Fitch upgrades Croatia’s credit rating to ‘A-‘

Fitch upgrades Croatia’s credit rating to ‘A-‘

Fitch Ratings has upgraded Croatia’s Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) from ‘BBB+’ to ‘A-‘, highlighting the country’s robust economic growth, prudent fiscal management, and increasing integration with the eurozone.

The outlook remains stable, signalling continued confidence in Croatia’s financial health. This upgrade reflects a combination of factors, including solid economic performance, significant debt reduction, and Croatia’s effective utilisation of European Union (EU) funds, all contributing to a positive economic trajectory, Fitch has said.

Key Drivers of the Rating Upgrade

Fitch upgraded Croatia’s credit rating based on its strong economic performance, fiscal discipline, and successful use of EU funds. Croatia’s GDP per capita rose significantly, reaching 76% of the EU average by 2023, largely due to rapid absorption of EU funds, rising wages, and deeper integration with the eurozone.

The country’s real GDP exceeded pre-pandemic levels by 19% by mid-2024, and future growth is projected to outpace other eurozone economies, driven by strong domestic demand and continued EU funding.

Croatia has also made significant progress in reducing its public debt, which fell to 63.1% of GDP in 2023 and is expected to decline further. The government is committed to maintaining fiscal discipline and plans broader tax reforms to ensure long-term sustainability.

Croatia is on track to meet the Maastricht criteria by 2024, with a focus on keeping public debt below 60% of GDP and maintaining a fiscal deficit under 3%.

The country’s economic resilience is further supported by the effective use of EU funds and ongoing institutional reforms. Croatia leads in absorbing EU Recovery and Resilience Facility (RRF) funds and aims to fully utilize these by 2026, which will drive continued growth.

Split

The government’s reform agenda addresses key areas such as demographics, digitalization, decarbonization, and state-owned enterprise reform. However, Croatia still faces challenges, including its lower GDP per capita compared to ‘A’ rated economies and exposure to external shocks due to its small size.

Croatia’s banking sector remains stable, with improving asset quality and declining non-performing loan ratios. Reforms in response to concerns from the Financial Action Task Force (FATF) have bolstered the sector’s resilience, particularly in anti-money laundering efforts.

Despite certain vulnerabilities, Fitch believes Croatia is well-positioned to sustain its economic growth and fiscal stability.