Standard & Poor's: Credit Rating on BH Remains the Same

"Standard & Poor's Ratings Services", international rating agency published that same credit rating B+ with stable outlook is affirmed to Bosnia and Herzegovina.

This confirmation of the same rating, which was assigned to Bosnia and Herzegovina last year, is the result of trends that the analysts followed during 2009.

According to the assessment of this Agency's analysts, the sovereign credit rating on BH continue to be constrained by a large and complex political system, which is reflected in regular political stalemates. This will continue to inhibit reform progress, especially in the run-up to the 2010 general elections. Fiscal management and flexibility continue to be weak and are constrained among other factors by sizeable contingent liabilities.

The rating is supported, on the other hand, by the fact that Bosnia and Herzegovina has explicitly prioritized its external debt-service payments. The Currency Board arrangement, in view of S&P analysts, has successfully navigated the economy through the turbulence of the past year and a half, which also provided support to such sovereign rating. The monetary stability, provided by the Currency Board arrangement, has been bolstered by the signing of IMF Stand-by arrangement, worth US$ 1.57 billion. The Stand - by arrangement has helped to contain the risk of a disorderly disruption in financing flows to BH, thereby alleviating external pressures while preserving strong growth potential.

The successful execution of the SBA, would lead to necessary improvements to fiscal flexibility and this is contingent upon the implementation of a comprehensive fiscal strategy aimed at much-needed budgetary consolidation and decrease of public consumption.

The S&P analysts consider that the implementation of the planned policy package will be politically challenging, given that it requires spending cuts, as well as, the pressure on social transfers at numerous levels of government, particularly in the light of the upcoming general elections. Following a general government deficit in 2009, estimated at almost 5% of GDP, the S&P analysts expect it to be reduced to around 4% of GDP in 2010, mostly thanks to the Stand-By arrangement. As a result, we expect the government's gross debt, which has reached 34% of GDP in 2009, shall amount to 37% of GDP in 2010.

Banking sector has remained stable in 2009, despite the difficulties occurring during 2008. As part of the SBA, the major foreign-owned banks have committed themselves to the maintaining of their cross-border exposure in BH and to adequately supporting of their subsidiaries through 2010.

Prospects for further EU integration, as well as, the strong support of the international community to avert destabilizing factors in the country, both financial and political, constitute positive influence on the assigned sovereign credit rating to Bosnia and Herzegovina.

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