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Croatia kept hold of its investment grade from Fitch Ratings on March 5, when the agency affirmed its long-term foreign currency rating at BBB- and local currency rating at BBB. Whilst Zagreb claimed it as a thumb's up for the new government, analysts warn that it needs to move quickly - and probably go to the International Monetary Fund for a loan - to avoid a cut to junk status.

Reflecting that, Fitch said its outlook remains negative, stressing that "further fiscal consolidation measures and structural reforms will be required to boost economic growth and stabilise public finances." The affirmation sees Croatia's credit rating remain at the agency's lowest investment-grade level.

Finance Minister Slavko Linic claimed that the action suggests Fitch supports the moves the new government has made since it came to power, but also admitted that it means reform and structural change must go forwards quickly. "We have no time to relax. The affirmation of the rating is an encouragement to the government to pursue even more fiercely the programmes it has set," he told reporters.

Tim Ash at Royal Bank of Scotland suggests Zagreb was likely relieved with Fitch's affirmation "as there was a not insignificant risk that they would have been cut to junk bond status. Croatia faces significant challenges, particularly the lack of any/new growth drivers and the new Social Democrat government needs to come up with a comprehensive reform plan to boost competitiveness and liberate new growth drivers/FDI. So far [it has] not come up with much aside from a fiscal consolidation program."

"Fitch is giving them the benefit of the doubt because of the fiscal plans, but the fact that the negative outlook has been retained suggests that Croatia is not out of the woods, and unless the government can come up with growth enhancing reforms they will end up with junk bond status," Ash goes on to warn. "What the market wants to see is the government go to the IMF, as an IMF programme would provide a key anchor for structural reform - rather as it has done in Romania. Unfortunately, the SDP-led government seems determined to go it alone - the message from Fitch is that the government better come up with the reform goods soon, or risk junk bond status."