Moody's Investor Service has cut Croatia's credit rating to junk status, citing a stalled economic recovery and low budget discipline, just months before the country is due to join the European Union.

Croatia's government bond rating was reduced from Baa3 from Ba1, according to a Moody's statement Friday. It also reduced the Balkan country's outlook from stable to negative.

Croatia is set to join the EU on July 1.

"The country's expected forthcoming EU accession in July 2013 is a positive development," Moody's statement said. "However, the European environment and the government's reform inertia are likely to limit the benefits normally expected to arise."

Standard & Poor's reduced Croatia's rating to junk in December while the other major ratings agency, Fitch, changed its outlook from stable to negative in November.