Standard & Poor's confirms its 'BB' long-term and 'B' short-term foreign and local currency sovereign credit rating. The outlook was cut to negative.
The rating agency revised its outlook from stable to negative, noting that the country's ratings are constrained by its weak growth prospects and the public sector's overbearing and inefficient role in the economy, due to a backlog of unimplemented structural and fiscal reforms. In addition, high and increasing public-sector indebtedness, partially owing to loss-making state-owned enterprises, jeopardises the long-term sustainability of Croatia's public finances.
Furthermore, it states that the country's ratings are supported by slightly decreasing external indebtedness because of deleveraging in the financial sector, "which somewhat offsets the public sector's increasing external leverage."
S&P analysts believe that Croatia's institutional framework benefits from the country's EU membership, including in particular the EU's deficit monitoring function through its Excessive Deficit Procedure (EDP).
But the negative outlook reflects the analysts' view that there is at least a one-in-three possibility that they could lower their ratings on Croatia in the next 12 months.
Croatia's BB foreign currency rating is two levels below the investment grade.
Croatia has been given the same rating, but with a stable outlook, by the Fitch ratings agency, while Moody's has kept its ratings at one level below the investment grade Ba1, but with a negative outlook.
Global Securities Services Croatia