The Standard&Poor’s Agency (S&P) confirmed on Friday Croatia’s long term credit rating as BB and short term as B, while keeping the forecast negative
“The collapse of the ruling coalition after only six months weakens our view of Croatian institutional power, also risking a worse financial consolidation, incompletion of structural reforms and economic recovery,” an S&P statement said, as reported by Tportal.hr on July 15, 2016.
The current rating is two degrees below investment level, with negative tendencies, meaning there is a 33% chance the rating will be lowered in the next six months.
“We expect outer misbalances to be reduced, but structural economic problems, shown in the dominant and ineffective role of the state in the economy, probably won’t change without an effective government,” they noted.
S&P analysts also believe there is a possibility that the position of last November repeats itself, without an absolute majority in Parliament, which could lead into political uncertainty, stopping structural reform and limit the government’s ability to conduct effective politics resulting in stable public finances and balanced growth.
Considering the positive trends in 2016, S&P analysts feel the current swing of economic growth will hold. “Hence we have revised our growth estimate for 2016 to 1.7%, up from 1.2%. Net export and domestic consumption will remain the main pillars of growth. Political uncertainty might take a toll in public and private investments, especially in absorption of EU funds,” the statement read.
Risks include fiscal instability and failure to enact structural reforms, a negative court settlement against Croatia in the arbitration against Hungarian MOL as well as potential lawsuits of Croatian banks regarding the forced conversion of Swiss Franc loans.
S&P therefore feels there is at least a 33% chance they will reduce Croatian rating in the next six months. “We might reduce the rating if the domestic political crisis and negative outer events undermine the chances of economic growth. On the other hand, if reforms start happening, economy keeps recovering and government manages to keep the deficit under control, we might revise our outlook to stable,” S&P concluded.
