"The signs of economic recovery are here. They can be seen in the recovery of personal spending, of retail, of export... I expect the recovery pace to gain in strength as the year goes on," Dalic told Croatian Radio.

She expects figures on last year's fourth quarter to show a mild GDP decline, stressing that the Croatian economy has spent nearly two years in crisis.

"I don't think recovery will be sudden... It is likelier that it will be gradual," she said

Dalic bases this year's growth and a higher growth next year on what Croatia will implement in terms of economic policy and reforms favouring a faster growth as well as on Croatia's accession to the European Union, which she says will open new prospects.

Dalic said the Finance Ministry, regarding possible borrowing, was closely watching the execution of the budget and the situation on the world market.

She reminded that borrowing depended on due debts and the budget deficit, which is planned to account for 5.1 per cent of this year's GDP, adding that EUR 750 million worth in bonds issued in 2002 was due for payment in March.

Croatia's goal is to borrow at a favourable moment, Dalic said, but would not speculate about the possible price of borrowing on the world market, saying it would depend on the moment.

She said one of the disadvantages was Croatia's downgraded credit rating in December, but said the positive elements included a slow economic recovery, the expected completion of the EU entry talks, and the government's measures to step up economic recovery.

Asked about budget revenues, Dalic said she was relatively satisfied with the realistically planned revenues, adding that there was not much room to manoeuvre in terms of execution due to the Fiscal Responsibility Act.

"There shouldn't be either. It's important that all budget beneficiaries know and learn that the budget is not something within which there should be room to manoeuvre."

The minister said the budget structure in purely economic terms was not favourable as it was dominated by salaries, pensions, transfers and health expenditures, whereas there should be more productive expenditures.

"However, the existing budget structure wasn't created overnight and can't be changed overnight."

Dalic believes there is room for commercial banks to cut interest rates. She said, however, that the rates depended on the interest which banks paid on deposits, the interest at which they borrowed abroad, the size of non-performing loans, and on competition among banks.

Dalic added that given Croatia's overall economic situation, it was unlikely that interests rates could fall to the level of those in the EU.