Standard and Poor's: The BH credit rating remains the same

The international rating agency Standard and Poor's (S&P) has confirmed the credit rating of Bosnia and Herzegovina, "B" with a stable outlook. Analysts point out that the stable outlook is based on an assessment of the balance between fiscal and external risks associated with the effects of COVID-19 on BH economy on the one hand, and, on the other hand, the implementation of structural reforms and expectations of stronger economic growth in the medium term.

The rating agency Standard and Poor's states that the foreign exchange reserves of the Central Bank of Bosnia and Herzegovina (CBBH) in 2020 increased by 10% in gross nominal amount compared to 2019. The BH banking system has coped well with the effects of the pandemic. Domestic deposits grew during 2020, without the conversion of KM domestic currency savings deposits to foreign currency deposits.

Analysts further state that during 2020, a smaller decline in economic activities was recorded than previously projected, with industrial production in December 2020 being 2.8% higher than in December 2019. It is estimated that the decline in economic activity compared to 2019 is 4.8% while previously was projected at 6.0%. GDP growth of 2.5% is projected in 2021, with the expectations that Bosnia and Herzegovina's GDP is not to return to 2019 levels before 2022.

Complex institutional organization in BH often involves complicated, untimely and uncoordinated responses to a pandemic. As a consequence, the immunization process is slow, which could have a crucial impact on the expected economic recovery. The net debt of the general government of BH is expected to increase to 31% of GDP at the end of 2021, which is still considered moderate debt for developing countries.

According to S&P analysts, Bosnia and Herzegovina's credit rating could be raised if domestic policy discussions and activities focus more on promoting economic growth and structural reforms, with a higher level of consent and less confrontation. An arrangement with the International Monetary Fund (IMF) would make a significant contribution in that regard. Stronger economic growth than projected would also contribute to an increase in the credit rating.

On the other hand, analysts say that a credit rating downgrade could occur if the economic and budgetary costs of the pandemic are higher than currently projected " and if, in a hypothetical scenario, the stability of the domestic financial system weakens significantly in the event of a long-term deterioration in asset quality and the KM deposits conversion in foreign currency assets ".