Croatia will make limited use of its admission to the European Union, set for 1 July, unless it improves its labour market and eliminate obstacles to investments, media have reported citing a warning from the Fitch credit rating agency.
"While accession to the EU in July should be positive for the growth outlook, benefits will be limited in the absence of a credible medium-term fiscal consolidation program and convincing movement on the structural reforms agenda," Michele Napolitano, director of global sovereigns and supranational at Fitch, said in an e-mailed response to Bloomberg questions.
Fitch is the only major credit rating company that still judges Croatia's debt at investment level, and in November changed its outlook for Croatia to negative from stable, while maintaining the lowest investment grade of BBB-.
"The country's credit rating was cut to junk by Standard & Poor's in December, followed by a similar cut by Moody's Investors Services in February. Both credit rating companies cited a stalled recovery, lack of budget discipline and vulnerability to external shocks as reason for downgrade," Bloomberg reported.
"Despite the recent cut in public wages, the government appears to lack the appetite for bolder structural reforms, particularly in the labor market," Napolitano was quoted as saying.
The government's fiscal financing needs for this year seem "manageable," while public and external debt ratios remain high and increase the country's vulnerability to external shocks, Napolitano added.
According to a closing statement of an International Monetary Fund delegation that visited Croatia in late February, Croatia's public debt is expected to exceed 60 percent of economic output by late 2014.
