"In our opinion, the Croatian government's reforms have so far been insufficient to eliminate the structural rigidities that hamper the country's growth potential," the agency said in a press release.
"We believe that the government's fiscal resolve has weakened, leaving structural budgetary weaknesses, such as high personnel and social expenditures, which together make up just under three quarters of central government spending, unaddressed."
"We are therefore lowering our long- and short-term sovereign credit ratings on Croatia to 'BB+/B' from 'BBB-/A-3'. The outlook is stable, reflecting our view that Croatia's wealth levels, relatively diversified economy, and future receipt of EU funds could help stabilize external imbalances and government finances while improving growth prospects," the agency said.