Finance Minister Zdravko Maric said on Saturday the government was aware of Moody's warning, and that it would not repeat the mistakes from the past -- constant hesitations and reform delays -- adding that he expected that by adopting the budget, Croatia would send a message that political stability had been achieved.
"The government and everyone who cares about Croatia can be satisfied with the decision to lower the credit rating," Maric told the press after Moody's on Friday lowered Croatia's ratings by one notch. Maric said that all three leading ratings agencies now kept Croatia's rating two notches below the investment.
Moody's decision is the result of constant hesitations and delays in implementing certain measures and activities, the minister said.
"This government is entirely aware of this (...) this is a clear warning (...) and we will not repeat that mistake again. A reform package and measures we set for ourselves to implement will be carried out completely. And what is more important, we will not only carry our what we planned but we will fix the credibility of Croatia's policy and the country in general on the international front," Maric said.
Last week the government unveiled the draft 2016 budget which is based on a 2% economic growth this year, reducing the budgetary deficit to bellow 3% of GDP and stabilising the public debt share in GDP.
The agency has not taken all elements and aspects of the budget into account, the minister said. It's decision includes certain elements of political economy and we can understand that, but we are confident that this budget will be the first test of this segment, Maric said.
The minister said he was confident the budget would be passed in parliament. "Among else, the budget is a clear indicator of government's plans this year as well as in the years to come, namely how to strengthen the potential of Croatia's economy and stabilise public finances through structural reforms and measures," Maric said.
He said that the 2016 draft budget, for the first time since 2008, projected the deficit to fall below 3% of GDP. "This, along with the activation of state property which we plan to accelerate this year, will help stabilise the public debt and reduce it in the coming years," Maric said.
He said that Moody's and other ratings agencies, as well as the investors, had listed that as a priority, adding that the government was aware of that.
The minister recalled that the European Commission also issued similar demands and recommendations. "However, the European Commission took into account the budget and measures we are planning to take and you know what decision it had made in the end," Maric said.
The European Commission said recently Croatia had for now escaped corrective action over excessive economic imbalances and that it would reconsider its assessment of Croatia in May to take into account the ambitiousness of their national reform programmes, which Croatia needs to submit by the end of April.
"Our projections are realistic and sustainable. This draft budget aims at lowering the deficit to below 3% of GDP," Maric told reporters when asked to comment on Moody's projection of this year's budgetary deficit of 3.9% of GDP.
He underscored that one should look a step ahead.
It is exceptionally important to execute the budget within the planned deadlines, continue and accelerate measures of structural nature so that we could stabilise the prospects for Croatia's ratings this year and that improve the country's ratings in the years to come, Maric said.
Asked if the lowered ratings would affect Croatia's borrowing, Maric reiterated that this year the government would be active on the domestic and foreign markets and that it would monitor the situation on those markets.
The minister said he expected the budget to be adopted next week or the week after that, adding that the government would, this way as well, send out a clear message that there was a political stability.
I believe this is a clear message to all -- the ruling parties and the Opposition -- that all of us together must think of the credibility of Croatia's policy and that our words carry certain weight, Maric said urging a constructive solution.
Moody's Investors Service, a ratings agency, on Friday downgraded Croatia's long-term issuer and senior unsecured debt ratings to Ba2 from Ba1 and maintained the negative outlook, explaining that the main rationales for the downgrade are a large and increasing public debt and weak medium-term growth prospects.
Moody's said that one of the key reasons for the lowering was the government's large and increasing debt burden which stood at around 86% of GDP at year-end 2015. Moody's expects it will increase to above 90% by 2018.