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SARAJEVO, August 23 (FENA) - International rating agency Moody's Investor Service affirmed credit rating of Bosnia and Herzegovina, B3 with stable outlook.
Explaining the decision to affirm the rating and stable outlook, analysts of Moody's mentioned the following key rating drivers: Persisting structural challenges continue to weigh on Bosnia and Herzegovina's medium-term growth prospects, constraining the country's economic strength; Moderate debt levels and fiscal restraint in recent years provide fiscal space to respond to economic shocks such as the Coronavirus pandemic; Weak institutions, in part reflecting a complex governance system and divisive political environment, continue to hamper effective policymaking.
The Moody's analysts expect Bosnia and Herzegovina's economy to be significantly impacted by the Coronavirus pandemic this year, due to the effect of the domestic measures to contain the spread of the Coronavirus, decline in trade and a reduction in workers' remittances.
Tourism has also been affected. In the report of this Agency, it is mentioned that Bosnia and Herzegovina real GDP projections are to contract by 5.5%, after 2.9% growth in 2019, while in 2021, the GDP growth projections will amount to 3.5% in 2021.
Analysts mentions that in recent years, Bosnia and Herzegovina maintained a prudent fiscal stance, registering a small budget surplus since 2016, mainly reflecting sustained growth in indirect tax revenue, but also spending restraint.
Moody's projects the fiscal deficit of 4.6% of GDP in BH, compared to a surplus of 2.2% in 2019. The deterioration reflect the impact of the economic contraction on the revenue side and the fiscal measures adopted by the authorities to mitigate the effect of the Coronavirus, with respect to expenditures.
The third driver for the rating affirmation is based on Bosnia and Herzegovina's institutional constraints. A complex governance system and a divisive political environment hamper effective policymaking. At the same time, as Moody's mentions, the Currency Board arrangement provides an effective anchor for macroeconomic stability and enjoys a high level of credibility.
Moody's expects Bosnia and Herzegovina to remain committed to its Currency Board, as such interventions related to Currency Board would undermine the credibility of this arrangement and potentially jeopardize future assistance of the International Monetary Fund (IMF).
The stable outlook on Bosnia and Herzegovina's credit rating reflects Moody's expectations that the country's credit profile will remain consistent with the current rating over the next 12 to 18 months, despite the expected economic and fiscal deterioration due to the Coronavirus pandemic. Moody's expects that liquidity and external risks will be effectively mitigated by the support of international financial institutions, especially by the IMF and European Union (EU).
According to analysts, credit rating could be upgraded in case of reforms' implementation that help to strengthen the country's governance and address long-standing structural economic challenges, enhancing medium-term growth prospects.
Furthermore, continuous cooperation with the IMF and EU could contribute to upward pressure on rating. On the other hand, analysts are warning that rating could be downgraded in case of fiscal worsening, increasing of liquidity risk, as well as, in case of any halt or setback in the reform agenda, including the Bosnia and Herzegovina's integration with the EU, stated the CBBH in a press release.
(FENA) S. R.
