On Friday, E-Money Ratings also worsened the outlook for Croatia’s non-investment-grade sovereign debt rating, citing a deterioration in government and debt dynamics.
The move by the international rating agency announced in London on Friday evening concerns “BB / BB plus” grades of long-term Croatian sovereign debt denominated in foreign currency and in domestic currency. These ratings have been confirmed by E-Money.
In its justification for worsening the rating outlook
The company noted that Croatia’s general government deficit (GDP) reached 5.7 percent last year, 0.3 percentage points higher than a year earlier and 1.3 percentage points in the government’s convergence program goal.
Most of the budget slippage is the result of lower-than-expected inflation and lower revenue growth due to GDP growth.
The Croatian government expects a 5 percent deficit by 2015, but E-Money Ratings expects this year to have a higher general government deficit of 5.5 percent of GDP. What’s more, this is a worsening forecast, as the company’s original forecast included a 4.5 percent shortfall this year.
The Croatian government’s convergence program
Has set a general government deficit target of 2.7 percent for 2017, but E-Money London analysts say there are serious risks, including due to parliamentary elections in early 2016 that are likely to delay the new government’s formation. consolidation efforts.
Croatia’s gross government debt ratio reached 85 percent at the end of 2014, the second highest on the list of sovereign debtors classified by E-Money Ratings as “BB”, the credit rating stresses. The company points out that this debt ratio was only 39 percent at the end of 2008.
E-Money expects Croatia’s gross government debt ratio to rise further to 90 percent of GDP this year, peaking at 94.4 percent in 2017.
Financing conditions remain favorable, but high budget financing requirements of around 20 percent of GDP pose risks to debt sustainability in the event of unexpected increases in financing costs, E-Money said.
The CRA also stresses that the performance of the Croatian economy after a six-year recession is significantly lower than that of sovereign debtors with similar ratings.
According to E-Money’s calculations
Croatia’s GDP has declined by an annual average of 1.1 percent over the past five years, while the company’s average annual growth rate for the “BB” debt class was 3.9 percent.
However, E-Money Ratings predicts that the Croatian economy will recover from the recession this year, driven by net exports, low energy prices and a rebound in the euro area, and growing by 0.5 percent. The company expects growth of 1 percent in Croatia by 2016. (MTI)