BH Obtained Better Credit Rating - B2

Moody’s Investor Service has upgraded today, May 17, 2006, Bosnia and Herzegovina’s credit rating from B3 with positive outlook to B2 rating with the stable rating outlook.

This more favorable credit rating to Bosnia and Herzegovina was awarded in light of the economic and institutional advances that have taken place since the ratings were first assigned in March 2004.

Moody’s said that Bosnia and Herzegovina recently begun negotiations with the European Union (EU) on Stabilization and Association Agreement that should bolster integration with Europe and further encourage the country’s political and economic strengthening. Also significant are reforms with the police and defense forces.

Greater competence demonstrated by local officials has allowed the Office of the High Representative (OHR) in BH to play less interventionist role in the management of the country.

Highlighted were some of the recent economic policy advances, including the resolution of the issue of compensation for foreign currency savings deposits that were frozen. The introduction of a Value Added tax (VAT) went smoothly, and collections were above expectation and will provide additional support to public finances.

Moody’s also outlined some issues that continue to constrain the ratings, including the failure to pass the constitutional amendments. The large current account deficit is also an additional concern, although the trade deficit declined sharply in the first quarter of this year, thanks to introduction of VAT.

The credit rating of one country represents the assessment of the capability and willingness of one country government to service its debt fully and on time.

Better credit rating provides better conditions to a country or indebting at the international capital market, in other words, to issue securities or to get indebted as a state with the commercial banks in the world. If the rating is better, then the country is a better debtor. This means that it will be able to get more favorable loans in the market, which means lower interest rate, higher amount of credit, or the longer repayment period.

The credit rating is important for the potential foreign investors that use the credit rating as the basis for the special evaluation of the economy of a country in which they intend to invest. It is also important data for the government of that country in order to properly asses the condition and undertake necessary steps for its improvement.

Public Relations Section