S&P keeps Bosnia's sovereign rating unchanged at B+ with stable outlook.

By bne IntelliNews September 28, 2010
International rating agency Standard & Poor's (S&P) has kept Bosnia and Herzegovina's long-term foreign currency sovereign rating unchanged at B+ with a stable outlook, S&P's annual report on the sovereign credit rating on Bosnia, as quoted by the central bank CBBH, showed. According to S&P, the sovereign rating is constrained by the country's expanded public administration and complex political system, which often leads to political deadlocks and would continue to delay the reform process, especially in the months ahead of the forthcoming general elections on Oct 3, S&P said. Moreover, the country's fiscal position, management and flexibility continue to be weak and limited by considerable contingent liabilities in an environment of external vulnerabilities, the rating agency added. By contrast, the rating is supported by the government's clear prioritisation of external debt-service payments, as well as the successful operation of the currency board arrangement, which helped the country to be less affected by the severe crisis. S&P assessed that the successful implementation of the USD 1.57bn stand-by agreement with the IMF would increase Bosnia's fiscal flexibility, which would be however dependent on the successful implementation of the required fiscal consolidation strategy aimed at reducing the government size and improving the fiscal management framework. The rating is also supported by the EU integration prospects, as well as by the strong support of the international community, which is ready to act in order to avert any financial or political disruptions in the country, S&P said. The stable outlook on the rating reflects Bosnia's medium to long-term growth potential and assumes adherence to the stand-by agreement despite the difficult fiscal situation, complicated political structure and environment, and external and financial vulnerabilities. The rating could come under upward pressure if Bosnia advances further with the prescribed structural fiscal consolidation, improves the institutional framework and implements growth enhancing structural reforms. On the contrary, the rating might be under downward pressure if the government does not address the fiscal imbalances thus leading to failure to comply with the requirements under the stand-by arrangement. S&P assigned rating to Bosnia for the first time in December 2008.

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