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Capital Markets

Croatia: Government hunts for new funds

New Eurobond set to test market sentiment; State sales planned to boost local stock market

Foreign bond issuance and domestic privatizations are likely to form the core pillars of the Croatian government’s plans to prop up the financial fortunes of the European Union candidate state, which hopes to wrap up accession negotiations by the end of June. Although Croatia entered into recession later than many of its central and eastern European peers the authorities in Zagreb have so far found no way to revive the country’s moribund economy.

According to provisional data, GDP shrank by 1.5% in 2010, having slumped by 5.8% in 2009. With parliamentary elections scheduled for November the tripartite right-wing coalition headed by the Croatian Democratic Union party is keen to engineer an economic recovery this year in order to ensure its re-election. Of particular concern is unemployment, which in January surpassed 334,000, the highest figure for almost a decade and up over 150,000 since the start of 2009.

The government’s faltering economic performance has already attracted negative criticism from international financial institutions and rating agencies. In December, Standard & Poor’s cut its rating for the sovereign from BBB to BBB–, just one notch above junk status. The downgrade will likely affect the pricing of a new €750 million Eurobond that will refinance a similar-sized issue that matures in March.

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