"The ratings on Croatia are supported by its strong record of reform and structural economic improvement over the past few years, by the anchor policy provided by EU integration, and by the economy's good growth prospects," S&P analyst Remy Salters said.
"These factors are offset by Croatia's high, albeit stabilising, private sector net external debt burden, by the need for further structural reforms, and by significant reliance on the performance of the tourism sector," he added.
The general election, scheduled for November 2007, is not expected to lead to major changes in economic policy, but might delay fiscal consolidation temporarily.
An upgrade will require continued fiscal consolidation and sustained progress with structural reforms.
The ratings on HBOR are based on the bank's public policy mandate, strong government support, and its manageable risk profile in the context of Croatia's challenging economic environment, Salters said.