In his first interview since coming to the helm of the central bank in July, Vujcic said the government's broad reform agenda was well-meant but too slow in materialising.

"We cannot be happy with structural reforms. There are few of them compared to the inefficiency of the whole system. For example, there are plans to restructure some state-owned companies, but little has been put into practice," he was quoted as saying.

Croatia needs "a whole set of structural reforms" to unlock its potential, most of them focused on creating a better investment climate, said Vujcic. "That is key for attracting investments, particularly now before joining the EU".

Reuters said Prime Minister Zoran Milanovic's cabinet that took office a year ago pledging to revive the economy had narrowed the budget gap this year through better tax collection and some spending cuts, but Vujcic said more was needed.

"We can be partly satisfied with fiscal adjustments this year. But the adjustment should primarily be on the spending side and that is where the 2013 budget fell below expectations," he said.

The government aims to cut the general budget gap this year to 3.5 percent of gross domestic product from 4.4 percent in 2011, but the 2013 budget approved last week envisages a deficit of 3.8 percent, widening out again, said Reuters.

Vujcic said Croatia should remain keen to adopt the euro but that any talk of a fast-track approach was premature.

"Croatia's economy is highly euro-ised, more so than in the Czech Republic or Poland, so it is one of the countries with the best cost-benefit ratio for joining the euro zone. But even if Croatia rushed to do it, it could happen in four or five years at best," Vujcic said in written responses to Reuters questions.

"Instead of focusing on timing, Croatia would do better to focus on meeting the euro zone criteria, which have been broadened during the crisis. The most immediate requirement is to stop the rise of public debt to GDP," he said.

While the private sector is experiencing serious liquidity problems, Croatia's banking system is highly liquid, and Vujcic said there was little the central bank could do to direct those funds into the economy unless reforms were implemented faster.

"Low lending activity is a result of risk aversion and meagre recovery prospects. The central bank has made sure there is enough liquidity at low interest rates. The sooner we see an improvement in business climate, the stronger the chances for healthy growth in credit."

"The surplus liquidity is not pouring into the economy fast enough because of the low lending activity. That is because there is no economic growth and because of higher aversion to risk, due to a rise in non-performing loans," he said.

At the end of September, bad loans in Croatia totalled 14 percent of all outstanding lending, but one in four loans extended to local firms was classified as completely or partly non-performing, said Reuters.

"The old truth is that monetary policy is like a rope - it is easier to tighten it than to push it," said Vujcic.

He said Croatia's banks, more than 90 percent of which are owned by foreign companies, are now deleveraging, but that the process was no more dramatic than in Croatia's peers in central Europe.

"It will stop once there is stronger economic activity, but one precondition is the willingness of banks to take some risk and start lending. The ball is not entirely in the banks' court, but they must make sure that their pro-cylical relation to risk should not put brakes on economic revival".