The S&P revised the outlook on BiH’s sovereign rating to positive from stable and kept the country’s long- and short-term foreign and local currency sovereign credit ratings at B/B saying the economy has proven to be more resilient to ongoing political tensions than expected, according to a statement. The agency said it saw potential for upward pressure on the ratings should a government was formed this year, reform momentum resumed and the IMF program was revived. The S&P said it could raise BiH’s rating over the next 12 months should a lasting government that promotes the resumption of structural reforms was formed. Conversely, it could revise the outlook back to stable if a government was not formed, and reforms were not revived.
In the rationale the agency said that BiH’s rating is supported by its solid fiscal position, declining stocks of government debt, and the economy’s steady growth prospects. It assumes that the country will continue to operate a prudent fiscal policy, particularly during periods of constrained access to external financing. The S&P assessed that political tensions remain and will continue to challenge fiscal policy-making, hamper large-scale reform activity including to BiH’s vast state-owned enterprises sector, and delay the economy’s necessary transition to investment-led growth. The agency believes that BiH’s economy can navigate through the current period of political uncertainty while still posting average annual GDP growth of just under 3%. It assessed that if this uncertainty is removed by the formation of a government committed to renewing the IMF program, the growth performance would be boosted over the medium term, as positive confidence effects and better access to concessional financing would support infrastructure projects and private sector capital expenditure.
The S&P projects general government budget surplus of about 1% of GDP in 2018, driven primarily by revenue improvements, contained expenditures, and some under-spending on the capital account. It believes that constraints on government expenditures will resonate throughout 2019 once the budget of BiH institutions is passed. The S&P has factored in expectation of lagging reform momentum, which will limit budget execution and spending predictability.