Bosnia and Herzegovina’s ’B+/B’ ratings affirmed by S&P Global

Investing.com -- S&P Global Ratings has affirmed Bosnia and Herzegovina’s ’B+/B’ long- and short-term local and foreign currency sovereign credit ratings with a stable outlook.

The rating agency maintained the country’s transfer and convertibility assessment at ’BB’ in its Friday announcement.

S&P’s stable outlook reflects its view that domestic political tensions, while potentially reemerging, will not escalate beyond the confrontations observed earlier this year. Political conflicts and policy deadlocks remain a constant risk due to Bosnia and Herzegovina’s complex institutional arrangements.

The ratings remain constrained by the country’s exceptionally complex institutional and governance system, where political volatility occurs frequently and tends to escalate around elections. S&P noted a significant escalation of political tensions between Republika Srpska (RS) and several BiH institutions at the beginning of this year, including repeated threats of secession. These tensions have since deescalated.

Bosnia’s consolidated general government fiscal position remains a rating strength. S&P forecasts budget deficits will average below 1% of GDP annually over 2025-2028, with net general government debt stabilizing at 21% of GDP through 2028. Nearly 60% of consolidated gross general government debt is owed to official bilateral and multilateral creditors at long maturities and favorable interest rates.

The country’s currency board arrangement with the euro provides an important policy anchor but limits monetary policy flexibility, as the Central Bank of Bosnia and Herzegovina cannot act as a lender of last resort to the financial system.

Economic growth has slowed amid weak demand from Bosnia’s main trading partners in the EU. S&P expects modest real growth of 2.5% this year with a slight pickup from next year, reaching slightly below 3% on average from 2026-2028.

The agency expects current account deficits will remain low over the next four years, at slightly above 3% of GDP on average, partly due to external borrowing constraints.

S&P could lower the ratings if political and institutional risks escalate in ways that jeopardize the state’s basic functioning or weaken the government’s ability to service its debts. Conversely, the ratings could be raised if more consensus-based domestic policymaking accelerates structural reforms, particularly those relating to EU accession.

Bosnia’s banking system remains healthy with strong profits and capitalization, primarily funded by deposits. Domestic credit and deposits rose almost 10% in 2024, a trend that continued into 2025, with nonperforming loans remaining near historical lows at slightly above 3.5%.

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