Fitch rates Croatia eurobond BBB-

Fitch Ratings said it has assigned the Republic of Croatia's forthcoming eurobond a long-term foreign currency BBB- rating with a positive outlook. The bond is expected to total €500 million, with a maturity of 10 years.

Fitch noted that Croatia's new HDZ-led government needs to address a series of political and economic reforms at an early stage in its mandate. On the political front, the key focus is on bolstering the country's bid to join the European Union by securing an invitation to commence accession talks.

Recent weeks have seen EU officials tone down their misgivings regarding Croatia's relationship with the war-crimes tribunal in The Hague, but key member states such as the U.K., Italy and Netherlands are still unhappy with Croatia's cooperation and continue to prevent the unanimous ratification of Croatia's association agreement. This remains the key political obstacle to Croatia joining the EU by 2007 in Fitch's opinion, with other factors such as minority rights and the return of refugees likely to be of secondary importance.

Fitch said the government must also engineer a consolidation of public finances. Fiscal slippage in late 2003 meant that the budget deficit target for last year was overshot by roughly 1% of GDP, closing at 5.5% of GDP. Consequently, general government debt also grew, to 45.1% GDP (excluding guarantees) or 53.1% GDP (including guarantees).

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