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Fitch affirms Croatia at "BBB-" with negative outlook

Autor: mses
ZAGREB/LONDON, March 9 (Hina) - The Fitch international ratings agency issued a statement on Wednesday affirming Croatia's long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' and Long-term local currency IDR at 'BBB'.

"The outlooks on the long-term IDRs are negative. The agency has also affirmed Croatia's short-term foreign currency IDR at 'F3' and country ceiling at 'BBB+'," reads the statement.

"Although Croatia's current account deficit has narrowed, slightly easing external financial pressures, the increasing budget deficit, sizeable and rising government debt ratio, high external indebtedness and a weak economic growth outlook mean that risks to creditworthiness remain on the downside," Fitch analyst Michele Napolitano was quoted as saying.

According to the statement, rollover rates on external debt have held up well and "Croatia has managed to finance external deficits without IMF support, indicating the economy's resilience".

"However, the gross external financing requirement will remain above 100% of official foreign-exchange reserves in 2011, reflecting the high amount of corporate external debt falling due. The large foreign currency exposure of public and private sector balance sheets still poses a risk to macroeconomic stability."

"Croatia's poor growth performance (1% average in the five-years to 2010) weighs on its rating."

Fitch forecasts a return to subdued growth of around 1.5% for 2011. "However, it believes Croatia's relative weak competitiveness and business climate, narrow export base and inflexible exchange rate regime, high debt levels and structural rigidities are likely to constrain growth in the absence of deeper structural reforms."

The agency forecasts that the budget deficit will widen to 6.1% of GDP in 2011 from an estimated 5.7% of GDP in 2010.

Positive elements that can support the ratio is a successful fiscal consolidation that reduces the budget deficit and stabilises the debt ratio.

"In addition, structural reforms, in the context of EU accession (which Fitch expects in 2013), which bolster the economy's medium-term growth potential would be positive for creditworthiness," the statement concludes.

(Hina) ms

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