Croatia’s Rating Outlook Cut to Negative by Moody’s on Deficit

Croatia’s rating was cut to negative by Moody’s Investors Service as the government struggles to reduce debt and the economy remains mired in a recession.

Moody’s lowered the outlook on Croatia’s Ba1 grade from stable, the ratings company said in a statement. The ranking is one level below investment grade and on par with that of Hungary and Slovenia.

Croatia, whose $63 billion economy hasn’t grown since 2008, is facing rising borrowing costs as the government struggles to boost revenue while lowering an unemployment rate of 23 percent. Moody’s outlook cut followed a similar move by Fitch Ratings in February. Standard & Poor’s reduced Croatia’s rating by one level to BB, two levels below investment grade, in January.

“Croatia’s impaired medium-term economic outlook” and the “growth-dampening effect” of lowering debt contributed to the outlook change, Moody’s said in the statement.

Moody’s estimated that Croatia’s government debt is equal to 66 percent of gross domestic product, up from 29 percent in 2008. The debt is unlikely to converge to the median of 45.5 percent among similar-rated countries in the near term, Moody’s said.

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