BiH's credit rating remains the same

(Patria) - International rating agency Standard and Poor's (S&P) confirmed the credit rating of Bosnia and Herzegovina, "B" with stable outlook. Analysts point out that the stable outlook is based on an assessment of the balance between fiscal and external risks associated with the effects of COVID-19 on the BiH economy on the one hand, and, on the other hand, the implementation of structural reforms and expectations of stronger economic growth in the medium term.

The rating agency Standard and Poor's notes that foreign exchange reserves of the Central Bank of Bosnia and Herzegovina (CBBH) increased by 10% in 2020 in gross nominal terms compared to 2019. BiH's banking system coped well with the impacts of the pandemic. Domestic deposits grew during 2020, and no conversion of savings deposits from the domestic currency KM to foreign currency was observed.

Analysts further state that during 2020, a smaller decline in economic activity was recorded than previously predicted, with industrial production in December 2020 being 2.8% higher than in December 2019. The decline in economic activity compared to 2019 is estimated at 4.8%, while it was previously predicted to be 6.0%. GDP growth of 2.5% is expected in 2021, with BiH's GDP not expected to return to 2019 levels before 2022.

BiH's complex institutional organization often entails complicated, untimely, and uncoordinated responses to the pandemic. As a consequence, the immunization process is proceeding slowly, which could critically affect the expected economic recovery. General government net debt in BiH is expected to rise to 31% of GDP at the end of 2021, which is still considered moderate debt for developing countries.

According to S&P analysts, Bosnia and Herzegovina's credit rating could be increased if domestic political discussion and activities focus more on promoting economic growth and structural reforms, with a higher level of consensus and less confrontation. A program with the International Monetary Fund (IMF) would significantly contribute to this. Stronger economic growth than predicted would also contribute to an increase in the credit rating.