The report, carried by the Zagreb-based company BonLine, says the July budget revision set the fiscal deficit target at 4.2 per cent of GDP, despite earlier announcements that the deficit, in line with the stand-by arrangement with the International Monetary Fund, would be reduced to 3.7 per cent of GDP this year.
The report says the new fiscal deficit target is much closer to the agency's expectations of 4.3 per cent of GDP, adding that several recent indicators show that those expectations may have been optimistic.
In order to reach the target deficit the government was forced to redistribute about one billion kuna of budgetary funds, mostly intended for pensions and salaries. According to D&B analysts, this indicates the government expects that this year's privatisation revenue will be below the expected 4.5 billion kuna.
The lower expectations were affected by a slow privatisation which is, among other things, the result of reserve among investors following the postponement of Croatia's European Union entry negotiations, according to the report.
It underlines that the budget revision was endorsed by the IMF and that this indicates that the reforms are aimed at gradually reducing the fiscal deficit.
D&B analysts expect the deficit to fall to 3.8 per cent of GDP in 2006, but maintain the necessary reduction of state subsidies and costs of the pension and health sectors to a more sustainable level will be difficult.
Among the 25 countries of the region evaluated in the report, Croatia ranked 11th, the only with the DB4d rating, and was preceded by Bulgaria and Romania, both given DB4c.
The list is headed by Slovenia, which was given a DB2c rating of small investment risk.