EU accession should bring tangible benefits to Croatia, but also competition from other EU countries in attracting foreign investments, which makes the need for structural reform more pressing, Fitch ratings agency warned on Tuesday.
"Unconfirmed reports that the new government (...) is weighing up options such as a VAT increase, suggest that it is more committed than its predecessors to the fiscal consolidation needed to avoid a downgrade. But we have yet to see a detailed fiscal and economic programme that will form the basis for our review of the rating in the first quarter of the year," the agency said.
"EU accession could strengthen governance, unlock substantial external financing sources, boost foreign direct investment and increase Croatia's attraction for export-orientated foreign businesses. The weekend's referendum result therefore sends a positive message to investors.
"But these benefits are not automatic. Industries such as shipbuilding need to become more competitive to attract foreign direct investment, in competition with other EU member states. The prospect of EU membership therefore increases rather than decreases the need for structural reforms to improve the business environment and support economic growth," it added.
Fitch said that its negative outlook on Croatia's BBB- rating already reflected the risks posed by the country's large budget deficit, rising government debt ratio, and weak growth.
