S&P threatens to downgrade FBiH's rating: 70 percent of the budget spent on pensions and social benefits

(Patria) - The international rating agency S&P Global Ratings has confirmed the credit rating of the Federation of Bosnia and Herzegovina (FBiH) at the "B+" level, but has maintained negative outlooks, warning of a growing budget deficit, increasing debt, and political risks.

In its latest report, S&P states that the FBiH government has significantly increased budget spending ahead of the General Elections in 2026, which will lead to a large budget deficit during 2026 and 2027, writes BiznisInfo.ba.

The agency specifically highlights the 17 percent increase in pensions, the reduction in the contribution rate, and the fact that as much as 70 percent of the budget spending is allocated to social benefits and pensions.

According to S&P's estimates, the FBiH deficit could approach 20 percent of total revenues in 2026, while the total debt of FBiH, including the debt of public companies and local communities, could rise to as much as 140 percent of consolidated budget revenues.

Nevertheless, S&P believes that a gradual reduction in the deficit and stabilization of public finances could occur after the elections, provided that the authorities implement fiscal consolidation.

The agency also warns about the long-term structural problems of the FBiH economy, including an aging population, labor outflow, and political instability.

"Complex political relations and fragmented governance slow down decision-making and hinder the implementation of fiscal discipline," the report states.

S&P points out that FBiH still has access to international sources of financing, including international financial institutions and the capital market, and recalls that a eurobond of 350 million euros was successfully issued last year.

However, the negative outlook means there is a possibility of a credit rating downgrade in the next 12 to 24 months if there is no improvement in budget discipline and a reduction in the level of indebtedness.