Croatia made significant progress in its efforts to join the European Union over the past year, however, the implementation of the government's ambitious reform programme will be the key challenge in creating the conditions for a return to economic growth in the coming month, the EBRD said.
All indicators on the progress in reforms in Croatia remained unchanged in comparison to last year.
The best grade, 4+, has been awarded again to the privatisation of small companies and to the reform of the trade system and the exchange rate system.
Price liberalisation and the reform of the banking system as well as interest rate liberalisation have received the mark 4.
A lower mark, 3+, has been given to the privatisation of big companies.
The mark 3 has been given to the restructuring of the company management system, competition encouragement policy, development of the securities market and non-banking financial institutions and to the overall reform of the infrastructure.
Marks range between 1 and 4+, with the latter being the best one.
Following a downturn in the last two years, the Croatian economy is still exposed to global economic weaknesses, the EBRD said.
The bank praises the government's commitment to preserving fiscal stability, but notes that few steps have been taken to reduce spending.
A larger engagement of the private sector in infrastructure and energy projects is needed in order to ensure the full development of competition.
The government deems as a priority the issue of state subsidies to big commercial companies, notably in the shipbuilding sector, following several failed attempts to sell shipyards.
The EBRD warns that the reduced role of the state and the release of market forces do not need to facilitate the development of emerging European economies.
Many flaws lurk in the current model of growth in the region in transition, or at least in its application.
Two decades of transition have taught us about the importance of market-oriented institutions, however, we are surprised at the shortcomings of the regulation system and financial market control, the EBRD chief economist, Erik Berglof, was quoted as saying.
European transitional economies are recovering more hesitantly than other emerging markets and with sharp variations among individual countries, the bank said in its Transition Report for 2010.