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S&P Upgrades Bosnia Credit Rating to B+
Sarajevo-Standard & Poor’s Rating Service has upgraded Bosnia’s credit rating to “B+ with stable outlook,” the country’s central bank said.
“This improved credit rating represents an encouraging factor, but it is necessary to work further on institutional and economic reforms,” governor Kemal Kozaric was quoted by local media as saying.
The credit rating assigned by Standard & Poor’s for Bosnia is one grade higher than the B2 rating by Moody’s rating service.
The new rating “is supported by the economy’s robust long-term growth potential,” the central bank said in its statement. “Prospects for further EU integration are a supporting ratings factor,” the statement added.
Yet the bank also warned that Bosnia’s credit rating is “constrained by the country’s complex political system, with weak central government institutions resulting in political stalemates, a cumbersome fiscal management framework, a large administration and persistent and until recently, increasing current account deficits.”
“Important decisions, including over the budget, need to be taken unanimously by the entities and the state administration, which inhibits flexibility of decision – making. The complex institutional environment is mirrored in a large share of government spending to GDP at almost 50% of GDP in 2008 due to numerous levels of government, a high public wage bill and large social transfers,” the Central Bank statement said.
In a statement to the Balkan Insight, Kozaric expressed serious concern that the lack of understanding and proper actions on behalf of parts of Bosnia’s administration could have dire consequences in light of the worsening economic situation in the country and abroad.
Analysts say that the ongoing tightening of credit conditions and decline in external demand will lead to a slowdown in Bosnia’s economy growth from past levels of 6 percent to about 2 percent in 2009. At the same time, the current account deficit should fall to about 10 percent of GDP in 2009. The existing external imbalances make the economy vulnerable to shifts in credit flows at the world’s market, the central bank said.
Source: Balkan Insight
