S&P affirms Bosnia’s B/B ratings on expected international support

By bne IntelliNews March 13, 2016

Ratings agency Standard & Poor's (S&P) affirmed on March 11 its credit ratings on Bosnia & Herzegovina at B/B as it expects that the country will continue to benefit from international financial support. The outlook is confirmed at stable.

S&P noted that the ratings were constrained by the country’s multilayered, and overlapping government institutions, that complicate its policymaking process and delay implementation of reforms. Another factor constraining the country’s rating is the weak fiscal management framework and the persistent current account deficits.

On the other hand, the rating agency expects that Bosnia will continue receiving international support and will sign a new deal with the IMF in the next few months. Such an agreement is expected to unlock additional funding from the European Union and the World Bank and to help the government to implement the key reform agenda, required by the EU.

However, S&P noted that an important condition for the signing of new deal with the IMF is the resolution of Banka Srpske.

In February, local news service Capital.ba reported that the IMF had asked Bosnia’s smaller entity, Republika Srpska, to declare state-owned Banka Srpske bankrupt in order to agree a new deal with the country.

In November last year, Republika Srpska’s banking agency, ABRS, fired the director of Banka Srpske, Zdravko Trivuncica, claiming that he had ignored a ban on accepting deposits. ABRS explained that Trivuncic had violated several regulations, the most serious of which was that he had allowed the bank to continue to accept deposits even though the agency explicitly prohibited this as the bank’s capital was significantly below the legal threshold of BAM15mn (€7.7mn). Before that, an audit at Banka Srpske found the bank ended 2014 with a loss of at least BAM17mn instead of the BAM298,000 profit it had claimed.

However, the entity’s government has proposed to the IMF to restructure the bank, which will only provide financial intermediation and will no longer operate as commercial bank.

S&P also forecast that Bosnia’s real GDP growth will average just under 2% in 2016-2019, supported by investment financed by multilateral institutions, as well as private projects particularly in the energy sector, together with steady but rather sluggish consumption and exports. Bosnia’s current account deficit is seen at 7.2% of GDP in 2016.

Bosnia’s general government fiscal deficit is expected to narrow to 2.0% of GDP in 2019 from slightly above 2% of GDP in 2016. General government debt is expected to increase to 48% of GDP by 2019 and to be mainly denominated in foreign currency.

Previously, S&P affirmed Bosnia’s rating in September, 2015.

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