The FAA explains:
A Category 1 rating means the country’s civil aviation authority complies with ICAO standards. Croatia’s Category 2 safety rating means that the country’s civil aviation authority does not comply with ICAO standards.The FAA notes that the government of Croatia has said that they are "working diligently to correct all areas of concern as they move to establish a safety oversight system that will be fully compliant with international standards and recommended practices."
A Category 2 rating means a country either lacks laws or regulations necessary to oversee air carriers in accordance with international standards, or that its civil aviation authority — equivalent to the FAA for aviation safety matters — is deficient in one or more areas, such as technical expertise, trained personnel, recordkeeping or inspection procedures.
As part of the FAA’s International Aviation Safety Assessment (IASA) program, the agency assesses the civil aviation authorities of all countries with air carriers that operate or might be authorized to fly to the United States and makes that information available to the public. The assessments determine whether or not foreign civil aviation authorities are meeting ICAO safety standards, not FAA regulations.
Countries with air carriers that fly to the United States must adhere to the safety standards of ICAO, the United Nations’ technical agency for aviation that establishes international standards and recommended practices for aircraft operations and maintenance.
For information about the IASA program, visit: http://www.faa.gov/safety/programs_initiatives/oversight/iasa/