S&P Downgrades Croatia's Credit Ratings To 'BB'

Standard and Poor's on Friday lowered its long-term sovereign credit ratings on Croatia, citing continuing recession and limited fiscal consolidation efforts.

The rating agency lowered its long-term foreign and local currency sovereign ratings on the Republic of Croatia to 'BB' from 'BB+'. The short-term ratings was affirmed at 'B'. The outlook is 'stable.'

S&P expects the Croatian economy to go through a sixth consecutive year of recession in 2014. The downgrade also reflected the agency's view that the economic and budgetary policy measures that the government has introduced so far have been insufficient to foster economic growth and place public finances on a more sustainable path.

In addition, limited fiscal consolidation efforts and an upward revision in fiscal statistics are underpinning a rapid increase in government debt and interest burdens, S&P observed.

It also noted that the short-term benefits of EU accession are being constrained by a lack of internal growth drivers stemming from ongoing policy inertia and policy constraints to fiscal and structural reforms, and leveraged public- and private-sector balance sheets.

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