Political instability in Croatia after the government lost a no-confidence vote last week is lamentable and could do fresh damage to its long-suffering economy, Reuters quoted an analyst of the rating agency Standard and Poor's (S&P) as saying on Tuesday.
S&P rates Croatia BB, below investment grade, and has a negative outlook on its debt, but the country has emerged from a six-year recession - one of the world's longest downturns - and its crucial tourist industry is booming, says Reuters.
That recovery is threatened by the government's collapse after the HDZ party, the dominant member of Croatia's ruling coalition, forced the no-confidence vote on June 16 . HDZ failed to form a new cabinet on Tuesday, and Croatia is now preparing to hold a snap election, says the agency.
"The economy appears to have now found a bottom and it also appeared that the current government was getting under way to address some of the underlying issues that have led to weak performance," S&P's top EMEA sovereign rating analyst, Moritz Kraemer, told the Reuters Global Markets Forum.
"It is therefore, all the more lamentable that the government instability may put those green shoots at risk," Reuters quotes Kraemer as saying.
S&P is next due to review Croatia's rating on July 15, the same day as Moody's.
Moody's top European analyst, Dietmar Hornung, added his firm was keeping a close watch on the situation, too. It had already downgraded Croatia to Ba2 negative earlier this year.
"We have a negative outlook, which reflects that the risks are tilted to the downside, and we are monitoring how things evolve," Hornung told Reuters.
"That said, with respect to some high-frequency indicators and developments in the tourism sector, there are also some positive data points," he said.