the Reform I, II & III procedures, sustainable institutional START platform, launched in November 2019, which integrated key stakeholder agencies for business (P171119) digital solutions and change registration, speeding up and simplifying the process. In 2023, based on BER SRSS II and III recommendations helping business and as part of the Justice for Business project, the Ministry of Economy introduced the START Plus platform. regulators exchange This platform includes a business licensing inventory mapping 170 business licenses in Croatia, providing integrated information on information on obtaining them and fully digitalizing 20 licenses, all linked to the eCitizens portal. the private sector 78 Institutional Change ICAM Description of Progress WBG Program Objective Rating The government 6 - benefitsThe TF addressed excessive regulatory barriers in services by identifying and removing restrictions in 50 Croatia reformed the regulation confirmed regulated professions, facilitating market entry, boosting productivity, and reducing regulation by 20% over Occupational of professions in selected from the past 5 years. In 2019, Croatia had the highest level of regulation in professional services in Central and Regulation Platform professions with high Eastern Europe. The TA successfully identified restrictions and supported the GoC in removing them through institutional (P165139) economic relevance change ambitious Action Plans. These efforts were included in Croatia's Eurozone accession reform commitments and the EC's recommendations. Over the past 5 years, Croatia reduced regulation by 20%. CPF Objective 7: Promote entrepreneurship, competition and innovation Capacities of selected 6 - benefits The Project supported: (i) development of strategic documents, including the S3 Strategy and research Second Science and public sector confirmed infrastructure roadmap, (ii) strengthening governance of research and innovation policies and programs, (iii) Technology Project organizations to absorb from evaluation and follow-up of the public research institutes network, (iv) accreditation for EU funds, adjusting (P127308) EU Funds in the research institutional operational procedures, and improving research and innovation capacity. Capacity building was provided for and innovation sector change MSE, HAMAG-BICRO, CSF, and other public research organizations to develop R&D grant applications and enhanced and the infrastructure projects through TA and training, including feasibility studies and cost-benefit analysis. MSE demand for those funds departments created or guided beneficiaries to absorb EU funds, closing funding gaps and enhancing from the business and institutional capacities. This resulted in projects worth EUR 301 million, with over EUR 212 million financed scientific communities by EU programs. The Project also contributed to three strategic research infrastructure projects (CALT, HR- stimulated ZOO, and O-ZIP), which received EU funding and are under construction. Increased absorption of 6 - benefits This RAS reviewed Croatia's innovation policies to enhance economic competitiveness. Following significant Public Expenditure funds for science, confirmed EU funding, it advised on improving the composition, quality, efficiency, and effectiveness of innovation Review in Science, technology, and from spending. The RAS also analyzed the Smart Specialization Strategy (S3) 2016-20, including its intervention Technology and innovation institutional logic and governance. As a result, Croatia committed to investing over EUR 240 million in applied research, Innovation change collaborative projects, and technology transfer programs, two-and-a-half times more than the 2016-20 (P170711) investment. Enhanced effectiveness 6 - benefits The RAS helped policymakers improve the governance of the S3 (adopted in December 2023) by Strategic and institutional capacity confirmed strengthening policy co-creation with industry and academic stakeholders through the entrepreneurial Partnership for for research and from discovery process. It enhanced institutional capacity for RDI policy within the Ministry of Science and Research, innovation policy design, institutional Education (MSE) by having World Bank experts work with MSE staff on program design, M&E, and reforms Innovation and implementation and M&E change for performance-based funding, technology transfer, and research infrastructure policies. The RAS raised Growth (P177150) awareness among policymakers about evidence-based policymaking through counterfactual impact evaluations and improved data collection practices. Croatian Science Foundation staff enhanced their policy implementation capacity through targeted workshops and analytical inputs for internal restructuring to address the expanded policy mix under the ESIF and NRRP. RAS outputs helped Croatia meet commitments to raise research and innovation capacity by providing inputs for nine RDI support programs under the NRRP launched in 2023, recommendations for a performance-based funding reform in research institutes 79 Institutional Change ICAM Description of Progress WBG Program Objective Rating introduced in 2023, advice on National Technology Transfer guidelines published in 2022, and support for research infrastructure policy and training for the Croatian Science Foundation. Improved innovation 6 - benefits The engagement on STPII, DIG-IT, and the two RASs in RDI, helped Croatia improve its innovation policy STPII, DIG-IT, PER in performance of Croatia confirmed performance as evidenced by the European Innovation Scoreboard Summary Innovation Index, which has STI RAS, SPRING RAS from increased from 61.1 in 2019 to 76.6 in 2024, and has grown faster than the EU average. institutional change Improved 3 - knowledge The RAS provided support and analytical input to the then Ministry of Economy, Entrepreneurship and Craft competitiveness of gained and the Croatian Chamber of Economy in its efforts to improve the country's competitiveness. By helping the Croatia (in 13 selected client to implement the Competitiveness Clusters Initiatives, as defined under the country's Smart Croatia Clusters and sectors) Specialization Strategy, the project identified the promising strategic segments in which the existent clusters GVC Assessment (in 13 sectors) could compete, and designed an actionable plan with concrete actions and reforms that the (P160276) GoC could implement to improve the country's competitiveness. The 13 sectors included ‘Pharmaceuticals’; ‘Health’; ‘Nutrition’; ‘Energy’; ‘Environment’; ‘Auto’; ‘Environmental Transport; ‘Intelligent Transport’; ‘Cybersecurity’; ‘Defense Dual-Use’; ‘Mine Action’; ‘Food’ and ‘Wood’. 80 CLR Annex 4. IBRD Lending program FY19-24 Planned Vs Actual Project Planned in the CPF or ID Project Name PLR Status Total Comm. CPF Objective Integrated Land Administration Board Approved Objectives 1, 3 & 6 P166324 System - Additional Financing Yes 01-Aug-2018 $ 24,070,000.00 Board Approved Objective 6 P167247 Justice for Business Project Yes 31-Mar-2020 $ 110,300,000.00 Croatia: Towards Sustainable, Equitable and Efficient Board Approved Objective 1 and 3 P170178 Education Project Yes 30-Nov-2021 $ 28,900,000.00 Yes, with adjusted scope to support COVID-19- Helping Enterprises Access affected firms in Objectives 1, 3 & 6 Liquidity in the Republic of underserved segments Board Approved P172024 Croatia and lagging regions 14-May-2021 $ 242,100,000.00 Croatia green growth Objective 4 P172265 development policy operation Yes Dropped $ 100,000,000.00 Yes, DPO refocused from economic Objective 2 Crisis Response and Recovery resilience DPO to crisis Board Approved P173996 Development Policy Operation response 26-Jun-2020 $ 300,000,000.00 Earthquake Recovery and Public Board Approved Objective 1 P173998 Health Preparedness Project No 26-Jun-2020 $ 200,000,000.00 Strengthening fiscal decentralization and local Objective 1 P180232 development project No Dropped $ 100,000,000.00 Digital, Innovation, and Green Board Approved Objective 7 P180755 Technology Project Yes 22-Jun-2023 $ 116,400,000.00 Integrated Land Administration Board Approved Objectives 1 & 6 P180605 and Justice Services Project Yes 13-Mar-2024 $ 122,104,500.00 81 CLR Annex 5. WBG Croatia Portfolio FY19-24 Latest Latest Board Net Comm. Amt. Project Project Project ID Project Name Approval Closing Date - Total Cancelled Amt. Ratings DO Ratings IP P102365 Rijeka Gateway II 11-Dec-2008 31-Dec-2018 $122,429,017.62 $70,982.38 MU MU Integrated Land Administration System P122219 Project* 04-Aug-2011 16-Jan-2024 $47,870,000.00 $0.00 S S Second Science & P127308 Technology Project 26-Apr-2013 30-Apr-2020 $25,620,862.69 $0.00 S S Croatia Export Financing P133471 Guarantee Operation 27-Jun-2013 01-Oct-2018 MU MS Improving Quality and Efficiency of Health Services P144871 Program for Results 08-May-2014 31-Oct-2019 $88,378,650.00 $15,121,350.00 MS MS Sustainable Croatian P147499 Railways in Europe 30-Apr-2015 31-Jul-2023 $183,350,000.00 $0.00 MS MS Modernization and Restructuring of the Road P155842 Sector 28-Apr-2017 31-Dec-2021 $17,220,649.91 $0.00 U MU P167247 Justice for Business Project 31-Mar-2020 30-Jun-2025 $110,300,000.00 $0.00 MS MS Crisis Response and Recovery Development P173996 Policy Operation 26-Jun-2020 28-Feb-2021 $300,000,000.00 $0.00 Earthquake Recovery and Public Health Preparedness P173998 Project 26-Jun-2020 30-Jun-2024 $200,000,000.00 $0.00 MU MS Helping Enterprises Access Liquidity in the Republic of P172024 Croatia 14-May-2021 30-Jun-2025 $121,050,000.00 $121,050,000.00 S MS 82 Croatia: Towards Sustainable, Equitable and P170178 Efficient Education Project 30-Nov-2021 30-Jun-2026 $28,900,000.00 $0.00 S MS Digital, Innovation, and P180755 Green Technology Project 22-Jun-2023 29-Dec-2028 $116,400,000.00 $0.00 S S Integrated Land Administration and Justice P180605 Services Project 13-Mar-2024 30-Apr-2029 $ 122,104,500.00 $0.00 S S *Includes an AF Loan of $ 24,070,000.00 approved by the Bank on 01-Aug-2018 83 CLR Annex 6. IFC Committed and Outstanding portfolio FY19-24 Table A6.1. IFC committed and outstanding portfolio as of end June 30, 2024 (US dollars) Outstanding All All Outstanding Industry Group Committed Committed - Outstanding Project Short Name Balance - Committed - Balance - IFC + Sector IFC IFC Part Balance - IFC Part IFC + Part Part 44745-DCM 80,487,107 - 80,487,107 - 80,487,107 - ErsteCR_MREL 46592-DCM-RBA- FIG 140,205,000 - 140,205,000 - 140,205,000 - SMREL 49235-DCM ESB 16,162,617 - 16,162,617 - 16,162,617 - MREL 2 48368-Zagreb Bond INFRA 78,054,415 - 78,054,415 - 78,054,415 - 2023 Total 314,909,139 - 314,909,139 - 314,909,139 - Table A6.2. Croatia Historical Investment Program Commitments by Fiscal Year Based on Country of Proceeds (JV Country) (as of Jun 30, 2024, in US$)   FY19 FY20 FY21 FY22 FY23 FY24 FY19-FY24 Long Term - 0 91.4 30.0 387.1 277.2 785.7 Finance of which IFC - 0 91.4 30.0 213.1 118.7 453.5 Own Account of which Core - 0 0 0 174.0 158.5 332.5 Mobilization Short Term - - - - - - - Finance 84 CLR Annex 7. WB Croatia ASA Tasks FY19-24 Legal Source of Lead GP/Global Agreement ACS Funding Task Id Task Name Themes Sign Off ACS FY Original/Revised Status Reimbursable Advisory Services (RAS) Macroeconomics, Croatia Clusters and GVC Trade and P160276 Assessment Investment 01-Jun-2016 2019 20-Jun-2019 Completed ESIF Support for Establishing the System for Strategic Planning and the Preparation of the National Macroeconomics, Development Strategy –Croatia Trade and P166454 2030 Investment 11-May-2018 2021 16-Apr-2021 Completed ESIF Strategic Transformation in Agriculture and P167852 Agriculture and Rural Space Food 11-Oct-2018 2021 10-Jun-2021 Completed ESIF Finance, RAS Growth and Jobs in Eastern Competitiveness P167067 Croatia and Innovation 20-Jul-2018 2023 11-Oct-2022 Completed ESIF Croatia: Circular Economy Environment, Approaches in Solid Waste Natural Resources & P173141 Management the Blue Economy 28-Sep-2020 2023 19-Dec-2022 Completed ESIF Supporting the development of the Pension Simulation Model and Social Protection & P178456 the Individual Pension Calculator Jobs 26-Aug-2022 2024 02-Feb-2024 Completed ESIF Croatia Public Expenditure Review Finance, in Science, Technology and Competitiveness P170711 Innovation and Innovation 24-May-2019 2024 24-Feb-2024 Completed ESIF Analysis and policy proposals for the improvement of the Long-Run Adequacy and Sustainability of the Social Protection & State P178457 Croatian Pension System Jobs 01-Jul-2022 2024 02-May-2024 Completed budget Croatia: Reforming the Public P173346 Sector Wage Setting Mechanism Governance 17-Dec-2021 2025 31-Dec-2024 Completed NRRP 85 Supporting the Transition from Institutional to Community-Based Care for Children, Youth and Social Protection & P179065 Persons with Disabilities Jobs 06-Dec-2022 2025 28-Feb-2025 Active ESIF Finance, Strategic Partnership for Competitiveness P177150 Research, Innovation and Growth and Innovation 30-Sep-2021 2026 30-Jun-2026 Active ESIF Strengthening Long-Term Care Health, Nutrition & P500976 Provision in Croatia Population 23-Jan-2024 2027 18-Dec-2026 Active ESIF Trust Funds (TFs) Lead GP/Global ACS Source of Task Id Task Name Themes ACS FY Original/Revised Status Funding Macroeconomics, Croatia Business Environment Trade and P163649 Reform Project Investment 2019 17-Dec-2018 Completed SRSS Finance, Croatia Occupational Regulation Competitiveness P165139 Reform and Innovation 2020 12-Jun-2020 Completed SRSS Strengthening Consumer Finance, Protection through Structured Competitiveness P171378 Creditworthiness in Croatia and Innovation 2021 25-Jun-2021 Completed SRSS Measuring Performance in Public P173682 Procurement in Croatia Governance 2022 26-Feb-2022 Completed SRSS Finance, Croatia Business Environment Competitiveness P171119 Reform and Innovation 2023 15-Jun-2023 Completed SRSS P178797 Croatia Water Loss Reduction ASA Water 2024 20-Dec-2023 Completed TSI Croatia: Support to Improve Poverty and Social Policies P178975 Monitoring Poverty and Equity 2025 29-Nov-2024 Completed TSI 86 Support to Reduce Water Loss with the Reform of the Water P505592 Sector in Croatia – Phase 2 Water 2026 31-Dec-2025 Active TSI Advisory and Analytics (BB) Productive Inclusion for Agricultural Competitiveness in Agriculture and P165911 Croatia Food 2019 28-Sep-2018 Completed Environment, Natural Resources & P165593 Croatia: Forest sector note the Blue Economy 2019 30-Oct-2018 Completed P166022 EU Croatia - Energy Sector Review Energy & Extractives 2019 09-Dec-2018 Completed Support to SPJ engagement and Social Protection & P169588 dialogue in Croatia Jobs 2019 24-Jun-2019 Completed Supporting the preparation of the Environment, Waste Management Infringement Natural Resources & P166456 Action Plan the Blue Economy 2019 26-Jun-2019 Completed Health, Nutrition & P169466 Croatia Health Sector Support Population 2019 27-Jun-2019 Completed P166331 Croatian Railways Policy Update Transport 2019 27-Jun-2019 Completed Finance, Croatia Firm Level Productivity Competitiveness P169432 Project and Innovation 2020 03-Oct-2019 Completed Costing and promotion of a comprehensive education reform P172410 in Croatia Education 2020 15-Jun-2020 Completed Croatia - Key Institutions for Macroeconomics, Building Resilience of the Trade and P169670 Economy Investment 2020 22-Jun-2020 Completed Environment, Support to solid waste Natural Resources & P171628 management within the the Blue Economy 2020 24-Jun-2020 Completed 87 framework of meeting the circular economy targets in Croatia Croatia Public Expenditure Review: Prescription Drug Health, Nutrition & P172527 Expenditure in Health Sector Population 2020 25-Jun-2020 Completed Water Security and Resilience in P169536 Croatia Water 2020 28-Jun-2020 Completed Livestock sector analysis in support of the preparation of the Croatia National CAP Strategic Agriculture and P171507 Plan for 2021-2027 Food 2020 29-Jun-2020 Completed Strengthening Competitiveness Through Green Transport and P168509 Logistics Transport 2020 29-Jun-2020 Completed Finance, Research and Innovation Competitiveness P173562 Manuscript and Innovation 2020 30-Jun-2020 Completed Macroeconomics, State-Owned Enterprises in Trade and P167346 Croatia – An Overview Investment 2020 30-Jun-2020 Completed Migration and Brain Drain in the Social Protection & P174392 EU Jobs 2020 30-Jun-2020 Completed The effects of COVID-19 on Social Sustainability P175201 Croatian women and Inclusion 2021 21-Dec-2020 Completed P172303 Croatia Digital Technologies Digital Development 2021 25-Apr-2021 Completed P175230 Croatia Poverty Program Poverty and Equity 2021 05-Jun-2021 Completed Macroeconomics, Croatia Public Finance Review Trade and P172617 2021 Investment 2021 24-Jun-2021 Completed Croatian Agriculture in the Agriculture and P175047 European Green Deal Food 2021 25-Jun-2021 Completed 88 Enabling Resilient Reconstruction and Sustainable Revitalization in Urban, Resilience P177383 Sisak-Moslavina County and Land 2022 03-Jun-2022 Completed Supporting an Effective Response to the Challenges and Opportunities of Population Health, Nutrition & P175671 Ageing in Croatia Population 2022 07-Jun-2022 Completed Macroeconomics, Croatia Country Economic Trade and P175222 Memorandum 2.0 Investment 2022 29-Jun-2022 Completed Strengthening Public Sector Efficiency and Accountability in P175259 Croatia Governance 2023 14-Jun-2023 Completed Macroeconomics, Trade and P180009 Public Finance Review 2023 Investment 2023 29-Jun-2023 Completed Croatia Human Capital Review: Enhancing Labor Market Social Protection & P179496 Performance Jobs 2023 30-Jun-2023 Completed Environment, Natural Resources & P179246 Croatia Blue Economy Policy Note the Blue Economy 2024 16-Feb-2024 Completed Macroeconomics, Croatia Subnational Public Finance Trade and P500681 Analysis 2024 Investment 2025 20-Dec-2024 Completed Improving Employment, Human Capital and Social Safety Nets in Social Protection & P502260 Croatia Jobs 2025 31-May-2025 Active Croatia Country Climate and P505613 Development Report 2026 31-Oct-2025 Active Croatia Fiscal & Public Expenditure Management P501636 Strengthening Program Governance 2026 31-Dec-2025 Active 89 CLR Annex 8. Knowledge Spillovers and Regional or Global Public Goods32 CPF Objective 1 - Improve efficiency of public administration to implement strategy Project Spillover or GPG P173346 ECA and other Regions - The reform was presented at the Public Administration Reforming the Reform Global Forum in Washington, DC on May 28-29, 2024. Public Sector The reform has been presented to several governments who expressed interest in Wage Setting the public wages reform, including Ethiopia, Peru, Paraguay, Cambodia, Montenegro, Mechanism (RAS) Moldova, Kazakhstan, Egypt, and Somalia. Project Spillover or GPG P178975 EU - This TF has informed the EU regional work on poverty mapping in the EU done Poverty under a DG REGIO funded TF work Diagnostic and Social Monitoring (TF) Project Spillover or GPG P173998 Across the European Union (EU) - The TA informed ongoing BETF Economics for Supporting Disaster Prevention and Preparedness analytics funded by the European Disaster Commission – led by the Directorate-General for European Civil Protection and Resilience in Humanitarian Aid Operations (ECHO). This study for DG ECHO shares good practice Croatia / to inform scaling up disaster and climate resilience efforts relevant for EU member Earthquake states and participating states of the Union Civil Protection Mechanism (UCPM). Recovery and Croatia is one of the case studies – highlighting both the application of the Ready to Public Health Respond methodology and of the portfolio analysis. Preparedness Project Project Spillover or GPG P177136 Across the European Union (EU) - The integrated urban regeneration approach for Functional Areas the Paromlin site in Zagreb has inspired similar efforts in Brno (Czechia), Cluj- in Europe (ASA) Napoca (Romania), and Lake Balaton (Hungary). Metropolitan GIS database developed for Zagreb was also replicated in the Cluj Metropolitan Area, and the Oradea Metropolitan Area (Romania). Project Spillover or GPG P166324 Bosnia and Herzegovina, Türkiye, Kosovo, Uzbekistan - The advanced land Integrated Land administration Joint Information System developed under the Croatia Integrated Administration Land Administration System Project linking data from the multiple registries is System Project informing the development of two pipeline projects in Bosnia and Herzegovina and 32EU Knowledge Spillovers. Available at: https://worldbankgroup.sharepoint.com/sites/eca- euknowledgespillovers/sitepages/publishingpages/EU-Knowledge-SpilloversGreen-Transition-06072021-133349.aspx 90 Türkiye, and the development of geospatial information systems in Kosovo. In addition, Croatia’s experience with development of a building register has been the subject of a study tour from officials in Bosnia, and there has been a request from Uzbekistan to visit the State Geodetic Administration to learn about development of spatial data infrastructure and information. CPF Objective 1 and, also, CPF Objective 3 - Create opportunities for people, particularly in less developed regions and CPF Objective 7 - Promote entrepreneurship, competition, and innovation Project Spillover or GPG P167852 The approaches developed under this RAS have been used in the design of WB Strategic lending operations in Serbia and Kazakhstan, have contributed to the WB Transformation in analytical work in Georgia, Greece, Bulgaria, and Poland, and have informed the Agriculture and Government of Mexico’s COVID-19 response in the agriculture sector. This Rural Space (RAS) translated into the launch of a pilot to support the strengthening of short value chains of perishable agricultural products in Mexico, elements of which are reflected in a new lending operation. More concretely, the spillovers to these countries included: Serbia - the focus on short value chains was adopted by developing a digital platform for food distribution; elements from the evidence-based strategic planning work in Croatia were also adopted under the ongoing IPF on linking small producers to markets (P167634); Mexico - the focus on short value chains was adopted by developing a digital platform for food distribution. The process was developed by academia and implemented by the private sector. In addition, several elements of the developed idea have been integrated into an IPF under preparation (P173171); Georgia - the analytical work underpinning the evidence-based planning process was adopted through an agricultural public expenditure review, identifying clear priorities for government action; Kazakhstan - elements from the work on livestock were adopted in the livestock P4R (P170365) in the process of approval in the country; Greece and Bulgaria - elements from both the analytical work carried out in Croatia, as well as the spatial planning analysis are now implemented through RAS engagements (P173638, P167719) Across the European Union (EU) - The team held the “European Green deal in Agri-Food Learning Series” event in three parts targeting WB TTLs, agriculture clients from different regions, with participation from the European Commission DG Agri and academia. CPF Objective 2 - Support policies that reduce fiscal vulnerabilities, with a focus on State-Owned Enterprises Project Spillover or GPG P178456 Supporting ECA and other Regions - The development of the Pension Simulation Model for a the Development of national pension calculator with access to actual individual data and with broad the Pension public outreach has been the first such activity in the World Bank. The procedure Simulation Model for the development of an individual calculator was presented to the Romanian and the Individual Government, at their request, in March 2024. A presentation of the Croatian 91 Pension Calculator Individual Pension Calculator was scheduled for May 9-10, 2024 at the (RAS) International Pension Conference in Dilijan, Armenia. Project Spillover or GPG P172617 Across the European Union (EU), other Regions - The analysis that was initiated Croatia Public in the PFR and later expanded in the RAS on Reforming the Public Sector Wage Finance Review Setting Mechanism has already been shared with other countries that are 2021 (ASA) preparing similar projects (e.g. Montenegro, North Macedonia, Mongolia). Project Spillover or GPG P167346 EU Accession countries in Western Balkans - Integrated SOE Diagnostic (iSOED) State-Owned tool is a standard WB tool to assess the SOE sector more comprehensively and it Enterprises in also served as a basis for this report. Countries in the region that have a similar Croatia – An legislative framework (e.g. Bosnia and Herzegovina) and they have benefited Overview (ASA) from the analysis in this report. CPF Objective 5 - Improve water and solid waste delivery and management Project Spillover or GPG P178797 Croatia Across the European Union (EU) - The concept developed, and knowledge Water Loss gained has significant potential for application in almost all countries of the Reduction (TF) region (Western Balkans), but also EU countries like Romania which has a Non- Revenue Water rate around 50%. Also, the project has already been presented at the Danube Water Conference, Montenegro Water Conference, and a Conference in Romania on Drought Risk Management. CPF Objective 7 - Promote entrepreneurship, competition and innovation Project Spillover or GPG P127308 EU Accession countries - project outputs are relevant for other country Second Science and programs, particularly in the EU Candidate Countries. The designed programs, Technology Project guidelines for applicants under grant schemes, and the related TA to build capacities for EU funds absorption may be beneficial in assisting those countries which are working to align their RDI policy frameworks with the EU requirements. Serbia, Kazakhstan, and Latin America - Activities conducted under the project were used as a blueprint for developing similar activities in these countries and regions. Project Spillover or GPG P180755 Digital Kazakhstan – the project has informed policy dialogue on innovation in Innovation and Kazakhstan, providing inputs for the preparation of a similar project. Green Technology Project Project Spillover or GPG 92 P170711 Bulgaria, Romania - the RAS contributed to cross-country knowledge spillovers, Public Expenditure providing inputs for similar projects conducted in Bulgaria and Romania. Review in Science, EU Accession countries, and other Regions (e.g. Southeast Asia) – within the EC technology, and CMU Knowledge Spillovers initiative, two briefs and a video were produced to Innovation (RAS) showcase the knowledge generated focusing on 1) helping EU accession countries build institutional capacity to prepare and make the most of future EU funding for STI, 2) looking beyond the EU context to identify relevant lessons for developing a nascent national innovation system. Across the European Union (EU) - The RAS enabled four study visits for policymakers to exchange experience and share knowledge on research and innovation policy with global leaders and European peers. Study visits were organized to Slovenia, Israel, the Czech Republic, and Sweden. 93 Annex III: IBRD Croatia Portfolio Current Lending, Pipeline, and Analytics Lending (active) Net Project Project Name Board Approval Closing Date Comm ID. Amt (US$) Croatia: Towards Sustainable, Equitable P170178 30-Nov-2021 30-Jun-2026 28.90 and Efficient Education Project Helping Enterprises Accessing Liquidity in P172024 14-May-2021 30-Jun-2025 121.05 Croatia (HEAL) Digital, Innovation, and Green Technology P180755 22-June-2023 29-Dec-2028 116.40 Project P167247 Justice for Business Project 31-Mar-2020 30-Jun-2025 110.30 Earthquake Recovery and Public Health P173998 26-Jun-2020 30-Jun-2027 200.00 Preparedness Project Integrated Land Administration and Justice P180605 13-Mar-2024 30-Apr-2029 121.80 Services Project Lending Pipeline for the first half of the CPF Project Name Board Approval Discussed Amt Green and Efficient Passenger Ferry Sector Project FY26 TBD Municipal Development Project FY27 TBD World Bank Croatia Analytics (externally funded RAS & TF) Task Id Task Name Lead Legal Agreement ACS date GP Signing Date RAS: Strategic Partnership for Research, P177150 FCI 30-Sep-2021 30-Jun-2026 Innovation and Growth RAS: Strengthening Long-Term Care Provision in P500976 HNP 23-Jan-2024 25-Jan-2027 Croatia TF: Support to Reduce Water Loss within the P505592 WAT - 31-Dec-2025 Reform of the Water Sector in Croatia - Phase 2 RAS Pipeline Task Id Task Name Lead Legal Agreement ACS date GP Signing Date P504763 RAS: Building Resilience and Strengthening FCI TBD 18-Dec-2026 Development of SMEs in Croatia through Early Warning Tools 94 World Bank Croatia Analytics (Bank Funded) Task Id Task Name Lead CN Review Date ACS date GP Croatia Country Climate and Development P505613 CLC 14-Jun-2024 31-Oct-2025 Report Beyond the Shores: Enhancing Tourism P507790 Linkages and Labor Market Outcomes in MTI 22-Nov-2024 31-Oct-2025 Croatia Croatia Fiscal & Public Expenditure P501636 GOV 01-Dec-2023 31-Dec-2025 Management Strengthening Program Improving Employment, Human Capital and P502260 SPJ 15-Dec-2023 31-May-2025 Social Safety Nets in Croatia 95 Annex IV: IFC Croatia Investments and Portfolio 1a. Croatia Historical Investment Program Commitments by Fiscal Year Based on Primary Country (as of March 31, 2025) FY20 FY21 FY22 FY23 FY24 FY25 YTD FY20-FY25 Long Term Finance (LTF) - 91.4 0.0 217.0 269.2 217.0 794.6 of which IFC Own Account - 91.4 0.0 150.0 114.4 106.7 462.6 of which Core Mobilization - 0.0 0.0 67.0 154.8 110.3 332.1 Short Term Finance (STF) - - - - - - - of which IFC Own Account - - - - - - - of which Core Mobilization - - - - - - - Source: IFC Country Report. 1b. Croatia Historical Investment Program Commitments by Fiscal Year Based on Country of Proceeds (JV Country) (as of March 31, 2025) FY20 FY21 FY22 FY23 FY24 FY25 YTD FY20-FY25 Long Term Finance (LTF) - 91.4 30.0 387.1 277.2 217.0 1,002.8 of which IFC Own Account - 91.4 30.0 213.1 118.7 106.7 559.9 of which Core Mobilization - 0.0 0.0 174.0 158.5 110.3 442.8 Short Term Finance (STF) - - - - - - - of which IFC Own Account - - - - - - - of which Core Mobilization - - - - - - - Source: IFC Country Report. 2. IFC Committed and Outstanding portfolio as of March 31, 2025 Project Name IFC Committed IFC Outstanding Adris Hotels 207,520,000.00 103,760,000.00 DCM ESB MREL 2 15,549,681.12 15,549,681.12 DCM-CRO-MREL Sustainability Bond-Raiffeisen Croatia 134,888,000.00 134,888,000.00 Erste_CRO_MREL 77,434,791.00 77,434,791.00 Zagreb Airport 17,614,026.72 17,614,026.72 Zagreb Bond 2023 75,094,354.50 75,094,354.50 Grand Total 528,100,853.34 424,340,853.34 Source: IFC Portfolio Extract. 96