Standard & Poor's Ratings Services affirmed its 'B/B' long- and short-term foreign and local currency sovereign credit ratings for Bosnia and Herzegovina (BiH) in March. The outlook is stable.
S&P explained that the stable outlook is based on the agency's expectation that BiH will continue to receive stable creditor support. It balances S&P´s view of the risks to economic growth and policy-making posed by the complex institutional set-up and the country’s high dependence on external sources for financing its external and fiscal deficits, against the expectation of continued international support.
Floods in May and August 2014 affected about a quarter of the country’s population and caused damages estimated at up to 15% of GDP. However, S&P reported that fiscal and external metrics did not deteriorate as sharply as the agency earlier anticipated. Indirect tax revenues, the largest component of government revenues, were boosted by resilient private consumption. At the same time, export capacity largely escaped damage while greater import demand was offset in part by strong remittances and the recent fall in energy prices.
In 2015-2018 real GDP growth is expected to average just under 3%, led by exports. Investment financed by multilateral institutions, as well as private projects (particularly in the energy sector), will be important growth drivers, noted the S&P in its report.
In S&P´s opinion, the Stand-By Arrangement with the International Monetary Fund (IMF), secured in September 2012 and currently on extension until June 2015, has remained an important policy anchor and has facilitated reform implementation. The programme is currently stalled but S&P´s experts expect that the authorities will likely negotiate a new program jointly with the IMF over the next few months.
A significant development is the adoption of a new approach by the EU toward BiH whereby socioeconomic reforms will be prioritised. S&P experts believe that the IMF program is likely to be an important element in the EU’s new framework for the country.
The BiH parliament in February endorsed measures which will allow the Stabilisation and Association Agreement signed by BiH in 2008 to come into force, which would be the most progress the country has made in this matter over the past half-decade. It would allow for additional EU financial and technical assistance to BiH. Furthermore, the IMF and EU arrangements will be more closely intertwined, as will financing from other multilateral institutions, noted the S&P.
Relationship Manager, Global Securities Services Bosnia and Herzegovina