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.

ZAGREB, Aug 7, 2020 - By joining the European Exchange Rate Mechanism II, Croatia has pledged to make additional moves to mitigate the risks on its journey to the euro area and create conditions for a more efficient allocation of capital to productive firms instead of rent-seekers, shows a European Central Bank analysis.

The Croatian National Bank (HNB) said on Friday that the ECB published an analysis on its website, on the occasion of Croatia and Bulgaria's accession to the ERM II, which says, among other things, that Croatia has pledged to implement additional reform measures with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence.

Those reforms should mitigate risks under ERM II with a view to subsequent euro adoption because a key lesson learned from the global financial crisis is that, in the run-up to euro adoption, a high level of institutional quality and good governance help to reduce the risk of a build-up of excessive imbalances, the HNB says in a press release.

The ECB analysis also underlines that the reforms conducted within ERM II create preconditions for allocating capital to productive firms instead of rent-seekers.

The HNB notes that the ECB analysis also stresses that Croatia is catching up in terms of income levels relative to the rest of the European Union and that its price levels relative to the euro area are now well in line with its income levels relative to the euro area. While such levels remain significantly below those of the euro area, this does not in itself constitute an impediment to participation in ERM II, the HNB says quoting the ECB analysis.

In this regard, a more important prerequisite for successful participation in ERM II is that price levels are commensurate with income levels and, more generally, with the economic fundamentals of the country, reads the analysis.

ZAGREB, July 9, 2020 - Croatia and Bulgaria are expected to be admitted into the European Exchange Rate Mechanism (ERM II), a sort of waiting room for entry into the euro area, on Friday, Hina learned from diplomatic sources in Brussels on Thursday. 

The decision on this received support from the Euro Task Force on Monday, and it will also be on the agenda on Thursday afternoon and Friday when the Eurogroup and the Finance and Economic Council meeting.

A decision on a country's admission into ERM II is taken by the countries already participating in this mechanism, namely the 19 euro area member states, Denmark and the European Central Bank.

The decision on the admission of Bulgaria and Croatia is expected to be announced in an official statement on Friday, the diplomatic sources said.

Any member state that wishes to adopt the euro has to spend at least two years in the ERM II mechanism, which means that Croatia might join the euro area in 2023 at the earliest.

In a report released last month, the European Commission said that Croatia met all the criteria for entry into the euro area except membership of ERM II.