September 26 (SeeNews) - S&P Global Ratings said it has raised its long-term foreign currency issuer credit rating on the Croatian capital city of Zagreb to 'BB' from 'BB-', and has assigned it a stable outlook.
“We expect economic growth in Zagreb to be resilient to higher energy costs, with local tax revenue rising by double-digit percentages,” the credit agency said in a press release late on Friday.
“We believe that Zagreb will continue to keep a tight grip on operating expenditure, keeping spending growth below inflation rates,” it added.
In addition, Zagreb's larger cash reserves and easier access to external liquidity will improve its liquidity situation, according to the press release.
The credit agency said that outlook is stable because it expect that Zagreb's budgetary performance will continue to improve, buoyed by high economic growth, despite increasing energy prices.
“We believe that the ongoing reconstruction of earthquake-devasted areas will be supported by funds from the EU and Croatia's central government,” the credit agency said.
Devastating series of earthquakes hit the Sisak-Moslavina county and parts of the Karlovac and Zagreb counties in Croatia in December 2020 and January 2021. The Croatian government has said earlier that it estimates the value of the total damage caused by the tremors at 128 billion kuna ($16.4 billion/17 billion euro).
S&P Global Ratings expects a “sound” rebound of the national economy, with real GDP expanding by 5.8% in 2022, which, coupled with double-digit inflation rates, will lead to Zabreb's tax revenue increasing by more than 17% year-on-year.
Zagreb benefits from its role as Croatia's capital and dominant economic center. The city contributes about one-third of Croatia's GDP. Unemployment is considerably lower than the national average, at 2.8% as of June 30, versus 6.3%. Zagreb's GDP per capita is comparable with that of similarly rated international peers and significantly higher than the national average.
“We expect Croatia's real GDP to increase by a still sound 1.75% in 2023 and by 3.5% in 2024, well above other European countries, with Zagreb's GDP per capita developing in line with national growth trends. We anticipate that, in the medium term, Zagreb's economy will benefit from a relatively stable population, which distinguishes the city from the national trend,” S&P explained.
(1 euro = 7.4855 Croatian kuna)