BH Was Given B3 Positive Credit Rating

Bosnia and Herzegovina was given today, March 29, 2004, the B3 credit rating with a positive outlook. This positive outlook is a clear indication that the Rating Agency expects that BH's rating will be upgraded in the next six to eighteen months.

Moody's Investor Service, international rating agency worked last few months on evaluation of credit rating for Bosnia and Herzegovina based on statistical data of local and international institutions and interviews they made with various officials in the country.

Analysts of the agency Moody's were interested among other issues in political reforms and situation in BH, reconstruction, development of real sector during 2003, midterm projections and long term growth, development of foreign sector, labour market, refugees and war veterans, public finances, monetary policy and foreign exchange reserves growth.

The key factor underlying today's rating actions is the progress that has been made by the country since Dayton Peace Accord in 1995. Peace has been accomplished and reconstruction in many segments is well underway.

According to Moody's despite the complex political system, Bosnia and Herzegovina continues to build foundational institutions, including the creation of a united monetary and banking system, and recently steps in creating single tax and custom system.

Moody's believes that the country will preserve stability, also due to the presence of the international community, and the country's strategic location within the enlarged European Union.

Nevertheless, the rating agency cautioned that the economic transition is far from complete. The quality of statistic, especially macroeconomic data and the extent of the underground economy remain a problem. Moreover poverty represents a long term concern.

Moody's also notes that problems such as bad governance and a culture of arrears still plague state-owned enterprises, making privatization difficult.

On the positive side, the country has a stable currency and low inflation and is currently working on a settlement of all domestic claims resulting from frozen currency deposits, war damage claims, and government spending arrears.

Moody's also views positively the creation of the new tax administration and the transfer of military and security spending from the entity level to the state level, projects which aim at strengthening Bosnia and Herzegovina as a state.

It is because of these developments that Moody's has assigned a positive outlook to the BH rating. The timing of the upgrade of BH's rating will depend on how quickly futher progress is made on the economic reforms that are presently underway.

Today's announcement, Bosnia and Herzegovina obtains its first credit rating and basis for development of a positive credit history. It means that Bosnia and Herzegovina no longer belongs to the small group of countries in the region and Europe that have no credit ratings.

Getting the first sovereign credit rating will help offset the negative perception of BH that many people outside of country held, which were often based on outdated or misleading information.