I. GENERAL PROFILE
Area: 56,542 sq km
Population: 4,501,000
Population density: 76.6 per sq km
Capital: Zagreb

GDP (2000): 19.031
GDP (2000) per capita: 4.229
2000 GDP growth: 3.7
Budget deficit as % of GDP: 4.88
CP Index Change (2000): 5,4%
Foreign debt: $ 10.840 bln

Government: Republic.Independence from the Federal Republic of Yugoslavia proclaimed in 1991. Head of State: President Stjepan Mesic since 2000. Head of Government: Prime Minister Ivica Racan since 2000.

Religion: Roman Catholic Croats (76.5% of the total population) and Eastern Orthodox Serbs (11%), as well as small communities of Protestants, Jews and Muslims.

Croatia stretches along the Adriatic coast (narrowing north-south; with major ports at Rijeka, Pula, Zadar, Sibenik, Split and Dubrovnik). The country's larger inland area runs west-east from Zagreb to the border with Serbia, Yugoslavia. The northern two-thirds of this frontierare formed by the River Danube. The country borders Slovenia and Hungary to the north, Yugoslavia to the east and Bosnia-Herzegovina (southeast from Zagreb; northeast from the Adriatic coastline).

After Slovenia, Croatia was the most developed of the former Yugoslav republics. With substantial support and investment from abroad, the Croatian economy has been recovering well since the break-up of Yugoslavia and several years of civil war.
The Tudjman government initially introduced a program of privatization and other market reforms. Croatia joined the IMF in January 1993. In May 1994, the government introduced a new currency, the Kuna. Low inflation has enabled its value to remain reasonably srable. However, after several years of moderate growth, the economy has been stagnant since the beginning of 1998.
The country's most important trading partners are Germany, Italy, Austria, Slovenia and Bosna and Herzegovina.

II. DEFENCE BUDGETS - OVERVIEW (1999-2001)

Defence/GDP proportion. In 1999, the total defence expenditures of Croatia amounted to 3,6% of the GDP. The large portion could be explained by the unstable political situation in the region and the conflict in Kosovo. A decrease in spending began in 2000. Expenditure was equivalent to USD 576,4 million, which came to 3,4% of the GDP. A tendency of normalization became evident in 2001, when the proportion fall to only 2% of the GDP. (See Chart 1).


Chart 1. Defence/GDP proportion (1999-2001)

Total defence expenditure. There is a sharp decrease of the total defence expenditure in the 1999-2001 period. From a level in 1999 of USD 815.4million spending fell to $ 576,4 million and $ 501,8 million in 2000 and 2001. The defence budget volume declined by 29% in 2000 in relation to 1999 and registered a 13%-fall in 2001 in relation to 2000. (See Table 1 and Chart 2).



Operating costs. (Table 2 and Chart 3). Running costs are the largest component of the defence budget. They follow the trend of total spending as they reach their lowest amount in 2001. There is a domination of personnel costs over other operating costs and even over other parts of the military budget. They account for more than a half (57% to 77% through the period) of operating costs.
In 1999 the expenditures for materials for current use made up 60% of operations and maintenance outlays. A further 25% went on maintenance and repair. In 2000 the portions of "materials for current use" and "maintenance and repair" were 51% and 19% respectively. Budget shares are 57% and 8% in 2001.


Chart 3. Operating costs structure 1999-2001

Procurement and construction costs. (Table 2 and Chart 4). The expenses on procurement and construction do not take a substantial part of the Croation defence budget. This is evident from Table 2. The distribution of outlays between procurement and construction is depicted in Chart 4.


Chart 4. Procurement and construction costs (1999-2001)

Research and development costs. Expenditures for research and developmentfall over the three-year period. In 1999 they comprised 1% of the military budget. In 2000 they were 0.1% and in 2001 they account for only a minute share. All the resources are directed to basic and applied research programs.
Summary. Actual values in local currency and USD dollars are set out in Table 2 here and shown grafically in Chart5.



Defence forces costs. (Chart 6). The relative shares of individual services expenditures have been remarkably constant. Land forces took 70% of all defence spending in 1999, 71% in 2000, and 71% in 2001. Naval forces have a far more modest share: 4,1% in 1999, 5,1% in 2000, and 5,4% in 2001, while air forces received less then 10% in each of the last three years. The "Central support" and "Administration and command" together account for 17% of the total resources in 1999, 14% in 2000, and 14,5% in 2001. The ratio between the two elements "Support/Command" develops as follows, 86%/14% in 1999, 77%/23% in 2000, and 81%/11% in 2001.



III. ESTIMATED TRENDS OF DEFENCE EXPENDITURE 2001-2005

Defence/GDP proportion. The defence/GDP proportion will probably fluctuate between 2% and 2,5% through the 2002-2005 period, after several years of higher spending. In 2001 the three-year downward trend of the proportion is supposed to end. Croatia will get into a phase of fiscal relaxation during the next four years. (See Chart 7 below).


Chart 7. Defence/GDP proportion(1999-2005)

Development of the defence budget. During the period Croatia plans to reduce the relative share of personnel costs and raise the portion of the spending on both operations and maintenance and military investment to 18% of the total defence expenditure in 2005 from its current 11%-level (the latter rising). The research and development spend will remain very small indeed. For details see Table 2 and Chart 8.