Standard & Poor’s Decides to Keep Croatia’s Credit Rating Unchanged

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Croatia’s credit rating unchanged.

Standard & Poor’s has confirmed the long-term credit rating of Croatia at “BB” and the short-term rating at “B”. As stated in a press release, the 6-year recession in Croatia has ended, but economic growth in 2016 will be relatively weak and largely dependent on external factors. At the same time, public finances are still weak, and the planning of reforms has not yet started because the government has not yet been formed after the elections in November, reports Vecernji List on January 16, 2016.

The negative outlook reflects the opinion of S&P that there is a 33 percent chance of downgrade of Croatian credit rating in the next 6-12 months. Croatian “BB” rating in foreign currency is two notches below investment level. Fitch credit agency rates Croatian debt at the same level, while Moody’s keeps Croatian rating one notch below the investment level.

Most analysts in Croatia expected that the rating would remain the same and that the situation on the debt market this year would continue to be favourable, since the supply of money is good, while energy prices are in decline. A possible increase of the rating will depend primarily on the measures taken by the new government. “The confirmation of Croatian credit rating was expected since the new government is still being formed. This is an indication that rating agencies are still patient, but at the same time they have given us clear signal that it is necessary to take further action, because otherwise the rating will be lowered as soon as this summer”, said Ante Žigman, a member of the parliamentary committee on fiscal policy.

“Eurobonds could find support in a positive mood among investors and their expectations that Croatia will finally form a government focused on fiscal consolidation and curbing the growth of public debt, as well as on improving the investment climate”, said Raiffeisen Bank analysts.

Željko Lovrinčević from the Economic Institute said that the budget for this year will be crucial, but added that the situation in 2017 could be quite different. Therefore, it is necessary to be very careful with this year’s decisions, especially since some foreign investors believe that Croatia is getting closer to bankruptcy.

Croatian public debt currently stands at about 90 percent of GDP. In the first three months of this year, about 12.2 billion kuna worth of debt should be repaid. The problem is that the people who will decide on reforms are proposing various ideas, and it is certain that investors and credit agencies will not wait for more than 100 days to see whether the government is moving in the right direction.


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