Fitch Ratings lowered Croatia’s outlook to negative from stable, citing the government’s forecast for a wider budget deficit next year.
Fitch also affirmed the country’s long-term foreign and local-currency issuer default ratings at BBB- and BBB, respectively, it said in an e-mailed statement today.
Croatia, which is set to become the European Union’s 28th member in July 2013, is struggling to fend off a renewed recession. The 11-month-old Cabinet of Prime Minister Zoran Milanovic wants to attract investors with 8 billion kuna ($1.4 billion) from EU funds and reconstruction banks to help pay for infrastructure and energy projects after EU contributions and debt repayments will push the 2013 fiscal gap to 3.1 percent of gross domestic product.
The “recently announced draft 2013 budget proposes an increase in the consolidated general government’s fiscal deficit from an estimated 3.5 percent of GDP in 2012 to 3.8 percent in 2013,” Fitch said.
The government on Nov. 15 reduced the 2012 growth forecast to a 1.1 percent contraction, citing an investment drought as an effect of Europe’s sovereign debt crisis.
Fitch on Sept. 5 raised Croatia’s outlook to stable from negative, citing the government’s progress in cutting costs and narrowing the budget deficit.
“The revision to a Stable Outlook in September was based on the government’s maintaining a tight medium-term fiscal stance in line with the Fiscal Responsibility Law in 2012.”
The International Monetary Fund on Nov. 13 said Croatia’s economy will shrink 1.5 percent this year, urging the government to remove barriers to investment and employment in order to return to growth in 2013. The European Commission said on Nov. 7 the economy will contract 1.9 percent in 2012.
Croatia is rated an equivalent Baa3 at Moody’s, the lowest investment grade, level with Latvia and Romania. It is rated BBB- by Standard & Poor’s.
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