Croatia Defence and Security Report Q4 2009

With EU accession prospects taking a hit from the ongoing land dispute with Slovenia and with the economy heading into a deep recession, Croatia's woes were further compounded by the shock resignation of Prime Minister Ivo Sanader. The leader of the main coalition partner, the Croatian Democratic Union (HDZ), announced his resignation on July 1 halfway through serving his second term as prime minister. What is more, Sanader gave no indication of the motivation behind his decision and despite claims from some critics that he was positioning himself to run for the presidency in 2010, he has vowed to end his political career.

Croatia is undergoing a period of military rationalisation and modernisation. Defence spending increased slightly both in 2007 and 2008, and is expected to continue rising through to the end of 2012. However, defence expenditure both as a proportion of government outlay and of GDP is declining and a great deal of the defence budget is devoted to personnel costs and to compensating those laid off due to military downsizing. Croatia's defence force will be conscript-free by the end of 2009. Beyond the territorial dispute with Slovenia, Croatia faces little threat of external conflict and enjoys strong internal stability. Its main security priority is to prevent the transhipment of contraband through its territory as a condition of EU entry.

The economy is now deep in recession. Having expanded by 0.2% year-on-year (y-o-y) during the fourth quarter of 2008 (and posting a full-year expansion of 2.4%), Croatia finally plunged into recession territory during Q109, with real GDP contracting by 6.7% y-o-y over the first quarter. We expect worse headline data in Q209 (and potentially Q309) as consumers continue to tighten their belts and tourism arrivals plummet amid a deep and protracted eurozone recession.

For Q409, BMI has updated the methodology of its Terrorism Rating and expanded it to cover 170 global cities, as well as 130 states. As before, the Terrorism Rating incorporates our analysts' qualitative view of the terrorist threat. However, it also incorporates secondary analysis of data on global terrorist incidents obtained from the US State Department's Worldwide Incidents Tracking System (http://wits.nctc.gov/), to provide a quantitative assessment of the risks.

The composite security risk rating for Croatia is 64. Notable is Croatia's Criminal Rating which at 37 illustrates the high level of organised criminal activity in the region to which Croatia is susceptible.