Bangkok--20 Dec--Standard & Poor's
- The outcome of the Bosnia and Herzegovina (BiH) general elections in October 2010 is not yet final, further clouding a complicated political environment.
- We expect that the government will implement the measures of the International Monetary Fund stand-by agreement despite these difficulties, although there may be delays.
- We are therefore affirming the 'B+/B' sovereign credit ratings on Bosnia and Herzegovina.
- The stable outlook balances our expectation that the authorities will adhere to the conditions of the IMF SBA and stabilize public finances, against political, monetary, and external vulnerabilities.
Standard & Poor's Ratings Services affirmed its 'B+' long-term and 'B' short-term sovereign credit ratings on Bosnia and Herzegovina (BiH). At the same time, we lowered the transfer and convertibility (T&C) Assessment to 'BB' from 'BB+'. The outlook is stable.
"The affirmation reflects our view of Bosnia and Herzegovina's (BiH) complex political and institutional structure, fiscal challenges, and monetary and external vulnerabilities. This structure produces intermittent political stalemates, and we believe it will continue to do so as a new coalition government has not yet been appointed after the October 2010 general elections," said Standard & Poor's credit analyst Benjamin Young.
"However, regardless of the electoral outcome, we expect the government to implement the necessary measures contingent to the $1.57 billion, 36-month International Monetary Fund stand-by agreement, initiated in June 2009," added Mr. Young
In our opinion, the successful execution of the International Monetary Fund (IMF) stand-by agreement (SBA), which has become an important fiscal anchor, will lead to a greater degree of fiscal flexibility. This is, however, contingent upon the full implementation of a comprehensive fiscal strategy aimed at budgetary consolidation. Implementing the planned policy package has already proven to be politically difficult. The IMF has twice delayed the disbursement of funds after the Bosnian authorities failed to promptly adopt sensitive cuts to social expenditures.
We expect the general government deficit to decrease to about 4% of GDP in 2010, from 5.6% of GDP in 2009, and to continue falling as economic growth resumes. We further expect the government's gross debt, which is overwhelmingly concessional, to reach nearly 42% of GDP by 2011.
The stable outlook balances BiH's medium- to long-term growth potential and our expectation that it will adhere to the IMF SBA, against a difficult budgetary situation, complex political structure and environment, and external and financial system vulnerabilities.
Creditworthiness could improve if BiH continues to progress with its structural budgetary consolidation agenda, improves its institutional framework to accelerate EU integration, and implements growth-stimulating structural reforms. Conversely, the ratings could come under pressure should budgetary imbalances fail to comply with the conditions of the IMF SBA. We believe that such a scenario could undermine the confidence of investors and depositors. Furthermore, sustained deterioration in the asset quality of the banking system or prolonged delays in appointing a new government could also put downward pressure on the ratings.
RELATED CRITERIA AND RESEARCH
- Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009
- Sovereign Credit Ratings: A Primer, May 29, 2008
Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal atwww.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011.
Media Contact:
David Wargin, New York (1) 212-438-1579,
[email protected]
Analyst Contacts:
Benjamin Young, London (44) 20-7176-3574
Marko Mrsnik, Madrid +34 913 896 953
Sovereign Ratings