Finance Minister Zdravko Marić assessed on Friday that Fitch’s improvement of the outlook for Croatia’s credit rating is primarily due to good performance in the area of fiscal policy and public finances, and that by the end of this Government’s term, the rating could certainly be raised to investment grade.
Fitch Ratings on Friday maintained Croatia’s credit rating at ‘BB+’, but raised the outlook from stable to positive.
“After raising Croatia’s rating to one notch below investment grade at the beginning of the year, with this improvement in the outlook for the rating, they have practically opened up space for our realistic expectations that Croatia can certainly, should, and will achieve an investment rating during this Government’s term. However, I will not project in what time frame,” Marić said in a statement to Hina.
Fitch had raised Croatia’s rating from ‘BB’ to ‘BB+’ in January this year, with stable outlooks, marking the first increase in Croatia’s credit rating since 2004.
>>>For the first time since 2004: Fitch raised Croatia’s rating to ‘BB+’ with stable outlooks
Of the three leading global rating agencies, Fitch and S&P now hold Croatia’s rating one notch below investment grade, while Moody’s holds it two notches below. Fitch currently maintains a positive outlook, while the other two agencies have stable outlooks.
The main reasons for the improvement in the outlook, as Marić stated, are traditionally the performance of fiscal policy and public finances.
Fitch predicts that the budget surplus in 2018 will reach 0.4 percent of gross domestic product (GDP), following a surplus of 0.8 percent in 2017.
The agency expects that a combination of a primary budget surplus, estimated at 2.9 percent of GDP this year, low interest rates, and healthy economic growth will contribute to the continued significant reduction of public debt.
Last year, the share of public debt in GDP fell by 2.7 percentage points to 77.5 percent, and Fitch estimates that it will be further reduced to 73.9 percent this year, and to 71 percent by the end of 2019.
>>>Moody’s: They would raise Croatia’s credit rating if the Government presents economic and fiscal reforms
“The reduction of debt has been accepted for the third consecutive year, as well as our efforts and credible projects we are implementing, and the fact that for two consecutive years, and I believe for a third, we are delivering better results than originally projected,” Marić asserted.
As he noted, it is also evident that external imbalances are decreasing, primarily visible in the data on the current account of the balance of payments and foreign debt.
“It is evident that these imbalances are not only decreasing, but we practically now have a continuous trend of achieving a surplus in the current account of the balance of payments, and all of this, along with economic performance, has led to the improvement of our credit rating outlook,” Marić stated.
Fitch estimates that the current account of the balance of payments will be in surplus on average at 2 percent of GDP in the period 2018-2020, after 4.3 percent in 2017, and net foreign debt at 22.2 percent of GDP.
Stating that rating agencies always indicate reasons for which they could raise the rating, as well as those for which they could lower it, Marić emphasizes that the Government is focused solely on how to further raise it to investment grade and continue what has already been started, primarily in the area of fiscal policy – that is, strict control of expenditures and reduction of public debt – and in the area of structural reforms to further strengthen economic growth.
Reflecting on Fitch’s better estimates compared to the Government’s regarding the budget surplus, he said that Fitch’s estimates are in line with those of the European Commission.
“We have even reached the point where the European Commission and credit agencies have more optimistic estimates in this regard than the Government. We do not lack optimism and ambition; however, we take a somewhat more conservative approach in planning, prompted by years of Croatian experience with previous governments, when the credibility of projections was one of the stumbling blocks,” he said.
When asked if he expects a better budget result this year as well, he said that the Government will do everything “to be better than the original projections.” “After half a year, both the revenue and expenditure sides of the budget give us reasons for optimism that we could deliver better results than expected this year as well, but it is still too early for conclusions, as we have the second half of the year ahead of us, during which we have high expectations from the tourist season and some other economic sectors,” Marić emphasized.
>>>Consumption in May jumped nearly 8 percent, the highest in 11 years
Reflecting on the latest retail data, Marić stated that they monitor all high-frequency indicators, such as manufacturing, construction, and retail trade.
“Today’s data suggest that we have a continuous growth trend for 45 months. The Government has already started in the first round of tax reform regarding raising disposable income, stimulating consumer spending, and generally impacting the increase of their standard of living. This reform has positive implications for consumption; we see this in the budget where personal consumption has a significant weight in its realization, especially in value-added tax,” concluded Marić.
The State Bureau of Statistics (DZS) published a report on retail trade on Friday, and according to seasonally adjusted data, consumption in May increased by 7.9 percent compared to May last year.
This is the largest jump in retail trade since August 2007, when it increased by 10.5 percent. The growth of consumption for 45 consecutive months has not been recorded since DZS began keeping these data.
