Moody's Investors Service says that Croatia's "Baa3 ratings and stable outlook reflect its relative wealth and the government's affordable, albeit worsening debt metrics."
"Croatia is expected to become the 28th member of the European Union in the summer of 2013, which signals its improving institutional capacity."
"However, the rating is constrained by the country's impaired growth model and the extensive euroisation of its banking system," reads Moody's annual credit report on Croatia.
The report warns that Croatia's economic recovery has lagged behind that recorded elsewhere in Europe.
"Moody's concerns about the economic growth model relate to its high leverage after a period of extensive foreign borrowing," the agency says.
"At 100% of GDP, Croatia's external debt is becoming a source of vulnerability, especially in view of the financial system's significant euroisation."
Moody's also emphasises that "the government's financial strength is eroding due in part to the persistent economic slowdown that followed the global financial crisis."
"The budget deficit expanded from 1.5% in 2008 to an expected 6% in 2011."
Moody's believes that "parliamentary elections in December are likely to have delayed any meaningful fiscal adjustments to 2012".
The agency says that what could improve the country's rating is "gradual institutional and income convergence with the EU."
The downward pressure on the rating could be exerted by "sustained weakness in the Croatian kuna materially affecting the heavily euroised economy".