Croatia faces a final deadline to complete projects under the National Recovery and Resilience Plan, with 1.8 billion euros unspent and the threat of having to return funds to Brussels potentially jeopardizing the state budget and credit rating.
1.8 billion euros, a quarter of the 7.3 billion already disbursed from the National Recovery and Resilience Plan, sits unused, the culprit being projects that never saw the light of day. The clock is ticking down to August 31, 2026, the final deadline for completing all investments, and if that date passes in vain, Croatia will have to return the money to the European budget. The consequences would range from a deepening deficit to a direct threat to the hard-won investment credit rating.
The total NPOO envelope is worth ten billion euros, 5.8 billion in grants and 4.2 billion in favorable loans, but 2.75 billion is still missing from the full envelope. The reason is not just delays in implementation, but also a chronic shortage of well-designed projects.
The NPOO, let us recall, is Croatia's arm of the Recovery and Resilience Facility (RRF), established by the European Commission in 2021 amid the pandemic. The entire NextGenerationEU package weighed in at around 750 billion euros, while the RRF was initially worth 672.5 billion, later growing to 723.8 billion through adjustments. Of the 557 billion euros allocated to member states, 360 billion are grants and 217 billion are loans.
The EU Council's implementing decision to disburse ten billion euros to Croatia was adopted in July 2021, after Prime Minister Andrej Plenković lobbied for Croatia to receive the highest amount relative to its economy among all member states.
The first front is the deadline itself: the Recovery and Resilience Facility expires on August 30. The second is the 1.8 billion euros of unspent money, funds that have already sat in the account but were not drawn down by projects, while the third is the European Commission's clear stance that all money for unfinished projects must be returned.
Minister of Regional Development and EU Funds Nataša Mikuš Žigman coordinates 152 investments across 77 reform packages, with the biggest delays seen in the modernization of railway lines, water supply and sewage systems, and the transition of schools to single-shift teaching. Projects are delayed for two key reasons: congestion in the construction sector, with hundreds of simultaneous sites and a chronic shortage of labor and materials, and complex reforms such as the digitalization of the judiciary and changes in public administration and health, which Croatia has not fully implemented legally. By September 30, final requests for the remaining amount must be submitted, and the deadline for disbursements from the Facility is December 31, 2026.
If projects remain unfinished, Croatia will have to return the money to Brussels and finance the works from its own budget, which would require a deeper budget revision and a slowdown in GDP growth. The budget deficit already stands at three percent of GDP, the upper limit allowed by EU rules, and exceeding it would trigger the excessive deficit procedure, Commission oversight of Croatia's budget, and possible penalties.
The investment credit rating, which has reached a historic A-, would also be at risk, and a downgrade would make state borrowing more expensive. From January 2027, a fiscal consolidation plan also comes into effect, strict austerity that would further tighten the noose, so returning money to Brussels would jeopardize the entire anti-inflation program and the belt-tightening plan.
Prime Minister Plenković is intensively lobbying the European Commission, aware that extending deadlines requires unanimous consent from all 27 member states, a path that is politically almost impassable. The focus is therefore on a more flexible interpretation of completion: the goal is to convince the Commission to recognize projects with a high degree of completion, from 85 percent upward, as successful.
In parallel, the government is trying to shift some risky projects to long-term national loans or divide them into phases and redirect them into standard multi-annual EU funds, such as the cohesion fund. If strict recovery mechanisms are activated, which happens if more than 20 percent of projects remain unfinished, state finances would suffer deep shocks, and in the worst-case scenario, the pressure on the budget would amount to between 1.5 and two billion euros.
The opposition has for years tried to diminish Plenković's credit for securing the ten billion euros, claiming that the amount was mathematically owed to Croatia, but Croatia did not have to receive exactly that amount, and relative to the size of its economy, it received the most among EU members. The final deadline for completing all investments on the ground is August 31, and the clock is ticking.
