Croatia's government on Monday threw its weight behind a draft austerity budget for 2012 which is based on 0.8-percent growth of the country's ailing economy. Croatia has been in recession for most of the past three years.

The government intends to reduce public spending this year by four billion kunas (527 million euros, $699 million). Half of the amount will come from cuts in a number of wage bonuses.

"These are savings measures that we believe are well targeted and will boost growth," Prime Minister Zoran Milanovic said in a statement.

"We believe that this is a realistic budget," Milanovic added. Croatian ministers plan to reduce the budget deficit to 2.8 percent, down from 4.3 percent last year.

The 2012 draft budget puts spending 118.8 billion kunas and revenues at 109 billion kunas.

But the International Monetary Fund (IMF) warned the targets might be hard to meet, as it expects the tourism-based economy to shrink by 1 percent in 2012.

Key reforms yet to be tackled

The IMF insisted the key to Croatia's economic upswing would be a swift implementation of structural reforms. Those would have to include reducing the number of public sector employees, boosting efficiency and bringing down salaries to a more competitive level.

It said reforms in the pension and health systems as well as changes to the country's strict labor laws were also required to stimulate growth.

Croatialooks set to enter the European Union on July 1, 2013. The move will come more than two decades after breaking away from socialist Yugoslavia and fighting a 1991-1995 war to gain independence.

Croatiawill thus become the second former Yugoslav republic to join the bloc, following Slovenia's accession in 2004.

hg/ml (AFP, Reuters)