LOAN NUMBER 9135-HR Loan Agreement (Crisis Response and Recovery Development Policy Loan) between REPUBLIC OF CROATIA and INTERNATIONAL BAIIK FOR RECONSTRUCTION AI\D DEVELOPMENT LOAN AGRBEMENT AGREEMENT dated as of the Signature Date between REPUBLIC OF CROATIA ("Borrower") and INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT ("Bank") for the purpose of providing hnancing in support of the Program (as defined in the Appendix to this Agreement). The Bank has decided to provide this financing on the basis, inter alia, of the Borrower's maintenance of an adequate macroeconomic policy framework. The Borrower and the Bank therefore hereby agree as follows: ARTICLE I GENERAL CONDITIONS; DEFINITIONS - l.0l. The General Conditions (as defined in the Appendix to this Agreement) apply to and form part of this Agreement. t.02 Unless the context requires otherwise, the capitalized terms used in this Agreement have the meanings ascribed to them in the General Conditions or in the Appendix to this Agreement. ARTICLE II LOAII - 2.01 The Bank agrees to lend to the Borrower the amount of two hundred seventy-five million and nine hundred thousand euro (€ 275,900,000), as such amount may be converted from time to time through a Currency Conversion ("Loan"). 2.02. The Front-end Fee is one quarter of one percent(0.25%) of the Loan amount. 2.03 The Commitment Charge is one quarter of one percent (0.25%) per annum on the Unwithdrawn Loan Balance. 2.04. The interest rate is the Reference Rate plus the Fixed Spread or such rate as may apply following a Conversion; subject to Section 3.02(e) of the General Conditions. 2.05. The Payment Dates are May 15 and November 15 in each year 2.06. The principal amount of the Loan shall be repaid in accordance with Schedule 2 to this Agreement. 2.07 Without limitation upon the provisions of Section 5.05 of the General Conditions, the Borrower shall promptly furnish to the Bank such information relating to the provisions of this Article II as the Bank may, from time to time, reasonably request. ARTICLE III _ PROGRAM 3.01 The Borrower declares its commitment to the Program and its implementation. To this end, and further to Section 5.05 of the General Conditions: (a) the Borrower and the Bank shall from time to time, at the request of either party, exchange views on the Borrower's macroeconomic policy framework and the progress achieved in carrying out the Program; and (b) without limitation upon paragraph (a) of this Section, the Borrower shall promptly inform the Bank of any situation that would have the effect of materially reversing the objectives ofthe Program or any action taken under the Program including any action specified in Section I of Schedule I to this Agreement. ARTICLE IV _ EFFECTIVENESS; TERMINATION 4.01 The Additional Condition of Effectiveness consists of the following, namely that the Bank is satisfied with the progress achieved by the Borrower in carrying out the Program and with the adequacy of the Borrower's macroeconomic policy framework. 4.02. The Effectiveness Deadline is the date ninety (90) days after the Signature Date. ARTICLE V REPRESENTATIVE; ADDRESSES - 5.01. The Borrower's Representative is the Borrower's Minister in charge of finance. 5.02. For purposes of Section 10.01 of the General Conditions: (a) the Borrower's address is: Ministry of Finance Katanciceva 5 10000 Zagreb Republic of Croatia Facsimile: (385-1) 4922-598 5.03. For purposes of Section 10.01 of the General Conditions: (a) the Bank's address is International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C.20433 United States of America; and (b) the Bank's Electronic Address is: Facsimile: E-mail: l-202-477 -6391 Ecapannelli@worldbank.org -2- AGREED as of the Signature Date. REPUBLIC OF'CROATIA By C,t -.r " Representative Name: Marii 1ifls; Deputy Prime Minister and Minister of Finance Date: 02-Jul2O20 INTERNATIONAL BAIIK FOR RECONSTRUCTION AND DEVELOPMENT By Authorized Representative Elisabetta Capannelli Name: Country Manager Title: 01-Jul-2020 Date: -3- SCHEDULE 1 Program Actionsl Availability of Loan Proceeds Section I. Actions under the Prosram Actions to be Taken Under the Prosram. The actions to be taken by the Borrower under the Program include the following: Pillar L: Mitisate the economic and social impact of the COVID-l9 pandemic The Borrower's Croatian Employment Service has adopted and started the implementation of measures to: (i) provide a wage subsidy for three months to (A) employers who continue to employ workers with permanent and temporary contracts, as well as to (B) the eligible registered self-employed; and (ii) provide income support for' permanent' seasonal workers. 2. The Borrower has adopted the amendment to the Law on Voluntary Health Insurance (VHI) to increase access to healthcare for the poorest by raising the eligibility income threshold for complementary VHI to be paid from the state budget in2020 for household members and individuals living alone respectively. J The Borrower has adopted the amendments to the General Tax Law and ordinance on the Implementation of the General Tax Laws to temporarily support firms' liquidity by: (i) abolishing or postponing as the case may be payment of income taxes and social security contributions; (ii) providing installment agreements for up to 2 years for payment of the tax and social security contributions; (iii) suspending penalty interest provisions; and (iv) introducing the option to pay any value added tax (VAT) upon collection instead of at the time of issuing the receipt. 4 The Borrower has adopted measures introducing new liquidity financing programs to bolster the liquidity of companies in Croatia affected by the COVID-l9 pandemic. 5. The Borrower has adopted the Law on Intervention Measures in Enforcement and Bankruptcy Proceedings During Special Circumstances to modify the insolvency proceedings with the objective of further limiting possible bankruptcies. Pillar 2: Advancing inclusive and sustainable recoverv. I The Borrower has adopted the Law on the National Benefit for Elderly with measures to support the poor and vulnerable elderly population (65+) by granting a new national benefit for the elderly. -4- 2. The Borrower has adopted the Law on Climate Change and Ozone Layer Protection to strengthen the policy and accountability framework for low carbon development and resilience to climate change. 3 The Borrower has adopted the amendment to the Law on Credit Institutions to enable the exchange of confidential information, in line with the EU General Data Protection Regulation (GDPR). 4. The Borrower has adopted the amendments to the Common National Rules for use of EU funds to improve governance and management of EU funds and support investments for the recovery period. Section II. Availabilitv of Loan Proceeds A. General. The Borrower may withdraw the proceeds of the Loan in accordance with the provisions of this Section and such additional inskuctions as the Bank may specify by notice to the Borrower. B. Allocation of Loan Amounts. The Loan (except for amounts required to pay the Front- end Fee) is allocated in a single withdrawal tranche, from which the Borrower may make withdrawals of the Loan proceeds. The allocation of the amounts of the Loan to this end is set out in the table below: Allocations Amount of the Loan Single Tranche Allocated (expressed in euro) (l) Sinele Withdrawal Tranche 275,210,250 (2) Front-end Fee 689.750 TOTAL AMOUNT 27s,900,000 C. Withdrawal Tranche Release Conditions. No withdrawal shall be made of the Single Withdrawal Tranche unless the Bank is satisfied: (a) with the Program being carried out by the Borrower; and (b) with the adequacy of the Borrower's macroeconomic policy framework. D. Deposits of Loan Amounts. Except as the Bank may otherwise agree: All withdrawals from the Loan Account shall be deposited by the Bank into an account designated by the Borrower and acceptable to the Bank; and 2. The Borrower shall ensure that upon each deposit of an amount of the Loan into this account, an equivalent amount is accounted for in the Borrower's budget management system, in a manner acceptable to the Bank. -5- 3 The Borrower, within thirfy (30) days after the withdrawal of the Loan from the Loan Account, shall report to the Bank (a) the exact sum received into the account referred to in Section 2.03 (a) of the General Conditions; (b) the details of the account to which the Loan proceeds will be credited; (c) the record that an equivalent amount has been accounted for in the Borrower's budget management systems; and (d) the statement of receipts and disbursement of the account referred to in Section 2.03 (a) of the General Conditions. E. Closing Date. The Closing Date is February 28,2021 -6- SCHEDULE 2 Princinal Pavment Date Installment Share On each May l5 and November 15 Beginning November 15, 2025 throueh Mav 15. 2034 5.26% On November 15,2034 s.32% -7- APPENDIX Section I. Definitions "Common National Rules for use of EU funds" means a set of common national rules and procedures which determine conditions and provide guidelines for use of EU funds, established by the decision of the Minister of Regional Development and EU Funds, January 30, 2015, as amended. 2. "COVID-I9" msans a disease caused by a new strain of coronavirus. 3. "Croatian Employment Service" means the Borrower's public entity in charge of employment mediation, implementation of active labor market policies and ensuring payment of unemployment benefits pursuant to the Borower's law "Zakon o trZi5tu rada", published in Offrcial Gazette 118/2018. 4. "EU General Data Protection Regulation" or "GDPR" means the European Union Regulation on the protection ofnatural persons with regard to the processing ofpersonal data and on the free movement of such data. 5 "General Conditions" means the "Intemational Bank for Reconstruction and Development General Conditions for IBRD Financing, Development Policy Financing", dated December 14,2018. 6. "General Tax Law" means the Borrower's law "Opii porezni zakon" published in the Borrower's Official Gazette 11512016, as amended. 7 "Law on Climate Change and Ozone Layer Protection" means the Borrower'slaw "Zakon o klimatskim promjenama i za5titi ozonskog sloja" published in the Borrower's Official Gazelte 12712019. 8. "Law on Credit Institutions" means the Borrower's law "Zakon o keditnim institucijama" published in the Borrower's Official Gazette 15912013, as amended. 9. "Law on Intervention Measures in Enforcement and Bankruptcy Proceedings During Special Circumstances" means the Borrower's law "Zakon o interventnim mjerama u ovr5nim i stedajnim postupcima za vrijeme trajanja posebnih okolnosti" published in the Borrower's Offi cial Gazette 53 12020. 10. "Law on the National Benefit for Elderly" means the Borrower's law "Zakon o nacionalnoj naknadi za starije osobe" published in the Borrower's Official Gazette 6212020. ll "Law on Voluntary Health Insurance" means the Borrower's law "Zakon o dobrovoljnom zdravstvenom osiguranju" published in the Borrower's Official Gazelte 8512006, as amended. 12. "Program" means: the program of objectives, policies, and actions set forth or referred to in the letter dated June 4,2020 from the Borrower to the Bank declaring the Borrower's -8-