Moody's Confirms Bosnia and Herzegovina's Credit Rating, B3 with Stable Outlook

(Patria) - Moody's Investor Service has confirmed Bosnia and Herzegovina's credit rating, B3 with stable outlook. The economy, according to the Moody's report, has shown relative resilience to the pandemic, with real GDP growth of 7.1% in 2021 achieved thanks to the recovery of domestic demand and strong export growth, particularly in base metals and mineral products, exceeding pre-pandemic levels. Analysts state that the economy is less exposed to the impact of the Russian-Ukrainian conflict, given Bosnia and Herzegovina's limited trade and financial relations with Russia and Ukraine. Although gas is imported from Russia, it constitutes a very small share of energy sources.

Moody's expects a significant slowdown in economic activity during this year, estimating GDP growth at around 2.5% in 2022 and 2023.

After a deficit of 4.7% of GDP recorded in 2020, a significant improvement was achieved in fiscal policy in 2021, providing authorities with room for measures in response to rising inflationary pressures, according to the Moody's report. Moody's also expects general government debt, which stood at 36.7% of GDP in 2021, to gradually decline during 2022 and 2023, reaching 32% of GDP by the end of 2023.

Political risks, reflected in the lack of cooperation at the state level last year, which led to a political crisis, have recently decreased.

Moody's believes that the Central Bank of Bosnia and Herzegovina is effective in implementing the currency board arrangement. According to analysts, the credit rating could be upgraded if reforms are implemented that strengthen the country's governance and address long-standing structural challenges, leading to visible progress on the path to the European Union. Close cooperation with the International Monetary Fund and the European Union would contribute to this.