Fitch Ratings revised its outlook on Croatia to positive from stable and affirmed its BB+ long-term foreign-currency issuer rating.
The rating agency said Croatia had outperformed its budget target in the last two years and expects the European nation to run a budget surplus of abound 0.4% of GDP in 2018, exceeding the government's own target of a 0.5% deficit of GDP. The agency also expects a balanced budget for 2019, compared with the country's target of a 0.4% deficit of GDP.
Persistent primary budget surpluses, low interest rates and robust GDP growth will lead to a continued reduction in Croatia's general government debt, according to Fitch.
Croatia's public debt-to-GDP ratio declined by 2.7 percentage points to 77.5% at the end of 2017 from a peak of 84% at the end of 2014. The agency expects the ratio to further fall to about 71% by the end of 2019.
Fitch also cited Croatia's continuing current account surpluses, which, along with net equity FDI and EU capital inflows, are leading to a decline in the country's net external debt and an increase in foreign exchange reserves.
The agency expects the country's current account surpluses to average 2% of GDP over 2018 to 2020 from 4.3% last year, and the NXD to GDP ratio to fall to about 22% at the end of this year from 33% at the of 2017.
"The balance of payments in combination with the central bank's managed exchange rate regime against the euro is leading to a rise in foreign exchange reserves, which Fitch forecasts to reach around US$20 billion by end-2018," the rating agency said.