Standard and Poor's: BiH's credit rating remains the same

SARAJEVO, (Patria) - International rating agency Standard and Poor's (S&P) confirmed Bosnia and Herzegovina's current credit rating of "B" with stable outlook.

The explanation from "Standard and Poor's" analysts states that political tensions in BiH are a consequence of Republika Srpska's (RS) announcement that it is preparing to withdraw from several state institutions.

Analysts expect tensions to decrease, and that political structures will remain largely unchanged in BiH. Persistent uncertainty, in their assessment, could negatively affect growth, which was projected at 2.7% in 2022, compared to an estimated growth of 6.7% for 2021. A positive factor is that BiH's general government net debt remains low, below 30% of GDP, which provides room for fiscal policy action, even if political events affect the credit lines of international financial institutions.

Furthermore, analysts emphasize that the "stable outlook" is based on a balance between negative risks arising from complex and confrontational politics in BiH over the next 12 months, and on the other hand, a relatively strong economic foundation, such as general government net debt, an improved external position, and the resilience of the banking sector.

The report states that BiH's economy benefited from strong exports in 2021, particularly to the EU, where most of BiH's key trading partners are located. Exports were particularly strong in the areas of mineral products, metals, and the wood processing sector. Tourism is also recovering, reaching about 60% of pre-pandemic levels in the first nine months of last year. However, the full impact of political events is not yet fully reflected in the data, as political disagreements intensified towards the end of 2021. The COVID-19 pandemic also continues to pose a risk.

In line with price trends in other countries, inflation in BiH is rising, with average inflation in 2021 at 2.0% after deflation of 1.6% in 2020. Food, energy, and transportation prices are the key drivers of inflation. In 2022, analysts expect inflation of 4.2%, partly due to carry-over effects from 2021. However, in the long term, they do not expect higher inflation, and predict that the consumer price index (CPI) will grow moderately to 2%-2.5% annually during the period 2023-2025.

The currency board arrangement in BiH, according to analysts' assessment, represents an important economic anchor. The existing Management Board has continued its full operations, and Standard and Poor's expects the Central Bank to function stably in the coming period, regardless of the current political situation.