Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereign, sub-sovereign and supranational issuers. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Croatia (BBB-/Stable; S-2/Stable) on 4 November 2020. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Scope’s assignment of Croatia’s BBB- rating reflects i) the strengthened fiscal framework and commitment to fiscal discipline, which supported three consecutive years of fiscal surplus over 2017-19; ii) Croatia’s improved external buffers and financial stability, which are supported by the country’s admission into the EU's Exchange Rate Mechanism II and the Banking Union. Scope expects the government to pursue the course for joining the euro by 2023, given the high economic and financial integration with the euro area, and the process towards meeting eurozone accession criteria will continue to enforce a degree of credit-positive prudence in policymaking. Despite these credit strengths, important medium- to long-term macroeconomic imbalances constrain Croatia’s BBB- ratings. Firstly, even after material reductions, Croatia’s pre-pandemic public debt-to-GDP ratio remained high at 73% in 2019. Scope expects the ratio to increase by 15pp in 2020 due to the cyclical fiscal deterioration and budget support measures. In addition, Croatia’s growth potential over the medium run is weak compared with sovereign peers, reflecting low productivity growth, labour shortages and adverse demographic trends. The Stable Outlook reflects Scope’s assessment that the challenges Croatia faces during the 2020 crisis remain manageable given the country’s credit strengths.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Analyst

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