The index was published today by The Heritage Foundation and The Wall Street Journal.
Croatia is making constant headway in economic freedom, but some areas remain problematic, Natasa Srdoc and Joel Anand Samy, co-founders of the Croatian Adriatic Institute for Public Order, said presenting the report.
Topping the index, as in 2005, is Hong Kong, followed by Singapore, Ireland, Luxembourg, and Great Britain.
Transition countries, new European Union members, are ahead of Croatia, but Romania and Bulgaria are behind it, ranking 92nd and 64th respectively.
The Index of Economic Freedom is used by investors as well as business, political and media leaders. It evaluates a country on the basis of 10 criteria and scores range from one to five, one being the best and five the worst.
Croatia score for 2006 is 2.78, 0.22 points better than last year's 3.0, placing it in the "mostly free" category.
Croatia's trade policy was given 2.5 (4.0 last year), government intervention was given 2.0 (2.5 last year), and fiscal burden 2.8 points (3.0 last year).
Croatia was given the best score for the monetary policy (1.0), with the Index noting stability and a low inflation, which enable individuals to rely on long term investment and saving plans. Banking and finance maintained last year's score of 2.0.
No headway was made in capital transactions and foreign investment (3.0), wages and prices (also 3.0), and the informal market (3.5), while property rights and regulation were given the poorest score (4.0). These remain key problematic areas and obstacles to Croatia's long term economic growth due to high taxes, burdensome regulations and red tape, restrictive labour laws, lack of property rights protection and widespread corruption, said Srdoc.
According to the report, the court system is cumbersome and inefficient, business disputes can go unsolved for years, bureaucracy remains onerous and "often, gratuities are requested to speed up the process," there is lack of transparency, and "some local governments have occasionally been openly hostile to foreign investment".
Of Croatia's neighbours Slovenia was ranked the best at 38, Bosnia and Herzegovina was ranked 64th and Macedonia 57th. Serbia and Montenegro was not ranked.