Wednesday, 20 July 2022

Moody's Raises Long-Term Credit Rating of City of Zagreb and Zagreb Holding

ZAGREB, 20 July 2022 - The international credit rating agency Moody's has raised the long-term credit rating of the City of Zagreb and the Zagreb Holding multi-utility conglomerate by two notches, from Ba1 to Baa2, that is from a speculative to an investment grade, with a stable outlook, the City of Zagreb said on Wednesday.

"We are glad that Moody's has recognised the financial stabilisation not only in the City of Zagreb but also the restructuring of Zagreb Holding, which was necessary for the City of Zagreb and Zagreb Holding to withstand new challenges caused by global circumstances," Zagreb Mayor Tomislav Tomašević said, commenting on the upgrade of the rating.

After the decision to raise Croatia's credit rating, the agency expects the upgrade of the rating will positively affect the City of Zagreb and Zagreb Holding following the introduction of the euro, having in mind the strategic position of Zagreb within Croatia. A stable outlook related to the credit rating of the City reflects its financial stabilisation and a medium-term reduction in debt burden, the City said.

Moody's says that Zagreb's Baa2 rating reflects its large and diverse local economy, which contributes to a tax revenue base with low volatility and a positive growth trend. It also noted that the debt of some of the City-owned companies would continue to decline in the medium term thanks to better financial results.

The agency stated that Zagreb's solid institutions and its governance strength are reflected in a governance issuer profile score that is neutral to low. The City's high credibility contributes to this, as it manages its operations using prudent financial planning, which allows for multi-year forecasting of key trends, the press release reads.

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Saturday, 7 May 2022

PM: Confidence of Credit Rating Agencies Shows Croatia is on Right Track

ZAGREB, 7 May 2022 - The confidence of international credit rating agencies shows that Croatia has remained on the right track after a strong economic recovery in 2021, Prime Minister Andrej Plenković said on Saturday.

His statement came after the Fitch Ratings agency reaffirmed Croatia's investment rating at BBB with a positive outlook.

The government sees this as an indication of the country's economic stability while dealing with the consequences of the Russian military invasion of Ukraine, inflationary pressures and other challenges.

The trend was reversed during the term of the present government. Fitch restored the credit rating to BB+ in January 2018 and to BBB- in June 2019. On 13 November 2021, the agency upgraded the rating for another notch to BBB with a positive growth outlook, the government said in a statement.

"The confidence of international credit rating agencies shows that, after a strong economic recovery in 2021, Croatia remains on the right track. We continue to stimulate growth by implementing structural reforms and further using EU funding," Plenković said.

He noted that in all the crises so far the government had stood firmly behind the citizens, helping them with sets of measures to alleviate the impact of increased energy prices and inflationary pressures.

"Euro area membership next year will bring many benefits to the Croatian citizens and businesses while at the same time making the country more resilient to crises," the prime minister said.

The government statement said that the positive outlook was based, among other things, on the assumption that Croatia will be in a position to adopt the euro as legal tender on 1 January 2023 given that it meets the criteria and reform measures under the ERMII mechanism. Fitch considers highly like a positive outcome for Croatia's accession to the euro area this year.

Fitch projected Croatia's growth rate for 2022 at 3.3%, which is more than the 3.0% forecast by the Ministry of Finance, and expects growth to pick up to 3.7% in 2023, which would spur investment as a result of the use of EU funding, the government said.

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Saturday, 13 November 2021

FinMin: Credit Rating Important for Capital Price for State, Businesses, Citizens

ZAGREB, 13 Nov, 2021 - The credit rating is important for the price of borrowing for the state, businesses and citizens as its upgrade lowers the risk premium, which has a favourable effect on the price of capital, Finance Minister Zdravko Marić told Hina on Saturday.

The Fitch Ratings agency yesterday upgraded Croatia's rating to BBB, the best in Croatia's history, with a positive outlook.

Marić said the rating was first of all closely related to debt price and the capital price for the state and, directly or indirectly, for the interest paid by businesses and citizens.

The Fitch rating has a positive effect on those processes, he said, but added that the upgrade should be viewed in continuity, recalling that until not so long ago the state paid a considerable amount for interest.

In 2015, the budgetary expenditure for interest was HRK 12 billion, which at that time was almost the entire budget of the education ministry, whereas now that expenditure is HRK 4.5 billion lower.

"Interest used to be 5-6% and now it is about 1% on the ten-year bond," said Marić, adding that the credit rating assessment was important both in times of low and in times of higher interest rates on capital markets.

"We are talking about reference interest rates," he said, adding that the increased money offer in recent years led to a considerable drop in reference rates, but that the total interest paid by citizens, businesses and the state was a sum of the reference rate and the rate related to a specific country and to the risk premium.

"That's where the rating strikes because Croatia can't influence the trend of reference interest rates, but it can the risk premium it pays."

Marić said Croatia had a stable growth, public finances in order, a clear prospect of entering the euro area, and political stability.

"Those are all elements which have an effect on rating improvement, which is then reflected in a better perception and reputation of a country like Croatia in the financial world, and in the end comes the effect on the risk premium," he said. That is important both when reference interests are low and when they are high, he added.

The investment rating is very important, not just for debt and capital prices but also for capital availability, Marić said.

"The moment you are in the investment zone, you are interesting to many more good investors who can invest in securities," he said, adding that international investors had restrictions and were often not allowed to invest in a country below the investment credit rating.

"That's why it's very good that that has changed for Croatia in terms of Fitch and Standard & Poor's," Marić said, adding that it was also important that Fitch had a positive outlook on Croatia. "That sort of indicates the direction the rating could take."

He praised the media focus on the credit rating, saying that it was good that people became aware of how important it was to know how to manage public money well.

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Saturday, 5 December 2020

PM: Affirmation of Croatia's Credit Rating Proves Gov't Responded Well to Crisis

ZAGREB, December 5, 2020 - Croatia's having kept its investment grade credit rating proves that the government's response to the crisis has been good, Prime Minister Andrej Plenkovic said on Saturday in reference to a report by Fitch Ratings, which affirmed the country's investment grade rating for the third time this year.

Fitch Ratings has for the third time this year affirmed the country's investment grade rating, which is owing to an expected gradual recovery from the coronavirus pandemic and the government's strong aid measures, accession to the Exchange Rate Mechanism II (ERM II), and fiscal consolidation having been maintained, Plenkovic stressed in a statement.

The latest decision by Fitch Ratings also confirms the stable outlook for future trends. The agency underlines the importance of political stability and fast government formation following the HDZ party's victory in the July 2020 parliamentary election, as well as the adoption of the budget for 2021 and the fifth round of the tax reform.

"The fact that our credit rating has been kept in the investment category confirms that during the coronavirus pandemic we have managed to maintain economic stability without major imbalances, made progress on the journey to the euro area and joined the ERM II and that we have provided high amounts of aid to the private sector to preserve jobs. We are continuing to pursue a prudent fiscal policy, focusing on further reforms and reduction of the tax and administrative burden so as to improve the business climate and boost investment," Plenkovic said in the statement.

He noted that quality crisis management had shown that Croatia was able not only to have its rating kept in the investment category with Fitch and Standard&Poor's but also to make progress with Moody's as the most conservative credit rating agency.

Fitch expects Croatia's GDP to drop by 9% in 2020 as a consequence of the coronavirus pandemic. In 2021 it expects a moderate growth at a rate of 3.8% and in 2022 it forecasts that growth will pick up to 6%, which will also be owing to EU funds, whose contribution is estimated to account for two percentage points of economic growth in 2022.

Fitch believes that Croatia's entry to ERM II in July this year has contributed to the rating having stayed in the investment category and says that it could upgrade it by two notches between admission to the ERM II and joining the euro area.

In 2020 Fitch expects an 8% budget deficit. The budget deficit is expected to go down to 3.5% of GDP in 2021 and further to 2.2% in 2022. This confirms that the government has continued to implement a stable fiscal policy for which Fitch says that it has been yielding results above fiscal targets since 2016.

Fitch's decision to affirm the country's credit rating is also owing to more than €24 billion having been made available to Croatia from the EU's Multiannual Financial Framework and Recovery Plan in the coming decade.

The government recalls in its statement that Fitch had kept Croatia's credit rating outside the investment category from August 2014 to June 2019, when it was returned to the investment category where it has stayed since.

Tuesday, 17 November 2020

Credit Rating Raise Isn't Due to Croatian Economic Success

As Novac/Gojko Drljaca writes on the 16th of November, 2020, any raise in a credit rating in a situation where much of Europe is sliding towards a new recession carries with it some extreme weight. This is Moody's message that comes with the fact that Croatia has managed to improve its unenviable previous position. What does this raise say, or not, about Croatian economic success?

Since Moody's kept Croatia at Ba1, which is the highest so-called non-investment rating, one should remain realistic and say that this rating improvement is not a message that the country has suddenly become an investment paradise in which it is wise to invest huge money. Croatia remains a country with a rating level that indicates very high risks for investors, but improving that outlook at the hands of a very conservative agency is a sign that Prime Minister Andrej Plenkovic's government has weighed up key public policies quite well. That's excellent, but in fact ,nothing significant has happened yet where it should have, and that is with the economy.

Persistence in joining the Eurozone, joining the European Exchange Rate Mechanism, announcements of reforms, preparations for the banking union, followed by a few more announcements about reforms… doesn't sound particularly exciting, but it is important proof that the Croatian authorities haven't lost their orientation in this unexplored territory of increasingly difficult economic challenges. Croatia has been a part of Europe struggling with low growth potential since the 2008-2009 crisis. The crisis caused by the 2020 pandemic has only exposed the structural problems of a number of European economies that have been accumulating over the last 20-30 years. If, from these perspectives, you get a thumbs up for current economic and financial policy, it means that, fortunately, we live in a country that will remain manageable even after the pandemic enters the history books.

It seems, and let's emphasise it again, that the improvement in Croatia's rating shouldn't be attibuted so much due to some sort of concrete Croatian economic success but to the fact that two Croatian institutions, the Ministry of Finance and the Croatian National Bank, have garnered a critical level of expertise over the years which has allowed us, if nothing else, to sell a sustainable story about Croatia's plans for the future to the European Commission, all relevant bodies of the Union, as well as credit agencies. However, the persuasiveness and professionalism of the Ministry and the CNB is not in itself a guarantee of success.

The second wave of the pandemic has already stopped any economic recovery in a situation when the country's GDP in the first nine months is a huge 8.3 percent lower than it was last year with general government debt of 82.5 percent of GDP, which, for a country like Croatia, is simply too much.

Although the Croatian Government expects huge sums of money from the EU's recovery fund, as well as from the medium-term financial framework, the consequences of the crisis caused by the pandemic will be a challenge we have not yet faced. Many forget that our European environment has changed dramatically and that in 2021 we could see a fierce struggle for economic survival. In such a situation, a high level of professionalism in the Ministry and the CNB will not be enough for agencies and investors to look favourably upon a small country with some kind of perspective.

For example, if Greece is currently preparing amendments to its tax laws that will make it a more attractive destination for living and investing, Croatia can no longer afford to maintain the misconception that we can count on high growth rates with this level of tax pressure.

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Sunday, 20 September 2020

Minister Says Credit Rating Result of Govt's Consistent Macroeconomic Policy

ZAGREB, September 20, 2020 - Economy and Sustainable Development Minister Tomislav Coric said on Saturday that Standard&Poor's agency having affirmed Croatia's credit rating of BBB- was a result of the government's consistent macroeconomic policy in recent years and the political stability it had created.

"It is a fact that we introduced clear measures also during the election period, on the one hand to preserve jobs and on the other to maintain the economy's liquidity. The GDP drop, despite a very large share of tourism in GDP, is smaller than was projected and our recovery from the crisis and return to the level of 2019 will happen somewhat sooner," Coric said in an interview with the RTL broadcaster.

"In the coming period we will be continuously monitoring economic trends and we are confident that we will respond appropriately if necessary," he said.

Commenting on President Zoran Milanovic's statement that estimates by credit rating agencies were obsolete, Coric said that "(Milanovic's) economic advisors evidently did not brief him appropriately."

"Rating agencies' forecasts do not refer only to interest rates and cheap money, which is what he was talking about, but also to a country's adequacy for doing business and finally, for the overall economic relations in the country. That is why those estimates are very much relevant for all potential investors in Croatia," he said.

Commenting on corruption scandals involving members of his HDZ party, Coric said that "corruption affects most systems."

One should fight corruption continually, the minister said, adding that he believed the legislative changes and the action plan and strategy for the fight against corruption, announced by Justice and Public Administration Minister Ivan Malenica, would help make progress in that regard.

He also underlined the importance of making the spending of budget money more transparent.

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Saturday, 23 September 2017

S&P Keep Croatia's Credit Rating at BB, Outlook Improved to Positive

Croatia's rating could be raised even more if economic recovery continues.

Sunday, 13 March 2016

Economists React to Credit Rating Downgrade

Analysts say that the main problem is that there are no structural reforms being implemented