Despite Moody’s Decision, Government Preparing to Issue Bonds

Total Croatia News

Unlike S&P, Moody’s has kept a negative outlook for Croatia’s credit rating.

Moody’s credit rating agency has recently announced that outlook for Croatia’s credit rating was still negative, despite hope that the agency might follow the example of Standard & Poor’s which recently changed the outlook from negative to stable, reports Večernji List on January 14, 2017.

It is not clear whether the reason for this decision was government’s new budget with increased spending or general lack of trust in the political stability of the HDZ-MOST coalition. On the other hand, the government claims that no changes in the outlook were expected at this time anyway, and that real assessment of credit rating will be done in a few months.

The fact that the credit rating is two notches below investment level does represent a problem for Finance Minister Zdravko Marić, who confirmed that Croatia would borrow funds on the capital markets during the first quarter of the year. In the United States, interest rate are already increasing, so it is more likely that bonds will be sold in Europe. Current market conditions are rather favourable for Croatia at the moment. On Thursday, ten-year bonds could be sold with an interest rate of 3.1 percent.

Liquidity in the markets is high, but it is still not known the amount of bonds which will be issued in the first tranche. On 8 February, Croatia will have to repay 5.5 billion kuna of previously issued bonds, and another 1.5 billion dollars by the end of April. Finance Minister said that during the first quarter he would issue bonds for payment of state debt, while the second quarter would be devoted to debt owed by state-owned road management companies.

At this point, yields on bonds are extremely low, but towards the end of 2017 the circumstances might change at the European markets as well, due to expectations about the gradual growth of reference interest rates in the United States.

Such a scenario is forecast by Moody’s as well. It expects interest on the debts of countries in the region which includes Croatia to increase. During this year, Croatia will have to repay as much as 27 billion kuna, but good news is that the deficit has been significantly reduced and that last year there was an accelerated GDP growth.


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