D&B: Croatia’s credit rating unchanged

The credit rating agency Dun & Bradstreet (D&B) has maintained Croatia’s credit rating at DB3c in its report for March 2009, classifying Croatia among countries with moderate investment risk, while deeming the Government’s growth forecasts from the Pre-Accession Program (PEP) unrealistic given the global economic slowdown.

Commenting on the PEP adopted in January, D&B analysts remind that the Government has revised the expected GDP growth for 2009 down to 2 percent (the estimate for 2008 was 2.6 percent), while expecting growth of 3.2 percent in 2010 and 4 percent in 2011. As a measure to improve the business environment, including privatization and consolidation of the shipbuilding sector, the Government expects to reduce the fiscal deficit to zero by 2011. D&B considers these forecasts unrealistic given the global economic growth slowdown, as stated in the D&B report relayed by the company Bonline.

D&B expects that a budget rebalance is very likely in the second quarter and that rising unemployment will create pressure to increase public spending. It is also noted that the Government has announced short-term anti-recession measures, although the details of these measures have not yet been published. The report states that alongside indicators of economic slowdown, including a decline in foreign direct investment by 18.5 percent in the first nine months of 2008 compared to the same period in 2007, the Croatian currency has remained under pressure from the international foreign exchange market, although the strong depreciation from October 2008 has not been repeated.

It is noted that since the beginning of 2009, the exchange rate has been between 7.30 and 7.49 kuna per euro, while in October 2008 it was 7.10 kuna. To avoid further depreciation and maintain the value of the kuna, the Croatian National Bank continues to intervene in the foreign exchange market by selling euros and increasing the share of kuna in the structure of mandatory reserves, the report states. It is mentioned that two key domestic drivers of development have lost strength, and in this context, the decline in retail and industrial production is recalled. Additionally, D&B analysts consider the increase in the trade deficit from 9.1 billion euros in the first eleven months of 2007 to 10.5 billion in the same period last year as a challenging circumstance. (H)