Standard & Poor's has affirmed Bosnia and Herzegovina's B credit rating, with positive outlook, warning that this unfavorable credit status could be jeopardized further by rising political tensions in the country.
The B rating means that the country’s rating is categorized as speculative with a high credit risk, and it is just one step above the worst possible rating of C. The Moody’s credit rating agency earlier gave Bosnia the B3 rating, the worst in that category.
Bosnia’s central bank said on Tuesday that Standard & Poor’s analysts noted that political tensions, which were triggered by the Serb entity’s plan to withdraw from several state-level institutions, “are expected to ultimately de-escalate.”
“Persistent domestic political uncertainty risks becoming a drag on growth,” S&P said, adding, “we estimate growth at 6.7% in 2021, but forecast it will slow to 2.7% in 2022.” Net general government debt should remain at below 30% of GDP, which makes room for action in the fiscal policy, even if political events affect international financial institutions’ credit lines, they said.
The S&P analysis says that last year Bosnia’s economy benefited from strong exports, notably to the EU, where most of the country’s key trade partners are located. Inflation’s annual average reached 2% in 2021, following a 1.6% deflation in 2020. “We expect inflation at 4.2% in 2022,” S&P said.
The currency board, on which the central bank is founded, is an important economic anchor, especially during political instability, S&P said. This mechanism prevents out-of-control printing of money because the domestic currency, the convertible mark, is pegged to the euro.