The D&B report, carried by the Zagreb-based BonLine company on Tuesday, focuses on Croatia's issuance of eurobonds in May which the credit rating agency's analysts hold to be issued at a high price.
"Underlining the extent to which the Croatian government has lost credibility over its efforts to combat the effects of the global recession on the domestic economy, the apparently "successful" placing of a EUR750m eurobond issue at the end of May came at a high price," reads the paper on Croatia.
Although the authorities said the issue was 60% oversubscribed, the price of 99.675% of par on bonds bearing a fixed interest rate of 6.5% was worse than the terms achieved on Czech, Polish, Slovenian and Slovak eurobonds.
"The issue, which will mature on 5 January 2015, will help to cover repayment of a maturing EUR200m Samurai bond in June, along with plans to pay back a combined debt of USD80m owed to Paris and London Club creditors in July. In addition, the authorities intend to pay back a HRK2.0bn (EUR273m) loan the government took out at the start of the year to maintain current liquidity. The remaining cash is intended to offset the HRK5.5bn budget deficit planned by the government. D&B expects that the deficit will be closer to HRK9.0bn in 2009," according to the D&B assessment.
Pricing of the bonds was affected by "announcements by Fitch and S&P that they had revised the outlook on Croatia"s foreign currency sovereign debt to "negative" at BBB- and BBB respectively".
D&B analysts also hold that this tourist season could be disappointing which means that "the authorities will need more funds in Q3 to meet external obligations."
"D&B continues to believe this is the wrong approach in the middle of a synchronised global recession. Indeed, we believe that the authorities need to stimulate the economy with greater public spending to replace the private sector demand that has continued to dry up. If such measures were targeted effectively, (at export and investment promotion and public infrastructure projects to improve the dilapidated railway system), such measures would offer medium-term benefits for the ease of doing business, as well as having the short-term effect of propping up domestic demand," D&B said at the end of the paper.