Croatian results have no impact on ratings

Standard & Poor’s Ratings Services said today that the results of the post-election talks that will determine who forms the next Croatian government will not have a direct impact on the sovereign credit ratings on the Republic of Croatia (foreign currency BBB/Stable/A-3, local currency BBB+/Stable/A-2).

Both main parties, The Croatian Democratic Union (HDZ) and the Social Democratic Party (SDP), are working towards forming a coalition and winning a mandate to form government. The president of the Republic, Stjepan Mesic, has announced that he will give the mandate to whichever party comes forward with convincing evidence of a strong coalition that will have a majority in parliament.

Both the parties have a strong commitment to EU membership, which acts as a policy anchor, and, regardless of who forms government, the outlook on the ratings on Croatia is stable. The outlook balances the ongoing improvements to the sovereign’s fiscal accounts and the ongoing stabilization of the external debt dynamics against the structural changes still needed to make these improvements sustainable in the long term. An upgrade will require continued fiscal consolidation and sustained progress with structural reforms. Conversely, a loosening of fiscal consolidation, or a lasting reversal of the external debt dynamics, could create downward pressure on the ratings.