Fitch: Croatia to negative

Fitch Ratings said it affirmed Croatia's long-term foreign-currency issuer default rating at BBB- and long-term local-currency issuer default rating at BBB, along with its country ceiling at BBB+ and short-term rating at F3.

The outlook was revised to negative from stable.

Croatia's recently-announced draft 2013 budget proposes an increase in the consolidated general government's fiscal deficit from an estimated 3.5% of GDP in 2012 to 3.8% of GDP in 2013, Fitch said.

Some spending and revenue items are included in the budget which were previously off-budget, the agency added.

The new budget contradicts the medium-term fiscal strategy outlined in July and also calls into question the credibility of the new fiscal responsibility law, which calls for an annual cut in spending of 1% of GDP until a primary balance is achieved, Fitch said. The agency said it previously assumed that the government would follow through with its July plan.

The public finances remain a key rating driver and Fitch said it considers a credible medium-term fiscal consolidation plan to be necessary to put debt dynamics on a sustainable path.

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