Rating action

Scope Ratings GmbH (Scope) has today affirmed the Republic of Croatia ’s (Croatia) long-term issuer and senior unsecured debt ratings at A-, in both local and foreign currency, and revised the Outlooks to Positive, from Stable. Scope has also affirmed Croatia’s short-term issuer ratings at S-1 in both local and foreign currency with a Stable Outlook.

The revision of the Outlooks reflects Croatia’s robust growth prospects, a strengthening external position, and sustained reform momentum supported by strong EU fund inflows, all of which enhance resilience and underpin stronger macroeconomic performance. It also reflects Croatia’s solid public finances, anchored by a track record of fiscal prudence, contained fiscal deficits and a favourable debt structure, which support a sustainable public debt trajectory.

The main credit challenges reflect: i) the low levels of economic diversification, mostly related to an elevated dependence of the Croatian economy on the tourism sector, alongside moderate income levels; and ii) adverse demographics, resulting in increasing pressures on long-run economic and fiscal outlook.

For the updated rating report, click here.

Key rating drivers

Robust growth prospects and strengthening external position. The Croatian economy grew buoyantly in 2024, with real GDP growth rising to 3.9% from 3.3% in 2023. Growth was mostly driven by solid private demand, supported by strong real wage growth (11.5% in 2024) and moderating inflation. Public investment also contributed significantly, on the back of sustained inflows of EU funds and progress in implementing the National Recovery and Resilience Plan (NRRP). HICP inflation fell sharply to 4% in 2024 from 8.3% in 2023 and is expected to continue converging toward the euro area average, reaching 3.8% in 2025 and 2.7% in 2026, supported by moderating employment and wage growth. Strong household and public consumption, alongside sustained labour market improvements and EU-funded investment, are set to sustain above-Euro area-average growth of 3.1% in 2025 and 2.9% in 2026.

Croatia’s external accounts are also strengthening, with the improving profile reducing vulnerability to external shocks and enhancing resilience compared with regional peers. The net international investment position (NIIP) improved from -94% of GDP in 2013 to -28% of GDP in 2024, better than regional peers such as Slovakia (A/Negative, -51% of GDP), Poland (A/Stable, -31% of GDP), and Hungary (BBB/Stable, -35% of GDP). The current account balance has showed some volatility in the past years, shifting from a 0.4% of GDP surplus in 2023 to a 1.2% deficit in 2024¹. However, risks are mitigated by stable, non-debt creating financing through EU funds and FDI inflows. Most external liabilities are long-term and concentrated in the government and central bank.

Headwinds stemming from higher US tariff rates and heightened global trade uncertainty are likely to remain limited for Croatia. Exports to US accounted for only 3.4% of total good exports in 2024². Potential negative impacts on external demand could therefore result from an indirect channel, amid subdued economic growth in key European economic partners such as Germany and Italy.

Structural reforms and labour market improvements bolster outlook and resilience. The government has maintained strong reform momentum, positioning the country as a frontrunner in NRRP implementation, with 44.7% of allocated resources disbursed (EUR 10bn, accounting for 12.8% of GDP) so far, above the EU average rate of 41%. The effective rollout of NRRP reforms strengthens medium-term growth prospects and reinforces economic resilience.

Labour market conditions have improved, with the employment rate rising from 60.5% in 2015 to 73.6% in 2024, approaching the EU average (75.8%), while unemployment fell to 5%, below the EU average of 5.9%. Reforms to pensions and foreign worker legislation aim to strengthen labour participation and alleviate shortages, while policies under the NRRP target reskilling, upskilling, and adult education in green and digital sectors. Return migration has partially offset prior outflows, with over 43,700 repatriations between 2022 and 2024, helping ease demographic pressures³. Scope estimates Croatia’s medium-term growth potential at 2.8%, above peers such as Latvia (2.25%), Slovakia (2.25%), and Bulgaria (2.75%), and expects continued labour market reforms and immigration improvements to underpin growth resilience over the medium term.

Solid public finances, contained fiscal deficits and moderate public debt levels. The headline fiscal deficit widened from 0.9% of GDP in 2023 to 2.4% of GDP in 2024, above the Ministry of Finance’s initial estimates of 2.1% of GDP. The increase in the fiscal deficit was mainly due to the adoption of additional packages of measures to protect citizens and the economy from the persistent price pressures, the allocation of substantial resources for pensions, as well as the implementation of a comprehensive reform of public administration wages, which resulted in around 30% increase in public sector wages by the end of 2024⁴. Moreover, the government initiated last year a sweeping tax reform aimed at modernising the country’s tax system, enhancing fiscal sustainability and transparency, broadening the tax base, addressing housing affordability and stimulating the business environment. The reform included the increase of the personal allowance, reduction of the corporate tax rates, the introduction of a new property tax, tax incentives for returnees and adjustments to VAT rates⁵. These comprehensive reforms should ultimately strengthen Croatia’s long-term growth capacity, despite near-term fiscal costs.

Scope expects the fiscal deficit to further widening to 2.8% of GDP in 2025 amid the continuous implementation of growth-enhancing measures, before declining to 2.3% of GDP in 2026 and reach 1.5% of GDP by 2030. The robust growth outlook should support tax revenue growth and help containing the fiscal deficits within the 3% Maastricht threshold in the medium term despite fiscal cost pressures. Scope’s government deficit projections also account for a gradual increase in military spending given heightened geopolitical tensions, from around 1.8% of GDP in 2024 to 3.5% of GDP in 2035, for which Croatia activated the national escape clause in July 2025.

Moderate public debt and favourable debt profile strengthen the country’s resilience. Croatia’s debt-to-GDP ratio has recorded one of the fastest reductions among EU countries over the past five years, declining from 86.5% in 2020 to 57.6% in 2024, supported by high nominal GDP growth and prudent fiscal policy. Scope expects the continued strong economic growth prospects to compensate for the persistence of moderate fiscal deficits, resulting in a marginal decline in the debt-to-GDP ratio to 56.4% in 2025 and 56% in 2026, stabilising around 55.7% on average between 2026 and 2030. Government debt profile is supported by a favourable structure, with around 70% of total general government debt held domestically, a smooth redemption profile and around 55% of central government debt securities maturing in more than 10 years⁶. Moreover, access to lending at very favourable terms such as under the EU’s SAFE programme (for which a tentative allocation has been set at EUR 1.7bn for Croatia, with a maximum duration of 45 years and a 10-year grace period for principal repayments) will support funding flexibility over coming years

Rating challenges: moderate economic diversification, income levels and longer-term demographic pressures. Croatia’s open, export-oriented economy is mostly reliant on low-value-added sectors such as tourism, accounting for 24.5% of total gross value added and representing a direct contribution to GDP of 11.3% as of 2022⁷. The high reliance on the tourism sector brings several disadvantages, such as fluctuations in employment, income and business activity, crowding-out of investments in higher-value-added activities, as well as economic vulnerability to external shocks. Although the NRRP includes various reforms and investments aimed at enhancing the sector’s sustainability, resilience and efficiency, tourism’s capacity to drive long-term economic growth appears to be limited. Vulnerability to external shocks is further exacerbated by Croatia’s moderate income levels, with GDP per capita (PPS) equivalent to 73% of the euro area average in 2024, despite steady improvements over the last ten years.

Additionally, Croatia’s ratings are constrained by adverse demographic trends, which are likely to weigh on the longer-term economic and fiscal outlooks. Despite the significant improvements in labour market conditions and the implementation of several reforms in recent years, the Croatian labour market remains tight, showing a high level of skill mismatches which constrains labour productivity. Moreover, declining in working-age population, estimated at 0.8% on average between 2025 and 2030 coupled with persistent shortages in the labour market could lead to further wage increases, in turn potentially eroding the country’s external competitiveness. Adverse demographic trends are furthermore a challenge for fiscal sustainability in the long run. According to the 2024 European Commission’s Ageing Report, total cost of ageing will continue to rise gradually, from 18.8% of GDP in 2022 to a peak of 19.7% of GDP in 2030 and remaining around 19% of GDP by 2070, underlining the need for continued structural reform⁸.

Rating-change drivers

The Positive Outlook reflects Scope’s view that the risks Croatia faces over the next 12 to 18 months are tilted to the upside.

Upside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Public finances improve faster than projected, with smaller deficits and an accelerated decline in government debt; and/or
    
2. Sustained robust growth and improving external metrics support greater economic diversification, faster income convergence with the euro area, and/or a higher medium-term growth potential.

Downside scenarios for the ratings and Outlooks are if (individually or collectively):

1. Public finances weaken significantly, with larger deficits or rising debt levels; and/or
    
2. The economic outlook deteriorates materially, for example due to a severe external shock or rising external vulnerabilities.

Sovereign Quantitative Model (SQM) and Qualitative Scorecard (QS)

Scope’s SQM, which assesses core sovereign credit fundamentals, signals a first indicative credit rating of ‘a’ for Croatia. Under Scope’s methodology, the indicative rating receives 1) one-notch positive adjustment from the methodological reserve-currency adjustment; and 2) no negative adjustment from the methodological political-risk quantitative adjustment. On this basis, a final SQM quantitative rating of ‘a+’ is assigned for Croatia and reviewed by the Qualitative Scorecard (QS) where this rating can be adjusted by three notches up or down depending on the size of Croatia’ qualitative credit strengths or weaknesses compared against an SQM-assigned peer group of sovereigns.

Scope identified the following QS relative credit weaknesses for Croatia: 1) macro-economic stability & sustainability; 2) current account resilience; 3) environmental factors; 4) social factors; and 5) governance factors. Conversely, Scope did not identify QS relative credit strengths for Croatia. On aggregate, the QS generates a two-notch negative adjustment for Croatia’s credit ratings, resulting in the final A- long-term ratings.

A rating committee has discussed and confirmed these results.

Environment, social and governance (ESG) factors

Scope explicitly factors in ESG issues in its ratings process vis-à-vis the sovereign-rating methodology’s stand-alone ESG sovereign-risk pillar, which holds a significant 25% weighting under the quantitative model (SQM) and 20% weight under the methodology’s qualitative overlay (QS).

In the sovereign ESG pillar’s environmental risk sub-category, Croatia’s performance compares broadly favourably with that of indicative sovereign peers. This is due to positive scores concerning the Croatian economy’s carbon intensity (as measured by CO2 emissions per units of GDP), above average score in terms of footprint of consumption relative to available biocapacity and the country’s level of greenhouse gas emissions per capita, as well as average performance related to exposure to natural disaster risk. Croatian authorities aim to reduce carbon emissions by 45% by 2030 relative to 1990 levels, and to reach carbon neutrality by 2050. Croatia’s share of renewable energy in final energy consumption stood at 28% in 2023, higher than the EU’s 24.5%. A full phase-out for coal is planned by 2033. Almost 74% of Croatia’s electricity is generated from renewables, mainly from hydropower. Environmental policies and challenges are considered under a QS assessment of ‘environmental factors’, which is evaluated as ‘weak’ versus the sovereign peer group, to account for the Croatian economy’s higher exposure to climate risks, resulting from a comparatively higher importance of agriculture, tourism and energy sectors.

The country’s performance across key social factors compares rather unfavourably relative to peers. Croatia’s SQM score reflects an ageing society via an elevated and increasing old-age dependency ratio compared to peer economies. Croatia experienced positive net migration in 2022-24 (+43,079 persons), following a protracted period of significant outflows (averaging around 12,000 persons annually over 2013-21). Income inequality – captured by the ratio of the income share of the 20% of persons with the highest household incomes to the 20% of persons in society with the lowest household incomes – is low in an international comparison and similar to that of Croatia’s sovereign peer group. Despite having improved markedly and consistently in recent decades, labour market inclusivity remains weaker than peers, as reflected in employment rates below the EU average (73.6% of population aged 15-64, 2.2 percentage points below the EU average). The EC’s State of the Digital Decade 2024, ranks Croatia 19th out of the EU-27 countries for digital competitiveness. While the country improved its position from the previous 21st place in 2023, challenges in developing the labour force’s digital skills persist. Overall, the ‘social factors’ component of the QS assessment is evaluated as ‘weak’ to account for the country’s weaker social outcomes relative to its sovereign peers.

Finally, under governance-related factors, Croatia has average performance compared to peer member states in Central and Eastern Europe as assessed under the World Bank’s Worldwide Governance Indicators. Croatia’s EU and euro area memberships enhance credible macroeconomic policymaking and a stable governance framework. The ‘governance factors’ component of the QS is assessed as ‘weak’, to account for rating challenges associated with a moderate institutional capacity, including limits to judicial system efficiency. This is reflected in comparatively lengthy legal resolution processes for commercial and civil cases (twice the EU average) and low levels of trust in judges’ independence (the lowest in the EU), despite some recent improvements. The country compares unfavourably to sovereign peers as regards the primacy of the rule of law and the persistence of corruption, as reflected in weak rankings in the World Justice Project’s Rule of Law index (24th in the EU) and Transparency International’s Corruption Perceptions Index (63rd globally). The ruling Croatian Democratic Union (HDZ) secured a renewed mandate following the April 2024 parliamentary elections, thanks to the support of the Homeland Movement. Scope expects Croatian authorities’ macro-fiscal policy stance to remain broadly unchanged, in particular as regards its commitments to fiscal prudence and to the implementation of structural reforms included in the NRRP.

Rating committee
The main points discussed by the rating committee were: i) ratings history; ii) sovereign peers considerations; iii) fiscal trajectory and debt sustainability; iv) the growth outlook and structural reforms; v) SQM developments; and vi) ESG considerations.

Rating driver references
1. Croatia National Bank (HBN) Main macroeconomic indicators
2. European Commission European Semester Country Report – June 2025
3. Croatia Statistical Office Migration of population of the republic of Croatia, 2024 – July 2025
4. Government of the Republic of Croatia During the mandate of our government, the salary base of state and public servants increased by almost 48 percent
5. Ministry of Finance Annual Progress Report – May 2025
6. State Treasury Investor Presentation – February 2025
7. Croatia Statistical Office Tourism satellite account for the republic of Croatia, 2022 – March 2025
8. European Commission 2024 Ageing Report – Economic & Budgetary Projections for the EU Member States (2022-2070)

Methodology
The methodology used for these Credit Ratings and Outlooks, (Sovereign Rating Methodology, 27 January 2025), is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The model used for these Credit Ratings and Outlooks is (Sovereign Quantitative Model Version 4.1), available in Scope Ratings’ list of models, published under scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): registers.esma.europa.eu/cerep-publication. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation       NO
With access to internal documents                                    NO
With access to management                                             NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings and Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Alessandra Poli, Analyst
Person responsible for approval of the Credit Ratings: Jakob Suwalski, Executive Director
The Credit Ratings/Outlooks were first released by Scope Ratings in January 2003. The Credit Ratings/Outlooks were last updated on 18 October 2024.

Potential conflicts
See scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
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