The credit rating agency Dun & Bradstreet has reported that Croatia's credit rating remains the same, putting the county among those with a slight risk of investment.
In its latest International Risk & Payment Review, D&B pointed out that the the Croatian parliament adopted the 2011 budget, projecting 1.5% economic growth and a deficit of 4.3% if GDP. D&B also noted that the budget envisaged maintaining expenditures at the 2010 level.
"In order to cover the budget shortfall and service maturing debts, the government announced plans to issue sovereign bonds worth HRK 20.6 billion, on both foreign and local markets and to secure the remaining amount through loans," D&B said.
Although the government is not likely to have problems raising funds in capital markets, the rising foreign and public debts (and most importantly lack of a credible fiscal consolidation plan) will affect the borrowing cost amid an increase in investor risk aversion induced by the euro-zone debt crisis.
D&B also pointed to the negative sides, namely that the budget was heavily influenced by electoral considerations and, as with the budget revision in late August 2010, the government once again failed to make a change to its economic policy and enforcing much needed structural reforms which could have contributed to an improvement in the investment climate.
D&B also underlined that general elections are due in November 2011, adding the coalition government which survived a no-confidence vote in late October 2010 was still losing public support. D&B also said that the popularity of Prime Minister Jadranka Kosr and her Croatian Democratic Union (HDZ) was dwindling.
"HDZ party's chances of winning the majority of the popular vote, and of forming a new coalition government," D&B said, adding that tensions are set to increase owing to the election climate, while in-fighting within the HDZ would further weaken government stability.
D&B also highlighted that in November Croatia took another step closed towards finalising its EU accession negotiations by closing talks on three more chapters, adding that the EU applauded Croatia's overall progress.
D&B stresses that the country needs to accelerate the fight against organised crime and corruption, intensify judicial and administrative reforms and boost protection of minorities.
It expects Croatia to be able to wrap up accession talks by the end of 2011 and join the bloc in 2012.
