The S&P Global Ratings agency on Friday affirmed its 'BB' long-term and 'B' short-term foreign and local currency sovereign credit ratings on Croatia. The outlook remains negative.
The agency anticipates "that the weak recovery of the Croatian economy will continue, despite political uncertainties following the breakup of the ruling coalition."
"However, the ratings are constrained by what we now view are less predictable policy responses to fiscal pressures and structural imbalances as well as Croatia's high and growing government debt burden. We expect the external imbalances will recede further, but structural economic problems, demonstrated for instance by the state's dominant and inefficient role in the economy, are unlikely to change without an effective government," according to the explanation offered in the rationale for the latest rating of Croatia.
"Croatia's economic growth is strengthening and public finances are consolidating faster than we previously forecast," S&P said in its report.
"The collapse of Croatia's ruling coalition after only six months in power is weakening our view of Croatia's institutional strength, as it risks derailing fiscal consolidation, structural reform efforts, and the economic recovery."
The negative outlook continues to reflect the agency's view that "there is at least a one-in-three possibility that we could lower our ratings on Croatia in the next six months."
All three leading ratings agencies -- Moody's, Fitch and Standards&Poor's -- keep Croatia's rating two notches below the investment level with a negative outlook.