The loan is the first of two loans aimed at supporting the Croatian government's efforts in accelerating sustainable economic recovery over a period of two years.

The loan supports reforms in two broad areas.

The first area focuses on fiscal consolidation efforts through expenditure-based adjustments in public administration, health, pensions, and social welfare areas. These efforts have led to improvements in the management of public spending and have strengthened the medium-term sustainability of public finances, with the goal of preserving macroeconomic stability.

Second, the loan supports the development of a dynamic private sector by improving the business environment and reducing state involvement in the corporate sector. Croatian authorities have already taken measures to enhance labour market flexibility, reduce administrative and regulatory barriers for businesses, and speed up privatisation of state-owned companies, the statement said.

The statement also listed key indicators of success of the Programme Loan for the Economic Recovery Development Policy.

Among those indicators is a reduction in the spending of the general government from 43.2 percent of GDP in 2010 to 40.9 percent of GDP in 2012; a reduction of the wage budget of the general government from 10.7 percent of GDP in 2010 to 9.9 percent of GDP in 2012; a reduction of public spending for health from 6.9 percent of GDP in 2010 to 6.2 percent in 2012; a reduction of allocations for social benefits from 2.6 percent of GDP in 2010 to 2.3 percent of GDP in 2012; and a reduction in allocations for pensions from 10.5 percent of GDP in 2010 to 9.7 percent of GDP in 2012.

Among the key indicators is also an increase in the rate of participation of the labour force in the labour market (15-64 years of age) from 62.4 percent in 2009 to 64 percent in 2012; an increase in the rating of institutions (according to the Global Competitiveness Index) from 3.6 in the 2010-2011 period to 3.9 in 2012; an increase in the share of the private sector in GDP from 70 percent in 2009 to 75 percent in 2012; and an increase in allocations for research and development from 0.8 percent of GDP in 2009 to 1.1 percent in 2012.

"We are pleased that the Croatian authorities are moving forward with the implementation of the Economic Recovery Programme and that important reforms to promote sustainability of public finances are under way," said Hahm.

At the same time, the authorities are encouraged to accelerate reforms, since deepening reforms before entering the European Union will maximise the benefits that Croatia will derive from membership, the World Bank says.

By approving the new loan, the World Bank has reaffirmed its support for the government's Economic Recovery Programme adopted in 2010 with the aim of supporting recovery and mitigating the social impact of the global financial crisis, Finance Minister Martina Dalic said.

The World Bank loan for the government's development policy was approved last week by the World Bank's Board of Directors.

The loan was approved at 6-month EURIBOR for EUR plus a fixed spread (which would currently translate into an interest rate of about 2.5 percent), with a 15-year bullet repayment pattern.

The World Bank has so far approved 46 projects for Croatia in the amount of some three billion US dollars and 52 deeds of donation worth 70 million dollars.