The D&B report, released by the Zagreb-based company BonLine, said the International Monetary Fund praised "the sizable fiscal consolidation and advances in structural reforms" achieved under the stand-by arrangement during 2004-05, and that the IMF Executive Board had approved an extension of the arrangement until November 15.
D&B analysts said the Croatian government managed to reduce the general government fiscal deficit from 6.3 per cent of GDP in 2003 to 4.3 per cent in 2005, including the quasi-fiscal operation of the Croatian Bank for Reconstruction and Development.
The report said that in 2005 a medium term fiscal policy framework was set within a three-year budgeting process, which is expected "to improve fiscal management and transparency".
"At the same time, structural reforms have advanced beyond what was envisaged in the original programme," the report said, highlighting a "revision of pensions indexation to reflect both wage and price developments; the introduction of an administrative fee for medical services; embarking on a medium term subsidy reduction plan; and implementing a new Law on State Aid in line with the EU's acquis communautaire".
The report went on to say that "despite the withdrawal of fiscal stimulus, the economy continued to grow robustly and inflation remained relatively muted".
Citing the IMF, the report highlighted the Fund's approval of the government's plan to reduce the fiscal deficit to 3.3 per cent of GDP this year, which is expected to be achieved primarily through health sector reforms.
The report said the central bank "will continue to mitigate vulnerabilities by keeping inflation low, maintaining exchange rate stability (and raising) marginal reserve requirements" for higher bank foreign borrowing in order to reduce the national debt.