Bosnia retains B credit rating, political risks affect economy

Standard & Poor's and Moody's delivered their latest regular reviews on 30 January, assigning BiH a B+ and B3 rating respectively, both with stable outlooks. The ratings are unchanged. A B rating denotes a speculative grade with high credit risk.

According to S&P, BiH's budget deficit is expected to widen this year, mainly due to pre-election spending. The agency forecasts an average deficit of around 2.1% of gross domestic product through 2029, while public debt could rise to about 25% of GDP.

S&P said the stable outlook reflects a balance between solid economic growth and limited external imbalances on the one hand, and rising fiscal pressures and weak political effectiveness ahead of general elections on the other.

The country's complex institutional framework and recurring political deadlock continue to pose significant risks to economic policymaking and implementation. However, the currency board arrangement, which pegs the local currency, the convertible mark, to the euro, remains a key anchor of stability and provides an important policy backstop for the economy.

Moody's said limited political cooperation within BiH continues to slow the adoption of key legislation and the implementation of reforms, weighing on the effectiveness of economic policy.

Although political tensions have eased somewhat, they remain a significant constraint on improving the country's credit profile, the agency said.

Moody’s expects BiH's fiscal position to deteriorate moderately due to rising social spending, but notes that the relatively low level of public debt remains an important support for the country's credit rating.