This international credit rating provider said on Friday that its decision to change the outlook to negative was driven by "the heightened uncertainties about Croatia's short- and medium-term economic growth prospects arising from an impaired economic model and an export sector that is constrained by the significant uncertainty about the depth and duration of the ongoing euro area recession" as well as by "the high implementation risks to the government's fiscal deficit reduction plan, which is aimed at returning the government's finances to a sustainable path."

"Concurrently, Moody's has today also revised to negative from stable the outlook on the A1 country ceiling for foreign-currency bonds as well as on the Ba1 country ceiling for foreign-currency deposits,"

"The country ceilings for local-currency debt and deposits remain at Aa1 and A1, respectively," the agency reported.

"Although unlikely in the short term, Moody's would consider changing the rating outlook on Croatia back to stable in the event that a significantly improved fiscal position and growth outlook could be achieved without further exacerbating external vulnerabilities," it added.

"Moody's would consider downgrading Croatia's sovereign ratings in the event of a further deterioration in the growth outlook and a failure to implement the fiscal consolidation plan over the medium term. While Moody's does not anticipate immediate pressures from risk factors other than those discussed above, the rating agency notes that further downward pressures on Croatia's rating could be exerted by potential adverse developments in the banking sector, such as reduced funding support from western European parent banks to their Croatian subsidiaries."

"Foreign banks control around 90% of the banking system and thus far have been supportive of their operations in Croatia. Moody's further notes that there are currently no signs of significant retrenchment on the part of the parent banks, but believes that this risk could increase if challenges facing the banking systems of western Europe intensify," the agency said..

With today's decision, Moody's equated its assessment with credit ratings given to Croatia from the other two rating agencies: Standard & Poor’s and Fitch Ratings.

Standard & Poor’s awarded Croatia with "BBB-" with negative outlook, and in early March the Fitch agency affirmed Croatia's long-term foreign currency rating at BBB- and local currency rating at BBB with the outlook remaining negative.