Fitch Cuts Croatia's Credit Rating

Rating agency Fitch cut Croatia's credit grade by one notch Friday, after the government said it could miss its budget deficit target this year.

Fitch cut the rating to "BB" from "BB+", with a stable outlook.

"Fitch believes there are increasing risks regarding Croatia's ability to stabilize its high public debt to GDP ratio over the medium term," it said.

Early in the year the government projected it could reduce its deficit to 3.8 percent of GDP from 4.9 percent last year, to meet European Commission targets.

But recently the government admitted it would not likely be able to meet the target, Fitch said.

Fitch said it expected that the country, the European Union's newest member but also one of its weakest economies, would only make the deficit target by next year.

"Preservation of sovereign creditworthiness depends on the government's willingness and ability to deliver 3 percent to 5 percent of GDP of fiscal adjustment that would put public debt on a sustainable downward path and restore budget balance," the agency said.