Prime Minister Andrej Plenkovic said late on Friday evening that the fact that Croatia's rating had been put back in the investment category by Standard&Poor's was evidence that his government was leading the country in the right direction.

Standard & Poor’s on Friday 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.

Confirmation that government’s course is good

“S&P’s estimate sums up everything we have been saying about the government’s goals, course and achievements. By securing the stability of institutions in Croatia – which means that the parliamentary majority is stable and functioning, that laws are adopted and that the government can work – we have secured the time necessary for reforms,” the PM told reporters in the parliament, adding that the reform endeavours included structural reforms and fiscal consolidation.

“Those two important elements have been recognised by S&P and they have sent us a message that they support the course along which we have been leading the country,” said Plenkovic.

“In 2017 we exited the Excessive Deficit Procedure, we recently left the Excessive Macroeconomic Imbalances procedure, over the past three years we have reduced the share of debt in GDP by ten percentage points and we are faster in that regard than other countries. We are preparing to join the European Exchange Rate Mechanism, all economic indicators are positive and this is a signal that we must carry on with structural reforms, with reducing the tax burden, and with the pension reform which we have identified as one of the crucial structural reforms,” Plenkovic said.

He added that the S&P’s decision was excellent news for Croatia and its economy.

“I’m confident that this will broaden the circle of potential investors,” he said.

Decision on Uljanik to be based on analyses

Asked whether S&P’s latest rating upgrade would have an effect on the decision-making process regarding the ailing Uljanik shipbuilding group, Plenkovic said that S&P had recognised his government’s efforts in responding to the Agrokor crisis, the biggest systemic risk for the Croatian economy in the past years.

“As far as Uljanik is concerned… the way we have consolidated the economy has made the country more resilient to crisis situations, and a crisis situation is when you have to pay HRK 3.1 billion in government guarantees for ships that were previously commissioned. We did it without imposing any crisis tax, revising the budget or making cross-sector cuts because we were financially consolidated and resilient. S&P realises that as regards Uljanik, we have even reduced the potential risks,” said Plenkovic.

He added that S&P considered the country’s outlook stable, meaning that it would continue following the government’s efforts and the way it was carrying on with reforms.

“This will not have a direct impact on Uljanik, we will make a decision based on analyses of all possible repercussions, political, economic, financial, social as well as regional and European because any restructuring must be in line with rules on government subsidies and be approved by the European Commission,” said Plenkovic.

Finance minister: Responsible budget spending

Finance Minister Zdravko Maric said that he was satisfied that the country’s rating had been upgraded and that the upgrade reflected strong fiscal results and responsible budget spending.

“Three years after the first round of the tax reform I’m glad to see that S&P has recognised it as a step in the right direction and that the positive results of the tax reform are visible,” he said.

He noted that over the past three years the share of public debt in GDP had dropped by 10 percentage points, which, he said, was definitely the most tangible effect of a prudent and responsible fiscal policy.

Gov’t: Rating upgrade to bring lower interest rates, more favourable borrowing

The rating upgrade will bring lower interest rates and the possibility for the state and companies to borrow on the world capital market under more favourable conditions, the Croatian government said in a statement on Friday.

“The rating upgrade brings lower interest rates and the possibility for the state and companies to seek more favourable loans on the international capital market. The fact that the country’s rating has been put back in the investment category will increase the number of investors and their interest in the Croatian economy, domestic companies and their shares, which will contribute to economic growth and development of the domestic capital market,” the government said, among other things.

The rating upgrade confirms the importance of the country’s political stability as a precondition for the continuation of economic growth, implementation of structural reforms and investor confidence, it said.