ZAGREB (Croatia), April 30 (SeeNews) – Moody's Investors Service said it has revised Croatia's rating outlook to positive from stable, and affirmed the country's Ba2 credit rating.
The change is a result of the improved fiscal metrics on the back of prudent policy stance, as well as growth prospects to benefit from recent reforms, according to an opinion report issued by Moody's last week.
The Ba2 rating affirmation balances the country's relatively high per capita income and comparatively strong institutions supported by its EU membership against ongoing challenges related to Croatia's small economic size, relatively volatile GDP growth and low potential growth compared to peers, net migration outflows and a still elevated debt burden.
"Recurrent fiscal deficits have been erased and the first budgetary surplus was recorded in 2017 (0.8% of GDP). 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. Importantly, 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. In addition, the primary balance now exhibits a solid surplus that is expected to be maintained in the coming years", Moody's explained.
The business and financial services company expects that positive economic growth and continued fiscal prudence will allow public debt to continue its descending trend and reach some 70% of GDP in 2020.
According to Moody's the resolution of the crisis at the food-to-retail concern Agrokor is credit positive as it removes a significant source of uncertainty for the economy and a potential contingent liability for the state.
"While the activation of the State guarantee regarding the Uljanik shipyard has weighed negatively on the country's headline fiscal metrics in 2018, the government's decision to limit the use of debt guarantees should contain contingency liability risks in the future", Moody's opined.