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Announcement of Croatia’s adoption of Euro could raise credit rating Canva

Announcement of Croatia’s adoption of Euro could raise credit rating

Written by  Jun 25, 2022

Moody's announced that it could raise Croatia's credit rating to the investment category following the EU's recommendation to join the eurozone.

Croatia's current rating of 'Ba1' signals to investors that the agency considers the purchase of Croatian government bonds a speculative investment.

Moody’s announced on Friday that it would raise it by two levels, to ‘Baa2’, in the investment category.

The rating will be raised after an analysis that should allow the agency to assess whether the process of formalizing Croatia's membership in EU law will be completed in mid-July, as currently expected, according to a statement issued Friday.

Moody’s signalled a rating rise after the EU’s Financial and Monetary Policy Council recommended Croatia’s entry into the eurozone on June 17 early next year, and EU leaders adopted the recommendation at a summit on June 23rd and 24th.

 

The adoption of the euro would have significant positive implications for Croatia's credit profile, and would primarily reduce the share of public debt denominated in foreign currency from 70 percent to zero, Moody's points out.

"This, in turn, would significantly improve our assessment of government fiscal strength, a key factor in the assessment, as it would eliminate the risk of increased debt as a share of GDP in the event of a depreciation of the currency, and would significantly reduce borrowing risks," the agency added.

Although the Croatian economy is already largely integrated into the eurozone economy, and the Kuna exchange rate is pegged to the euro, joining the eurozone would bring additional benefits of reduced transaction costs and elimination of remaining foreign exchange risks in transactions with the eurozone.

This is likely to further boost economic integration and foreign direct investment in Croatia and support long-term growth potential.

The adoption of the euro will also reduce foreign exchange risks for the banking sector and have a positive impact on Moody’s assessment of government liquidity and vulnerability to external risks.

Moody’s also positively evaluates Croatian institutions, reminding that Croatia spent only two years in the ‘waiting room for the euro’.

The Voice of Dubrovnik

THE VOICE OF DUBROVNIK


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