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

The international rating agency Standard and Poor's (S&P) has affirmed Bosnia and Herzegovina's current credit rating, "B" with a stable outlook.

The explanation of the analysts of the agency "Standard and Poor's" states that the political tensions in BH are the consequences of the Republika Srpska (RS) announcement that it is preparing to withdraw from several state institutions. Analysts expect tensions to ease, and political structures to remain largely unchanged in BH. Permanent uncertainty, according to their assessment, could negatively affect the growth, which would amount to 2.7% in 2022, while in 2021 the projected growth is 6.7%. The positive circumstance is that the net debt of the general government of BH remains low, below 30% of the GDP, which gives room for action in fiscal policy, even if political events affect the credit lines of international financial institutions.

Analysts point out that the "stable outlook" is based on a balance between negative risks stemming from BH's complex and confrontational political policies in BH over the next 12 months, and on the other hand, a relatively strong economic base, such as general government net debt, improved external position and banking sector resilience.

The report states that BH's economy in 2021 has benefited from strong exports, especially to the EU, where most of BH's key trading partners are located. Especially good exports were performed in the field of mineral products, metals and wood processing sector. Tourism is also recovering, reaching a level of about 60% in the first nine months of the last year compared to the pre-pandemic period. However, the full impact of political developments is not yet fully visible in the data, as political disagreements intensified by the end of 2021. In addition, the pandemic caused by the COVID-19 virus remains a risk.

According to the price trends recorded in other countries, inflation in BH was rising, with the average inflation in 2021 reaching 2.0% after the deflation of 1.6% in 2020. The prices of food, energy and transport have been key generators of inflation. In 2022, analysts expect a 4.2% inflation, partly due to the effects from 2021. However, high inflation is not expected in long term, so the consumer price index (CPI) is expected to increase at the moderate rate of 2% -2.5% per year during the 2023-2025 period.

The Currency Board arrangement in BH, according to analysts, is an important economic peg. The existing Governing Board has continued its operations in full capacity, so Standard and Poor's expects stable functioning of the Central Bank in the period ahead, regardless of the current political situation.

According to S&P analysts, the credit rating of Bosnia and Herzegovina could be increased if improvements take place in domestic political circumstances, including higher level of consent and less confrontations, with focus on structural reforms and economic growth.

On the other hand, analysts state that credit rating could be decreased in case of additional deterioration of political confrontation, which would probably affect the existing debt servicing mechanisms and bring about stronger negative implications on defining the economic policy and the growth.