Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Croatia (long-term local- and foreign-currency issuer and senior unsecured debt ratings: BBB+/Stable; short-term local- and foreign-currency issuer rating: S-2/Stable) on 6 November 2023.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Croatia’s BBB+ ratings are underpinned by the following credit strengths: i) euro area membership since January 2023, which has materially curtailed foreign-currency risks in the external, financial sector and public balance sheets, strengthening Croatia’s resilience to external shocks, ii) a declining public debt trajectory, anchored by prospects of comparatively robust nominal growth, favourable funding conditions and positive, albeit modest, primary fiscal surpluses; and iii) sound structural reform momentum, which was bolstered by the euro area accession process and is expected to continue in line with the implementation of the country’s Recovery and Resilience Plan.

Despite these credit strengths, Croatia’s ratings remain constrained by several medium- to longer-term challenges: i) still-elevated public debt levels versus peers, albeit with a declining debt-to-GDP ratio since end-2020, ii) modest growth potential, reflecting low investment and productivity growth and unfavourable demographics constraining the labour supply; and iii) the economy’s low degree of diversification, in particular related to its relatively high reliance on tourism revenues, making it more vulnerable to adverse external developments.

The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

The ratings/Outlooks could be upgraded if, individually or collectively: i) Croatia’s growth outlook improved, resulting in higher wealth and productivity levels and greater economic diversification; and/or ii) fiscal dynamics drive a sustained decline in the general government debt-to-GDP ratio.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) the economic outlook weakened materially, due to, for example, a negative external shock with negative repercussions on key trading partners; and/or ii) fiscal dynamics deteriorated significantly.

For the updated rating report accompanying this review, click here.
 
The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 September 2023) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Julian Zimmermann, Associate Director

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