The new government’s three biggest challenges are urgent fiscal consolidation, structural reforms and maximizing benefits from Croatia’s upcoming European Union accession, the World Bank (WB) says.

The World Bank Country Director for Central Europe and the Baltic Countries, Peter Harrold said that the fiscal consolidation needs to focus on cutting expenditures to make room for financing growth and protecting vulnerable groups. The priority ahead of the accession should be cutting the fiscal deficit to under three per cent in 2012.

When it comes to structural reforms, they should include moves to ensure the growth of competitiveness. Croatians’ recent historical decision to join the EU brings the country a lot of possibilities, says Harrold. Membership has served as an engine behind economic growth in many countries and Croatia will benefit as well. Membership on its own, however, will not be enough considering the uncertainty of the surrounding environment.

Harrold said the new government’s first economic moves are leading toward fiscal sustainability. To continue the current model reliant on borrowing to finance expenditure would be uncertain. One of the big challenges for the government, Harrold says, is cutting expenditure while encouraging consumption as one of the growth generators. He also said that Croatia needs investments, which should not be slowed down with administrative hurdles.

The WB country director for Central Europe is hopeful that the new budget will be strong enough to ward off the credit rating drop.