ZAGREB, 20 July 2022 - The international credit rating agency Moody's has raised the long-term credit rating of the City of Zagreb and the Zagreb Holding multi-utility conglomerate by two notches, from Ba1 to Baa2, that is from a speculative to an investment grade, with a stable outlook, the City of Zagreb said on Wednesday.

"We are glad that Moody's has recognised the financial stabilisation not only in the City of Zagreb but also the restructuring of Zagreb Holding, which was necessary for the City of Zagreb and Zagreb Holding to withstand new challenges caused by global circumstances," Zagreb Mayor Tomislav Tomašević said, commenting on the upgrade of the rating.

After the decision to raise Croatia's credit rating, the agency expects the upgrade of the rating will positively affect the City of Zagreb and Zagreb Holding following the introduction of the euro, having in mind the strategic position of Zagreb within Croatia. A stable outlook related to the credit rating of the City reflects its financial stabilisation and a medium-term reduction in debt burden, the City said.

Moody's says that Zagreb's Baa2 rating reflects its large and diverse local economy, which contributes to a tax revenue base with low volatility and a positive growth trend. It also noted that the debt of some of the City-owned companies would continue to decline in the medium term thanks to better financial results.

The agency stated that Zagreb's solid institutions and its governance strength are reflected in a governance issuer profile score that is neutral to low. The City's high credibility contributes to this, as it manages its operations using prudent financial planning, which allows for multi-year forecasting of key trends, the press release reads.

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ZAGREB, April 27, 2019 - Moody's Investors Service on Friday changed Croatia's outlook to positive from stable, and affirmed the country's long-term local and foreign currency issuer and senior unsecured debt credit rating at Ba2.

The credit rating agency recalls that in 2017 Croatia recorded the first budgetary surplus of 0.8% of GDP and that the positive momentum "was confirmed in 2018, although the surplus was lower (0.2% of GDP), in large part due to the activation of the state guarantee regarding the Uljanik shipyard."

Moody's underscores that "the improved fiscal performance is mainly attributable to a significant reduction in the structural deficit, meaning that public finances are strengthening in a durable way."

The agency expects a solid surplus of the primary balance to be maintained in the coming years.

It notes that the government's debt reduction has progressed steadily since the 2014 peak (84% of GDP).

"Under its base case scenario, Moody's expects that continued fiscal prudence and positive economic growth will allow public debt to continue its downward trend and reach around 70% of GDP in 2020," reads the report on Croatia.

The document recalls that the set of measures contained in the new Fiscal Responsibility Act which was approved by the Croatian Parliament at the end of 2018 should strengthen the existing fiscal framework. All that will bring Croatia's framework closer to the European standards.

"Furthermore, in the medium-term, the pension reform enacted in late 2018 will contribute to the fiscal sustainability of the system while ensuring better pension adequacy. The acceleration in the planned increase in the statutory retirement age to 67, coupled with the equalization of retirement age for men and women, will support the decrease in public pension expenditure expected by the European Commission's 2018 Ageing report (- 3.8% of GDP in 2070 compared to 2016). The supplement granted to multi-pillar pensioners will help to improve the low pension adequacy," Moody's says.

Finally, the resolution of the Agrokor retail conglomerate crisis "removes a significant source of uncertainty for the economy and a potential contingent liability for the State."

The credit rating agency also underscores that the growth prospects may benefit from recent reforms.

Following a 6-year long recession between 2009 and 2014, the Croatian economy rebounded in 2015, with real GDP growth averaging 2.9% since.

"Moody's expects positive economic growth to continue in the coming years, although GDP growth will decelerate somewhat against the backdrop of a more challenging international environment.

"Forecasted to reach 2.4% on average in 2019-2020, real GDP growth will be in line with potential, which has strengthened in the recent years. This positive economic backdrop should support the country's efforts to reduce public indebtedness looking ahead.

Moody's believes that economic activity will also benefit from the future euro area formal candidacy application, as this will continue to support sound macroeconomic policies and stronger institutions, providing a policy anchor.

The agency also perceive tourism as a key element in the country's economic recovery. Over the past decade Croatia's tourist sector "has performed above the average of the other Northern Mediterranean EU countries in increasing its international tourism revenues, non-resident tourists' overnight stays and arrivals from abroad."

"The rating affirmation reflects Croatia's relatively high per capita income, while institutions benefit from the EU membership and the strong commitment of the Croatian National Bank towards achieving kuna/euro stability," the agency says.

"At the same time, Croatia is constrained by its small-sized economy and relatively volatile economic growth as well as its low potential growth relative to peers. While fundamentals are now stronger than prior to the recession, Croatia still faces significant challenges that weigh on the country's growth prospects."

The agency warns Croatia's below the EU average participation and employment rates in the labour market and this "is compounded by ageing and increasing migration outflows since the EU accession in 2013 that are unlikely to be reversed in the near future."

"In addition, while gross investment has rebounded since 2015 thanks to revitalized private investment, its level is still below pre-crisis figures because of historically low public investment, which is penalized by a low absorption rate of EU funds, although Moody's expects that this rate will pick up in the next two years."

Croatia's rating would likely be upgraded should Moody's conclude that positive economic and fiscal trends are to be sustained and that the high debt burden will continue its steady, downward trend, the agency says.

Moody's report ensues after in March Standard & Poor's raised its sovereign credit ratings on Croatia to 'BBB-/A-3' from 'BB+/B', putting the country's rating after six years back into the investment category owing to an improved situation in the budget and economic recovery.

Fitch is giving a speculative grade to Croatia's, describing the country's outlook as positive.

More credit rating news can be found in the Business section.

ZAGREB, March 16, 2018 - Croatia's (Ba2 stable) credit profile balances its fiscal consolidation and EU membership supporting the strengthening of institutions against credit challenges which include the economy's weak potential growth and the government's slow pace of structural reform, reflected in weak absorption of European Union structural funds, Moody's Investors Service said in a report on Thursday.

Both countries share high levels of debt.

This is the first postponement in the history of Croatia and it seems that political instability is to blame.