S&P downgrades Croatia’s outlook to negative, affirms BB+/B ratings

By bne IntelliNews August 2, 2013

S&P said it affirmed on Friday, Aug 2, Croatia’s 'BB+/B' long- and short-term foreign and local currency sovereign credit ratings but revised the rating outlook to negative from stable, anticipating structural challenges might constrain growth more than previously expected. 

S&P said in a statement the weak economic performance and lack of impetus are the main reasons for the shift. The S&P analysts see a more than one-in-three chance for fiscal or external outcomes that are worse than their current projections.

They might lower the ratings on Croatia over the next year if the economy deteriorates beyond their current expectations for a mild GDP recovery in 2014, and if deficits widen, or external financing becomes more challenging.

Croatia entered its fifth consecutive year of recession in 2013, as real GDP has lost 12% since 2008 due to declines in real consumption and real investment. S&P projects a further 1% GDP drop this year.

Furthermore, the Croatian government is expected to exceed the 3%/GDP deficit limit and the 60%/GDP debt limit set by the Maastricht Treaty - which will trigger an excessive debt procedure (EDP) since Croatia already became part of the EU in July 2013.

In addition, if the government does take over the debt of the Croatian Road Authority company, which equals 7.5% of GDP, as part of a planned concession contract, S&P warns this would lift higher the general government debt.

Croatia’s accession to the EU is seen as an opportunity but the lack of government reforms could impede the full absorption of EU funds allocated to the country from the 2014-2020 EU budget (amounting to 3%/GDP annually). On the other hand, too much attention is paid to the revenue side of the government’s balance sheet, while expenses should be addressed as well in order to provide possibility for growth in the private sector. Still, S&P believes the European Commission could put some pressure on the Croatian government to focus more on consolidating the fiscal expenditure side.

Non-performing loans continue to increase and are expected to reach 18% of total loans by the end of 2013, signaling high credit risk coming from the poor shape of the real estate and construction sectors, the report added.

Related Articles

Suppliers to troubled Croatian retailer Agrokor withdraw ultimatum to halt deliveries

Agrokor’s suppliers decided to halt a previous decision to cut their deliveries after holding a meeting on May 24 with Agrokor’s chief emergency officer Ante Ramljak, Hina reported. A group ... more

European Commission recommends removing Croatia from excessive deficit procedure

The European Commission (EC) recommended that the European Council remove Croatia from the excessive deficit procedure (EDP) in its European Semester Spring Package published on May ... more

RBI doubles net profit y/y in Q1 as Russian business recovers

Raiffeisen Bank International (RBI), the second largest bank operating across Central and Eastern Europe by assets, reported that net profit almost doubled year-on-year to €220mn in the first ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss