ZAGREB, December 5, 2020 – Croatia’s having kept its investment grade credit rating proves that the government’s response to the crisis has been good, Prime Minister Andrej Plenkovic said on Saturday in reference to a report by Fitch Ratings, which affirmed the country’s investment grade rating for the third time this year.
Fitch Ratings has for the third time this year affirmed the country’s investment grade rating, which is owing to an expected gradual recovery from the coronavirus pandemic and the government’s strong aid measures, accession to the Exchange Rate Mechanism II (ERM II), and fiscal consolidation having been maintained, Plenkovic stressed in a statement.
The latest decision by Fitch Ratings also confirms the stable outlook for future trends. The agency underlines the importance of political stability and fast government formation following the HDZ party’s victory in the July 2020 parliamentary election, as well as the adoption of the budget for 2021 and the fifth round of the tax reform.
“The fact that our credit rating has been kept in the investment category confirms that during the coronavirus pandemic we have managed to maintain economic stability without major imbalances, made progress on the journey to the euro area and joined the ERM II and that we have provided high amounts of aid to the private sector to preserve jobs. We are continuing to pursue a prudent fiscal policy, focusing on further reforms and reduction of the tax and administrative burden so as to improve the business climate and boost investment,” Plenkovic said in the statement.
He noted that quality crisis management had shown that Croatia was able not only to have its rating kept in the investment category with Fitch and Standard&Poor’s but also to make progress with Moody’s as the most conservative credit rating agency.
Fitch expects Croatia’s GDP to drop by 9% in 2020 as a consequence of the coronavirus pandemic. In 2021 it expects a moderate growth at a rate of 3.8% and in 2022 it forecasts that growth will pick up to 6%, which will also be owing to EU funds, whose contribution is estimated to account for two percentage points of economic growth in 2022.
Fitch believes that Croatia’s entry to ERM II in July this year has contributed to the rating having stayed in the investment category and says that it could upgrade it by two notches between admission to the ERM II and joining the euro area.
In 2020 Fitch expects an 8% budget deficit. The budget deficit is expected to go down to 3.5% of GDP in 2021 and further to 2.2% in 2022. This confirms that the government has continued to implement a stable fiscal policy for which Fitch says that it has been yielding results above fiscal targets since 2016.
Fitch’s decision to affirm the country’s credit rating is also owing to more than €24 billion having been made available to Croatia from the EU’s Multiannual Financial Framework and Recovery Plan in the coming decade.
The government recalls in its statement that Fitch had kept Croatia’s credit rating outside the investment category from August 2014 to June 2019, when it was returned to the investment category where it has stayed since.
