ZAGREB, June 8, 2019 - Fitch Ratings raised Croatia’s credit rating to investment-grade level on Friday, by one notch to BBB-, with a positive outlook, from BB+.
"Croatia outperformed its budget target for the third year in a row in 2018, with the general government posting a surplus of 0.2% of GDP... despite the materialisation of contingent liabilities from troubled shipyard company Uljanik," the agency said.
"Fiscal developments have been underpinned by expenditure restraint, increased revenue... lower interest costs and favourable macro conditions," it added.
"Croatia's structural features are generally more favourable than 'BBB' peers. GDP per capita is 30% above the 'BBB' median and the country scores better than peers in governance indicators and human development, thanks in part to EU membership," said Fitch.
"The coalition government, installed in June 2017, has been able to implement its agenda relatively smoothly despite its small majority," it added.
"Croatia continues to face important structural challenges that limit medium-term growth to 2%. These include shortcomings in the business environment, a complex public sector framework, weak corporate governance, still high corporate debt and legacy issues in key sectors such as energy and healthcare," Fitch said.
"Limited progress has been achieved in tackling these issues in recent years, but there is some scope for improvement as potential prior actions for joining ERM2," it added. "Croatia benefits from low and stable inflation... The banking sector has maintained solid levels of capitalisation."
The positive outlook signals that Fitch could raise Croatia's rating again in a year or two.
Until now Fitch kept Croatia's credit score in the speculative category at BB+ with a positive outlook.
The latest rating followed after Moody's upheld Croatia's Ba2 speculative credit rating in late April, upgrading the outlook from stable to positive as a result of improved fiscal metrics and reforms the agency believes will have a positive impact on the economic growth outlook.
In March, Standard&Poor's raised Croatia's rating to BBB-/A+, including it in the investment category after more than six years thanks to an improved budget situation and economic recovery.
More news about Croatia’s credit rating can be found in the Business section.
