The international rating agency Standard and Poor’s (S&P) published an extraordinary assessment of the credit rating of Bosnia and Herzegovina, which it conducts in most countries due to the crisis caused by the COVID-19 virus pandemic. In comparison with the regular assessment from the beginning of March, the rating “B” has remained unchanged, while the outlook has been revised from positive to stable.
Given the global nature of the pandemic, as well as the challenges it poses to health, economic and financial systems in the environment and the world, keeping the same rating and associated outlook mean that the measures taken in Bosnia and Herzegovina are expected to contribute significantly to mitigate the negative effects of the pandemic.
According to the analysts of this agency, the global pandemic caused by COVID-19 will affect BH economy directly and through foreign trade channels. S&P expects that the real GDP in 2020 would be decreased by 5%, and that BH’s fiscal and external prospects would also deteriorate. Economic recovery is expected in 2021.
The rating could also be increased in the next 12 months if the economic recovery is stronger or faster than expected, and if the climate for defining domestic policies is improved. Primarily, it would be desirable to see less confrontational, and more consensus-based policies that are oriented towards structural reforms and stronger support for economic growth.
According to S&P analysts, Bosnia and Herzegovina’s credit rating could be increased if domestic political discussion and activities are more focused on promoting economic growth and structural reforms, with a higher level of agreement and less confrontation. A program with the International Monetary Fund (IMF) would make a significant contribution in that regard. Stronger economic growth than projected would also contribute to an increase in the credit rating.
On the other hand, analysts say that a credit rating downgrade could occur if the economic and budgetary costs of a pandemic are higher than currently projected “and if, in a hypothetical scenario, the stability of the domestic financial system weakens significantly in the event of a long-term deterioration in asset quality and conversion deposits in foreign currency. “