Apart from downgrading Croatia's long-term credit rating, S&P affirmed its A-3 short-term credit rating and retained a negative outlook.

The ministry recalled that S&P justified the downgrading with Croatia's deteriorated fiscal position, considerable dependence on foreign financing, limited international competitiveness owing to a large public sector, high tax burden, poor business climate, as well as to delayed reforms aimed at removing structural weaknesses, the possibility of further fiscal deterioration and reform delay in election year 2011, and the growth of the national debt owing to guarantees to the shipyards, which are estimated at four per cent of GDP.

On the other hand, the agency says the overall stability of the financial system, the good capitalisation of the banking system and the Jadranka Kosor Cabinet's fight against corruption could be positive factors, according to the ministry.

The ministry said the global economic crisis had an equally strong impact on the fiscal deterioration and state debt growth in most European countries, resulting in downgraded credit ratings on many, including 10 in the European Union.

The ministry recalled that according to S&P, budgetary consolidation, debt reduction, and reforms contributing to improved competitiveness could be positive for S&P's ratings for Croatia.

Those elements are addressed by fiscal projections for 2012 and 2013, adopted alongside the 2011 state budget, and by the Fiscal Responsibility Act.

In order to raise competitiveness, the government's economic recovery programme includes numerous measures for improving the investment and business climate, the ministry said.

According to the Croatian National Bank, the last time S&P gave Croatia a BBB- long-term credit rating with a negative outlook was in June 1999. This rating was retained in February 2001, but with a stable outlook. Before the latest downgrade, Croatia's long-term credit rating with a negative outlook, since October 2008, had been BBB.