Moody's rating agency on Friday downgraded Croatia's credit rating to Ba1 from Baa3, due to a stalled economic recovery and a lack of fiscal flexibility in government policies.

The rating agency at the same time brought Croatia's outlook from negative to stable.

"The government's capacity to re-balance the economy toward exports is intrinsically limited," Moody's said in a statement.

"The government's fiscal metrics are also weaker, with general government debt exceeding those of Baa3-rated countries," it said.

Standard & Poor's reduced Croatia's rating to junk last December and Fitch lowered its outlook from stable to negative last November.

Xinhua