The Fitch global rating agency on Thursday revised Croatia's outlook from stable to negative, ascribing the new rating to the slower consolidation of the state budget.
Fitch also affirmed the country’s Long-term foreign-currency Issuer Default Rating (IDR) at 'BBB-' and Long-term local currency IDR at 'BBB'.
Public finances continue to be the key to the country's credit rating, the agency said noting that the recently-announced draft 2013 budget brings into question the credibility of medium term fiscal consolidation which is vital to put debt dynamics on a sustainable path.
Fitch cautioned that the draft 2013 budget proposes an increase in the consolidated general government's fiscal deficit from an estimated 3.5% of GDP in 2012 to 3.8% of GDP in 2013.
Changes to fiscal plans in the first year of its term in office has reduced the government's credibility of its fiscal strategy, Fitch notes in a statement.
Croatia's outlook in September was raised to stable based on announcements by the government's medium-term fiscal consolidation strategy in line with the fiscal Responsibility Law which calls for an annual cut in spending of 1% of GDP until a primary balance is achieved, Fitch explain in its statement.
"Preserving the investment grade rating requires Croatia to stabilise the public debt over the medium term and start to reduce it. Revised fiscal targets are barely consistent with this", Fitch's statement says.
