The Fitch credit rating agency on Friday affirmed Croatia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB+' with a stable outlook, which PM Andrej Plenkovic on Saturday described as proof that Croatia was well prepared for the current crisis and is on the right course.

This is the highest rating which Croatia has so far been given by this agency.

The confirmation of this rating ensued after this July, it upgraded Croatia’s Long-Term Foreign-Currency Issuer Default Rating to ‘BBB+ from ‘BBB’, with a stable outlook, after the European Council’s Economic and Financial Affairs Council approved on 12 July Croatia’s application to join the euro on 1 January 2023.

Commenting on the country’s Solid Growth Performance, Fitch stated on Friday that it “has revised Croatia’s GDP growth outlook to 6.1% in 2022 (from 3.3% previously) reflecting faster-than-expected growth in 1H22 and a solid tourism summer season.”

“The ongoing rapid recovery from sharp contraction in 2020 means that the economy is now well above pre-pandemic levels, with Croatia about to join the eurozone in strong economic footing,” says the agency.

“Nevertheless, economic momentum is expected to lose steam over the coming quarters as inflation affects domestic demand and a slowdown in key trading partners, primarily the eurozone, will affect goods and service export performance. We forecast growth of only 1.1% in 2023, even as public investment is set to rise in line with higher absorption of EU funds, before bouncing back to 3% in 2024.”

Resilience to external shocks due to improved fiscal and external positions

The agency also said that “the Stable Outlook reflects our expectation that the Croatian economy will remain resilient to external shocks, due in part to improved fiscal and external positions and upcoming euro adoption in January 2023.”

PM Plenkovic today welcomed the latest report from Fitch as encouraging considering all the global challenges.

Plenkovic was quoted as saying in the government’s press release that the political stability, coupled with the accelerated absorption of the EU funds and by the government’s relief schemes and investments in energy security enabled Croatia to show resilience to the crisis.

Therefore Croatia will accomplish higher-than-expected growth in 2022 and stable growth in 2023.

According to the agency: “Croatia is making significant headway in implementation of Recovery and Resilience Facility (RRF) milestones, which is assuring a significant flow of funds (Croatia is entitled to EUR5.5 billion in grants and EUR3.6 billion in loans).”

“There is strong political support for reforms in RRF and limited risks of political instability at present, as the ruling party has a solid majority.”

The government’s press release underscores that Fitch has confirmed the timely actions in and commitment of the government to the implementation of reforms.

The agency projects that the public debt/GDP ratio will fall to 70.5% in 2022 and further to 66.8% in 2024 (versus the current BBB median of 55% and A median of 58%).

“Entry into the eurozone will provide further safeguards and access to ECB bond purchases facilities.”

The agency also expects “the general government deficit (GGD) to narrow to 1.5% of GDP in 2022 (in line with the authorities revised target) given partly stronger-than-expected revenue performance in the 1Q-3Q22.”

“The authorities have introduced an additional 5pp of GDP in support measures in recent weeks, including additional caps on electricity for households and corporates (limited to certain consumption), direct transfers, tax relief and additional investment.

“The package will only have a limited direct impact on public finances (estimated around 1% of GDP currently) as most of it should be financed by energy companies or via EU funds. However, given the slowing economy next year, we forecast a moderate widening of the deficit to 2.4% of GDP (still below the projected BBB median forecast of 4.1%).”

The government recalls that seven EU countries have lower Fitch credit ratings than Croatia and those are Italy, Portugal, Greece, Cyprus, Hungary, Bulgaria and Romania.