Fitch rates Croatia's rating at 'BB' with negative outlook

The ratings agency Fitch gave Croatia a rating of 'BB', below investment grade, with negative outlooks, local media reported on Saturday.

"The ratings balance Croatia's high government and external debt loads and weak growth performance, against favorable governance indicators and relatively high per capita GDP," the agency said in a statement.

The agency forecast its growth to reach 1.8 percent this year and average 1.9 percent in 2017-18. But public debt remains high this year and is forecast to reach 86.3 percent of GDP in 2018.

"Croatia's low potential growth rate reflects a large and inefficient public sector, slow resolution of bad loans, weak progress on structural reform and a challenging demographic outlook," it said.

Fitch viewed political instability could further damage Croatia's economy which just emerged from a six-year recession. Last month, the five-month government lost a no-confidence vote and an early election has been set for Sep.11.

However, Fitch believed that none of party would win an outright majority in the coming election. Moreover, a coalition government may not prove durable, as demonstrated by the previous coalition between Croatian Democratic Union (HDZ) and MOST.

Political risk had risen since last review in January 2016, it said.

Earlier, two other leading rating agencies, the Standard & Poor's and Moody's had kept Croatia's rating two notches below investment grade with a negative outlook. Endit