S&P revises outlook for Zagreb from stable to positive

NEWS 30.03.202316:41
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After Standard & Poor's revised upwards the City of Zagreb's credit rating from BB- to BB in September 2022, now it has revised the outlook from stable to positive, announcing the possibility of revising upwards the city's credit rating in the next 12 months, the city administration said on Thursday.

The credit rating agency cited strong economic growth, to contribute to the city’s revenue in 2023 and 2024, as one of the reasons for the improved outlook, another reason being higher money reserves following Croatia’s euro area entry, which have alleviated the pressure on the city’s limited liquidity.

“S&P has announced the possibility of increasing the city’s credit rating if in the next 12 months Zagreb improves the predictability of its financial policy while keeping focus on cost control and if it continues strengthening its liquidity to cover a significant portion of the annual cost of debt payment.”

The agency expects the local government to use the budget surplus to reduce liabilities from previous periods but notes that a dispute regarding water rates restricts revenue flexibility.

“S&P notes that changes to tax laws and rates are frequent and make financial planning complex while resource distribution is uneven and insufficiently harmonised with tasks from within the remit of local government units,” the city administration said.

On the other hand, S&P notes that the financial management of Zagreb is aimed at increasing the transparency of city finances, and that Zagreb’s access to external liquidity is satisfactory because the city has access to a number of international banks that are willing to give it short-term loans.