Analysis 23 Mar 16

Creditors Lose Faith in Croatia’s ‘Expert’ Govt

By focussing on ideological and political quarrels and not on investments and reforms, Croatia's new government is alienating international creditors.

Sven Milekic
BIRN
Zagreb
Croatian government presenting the state budget for 2016. | Photo: BETAPHOTO/HINA/Lana SLIVAR DOMINIC/MO

Croatia’s new centre-right government has got off to a rocky start. After blunders in the process of appointing new ministers and with no real vision about how to boost the economy and fix the budget deficit, Croatia’s credit ranking has already been downgraded.

“It is one thing if the ship is heading full speed towards an iceberg and another if the ship is close to the iceberg but on a good course and set to avoid collision,” Josip Tica, professor at Zagreb’s Faculty of Economics, said.

In his view, Croatia is far closer to the first scenario than to the second.

On March 11 the credit ranking agency Moody’s lowered Croatia’s credit ranking for borrowing in foreign currencies from Ba1 to Ba2, with a negative outlook.

Moody’s argues that Croatia’s public debt, currently about 86 per cent of annual GDP, is far above other countries with a Ba1 credit ranking, which have public debt set at an average of around 45 per cent of GDP.

The agency also noted “continuation of the weak medium-term prospects for economic growth” and emphasized that the new government will face “significant challenges in implementing its reform agenda, aimed at stopping the growth of public debt and improving the prospects for growth”.

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