Bosnia's post-COVID-19 recovery to drag out until end-2022 says S&P

Bosnia's post-COVID-19 recovery to drag out until end-2022 says S&P
By bne IntelliNews August 30, 2020

Standard & Poor’s affirmed Bosnia & Herzegovina’s B/B long- and short-term sovereign credit ratings and the stable outlook on August 28, but warned the country's economy will make a slow recovery from the coronavirus (COVID-19) pandemic.

“We expect that the pandemic will significantly impair BiH's [Bosnia & Herzegovina's] economic performance. Specifically, we project output will contract by 6% in real terms in 2020, with all key components exhibiting a weak dynamic including exports, investments, and domestic consumption,” S&P said in a statement.

The country is expected to recover from the recession only partially in 2021 with GDP seen rising by 3.5%, and S&P has projected that the recovery will last until the end of 2022.

Bosnia is also constrained by the low personal income level with GDP per capita seen at $6,000 in 2020. The constant political tensions and Bosnia’s complex institutions are also hampering the economy.

On the other hand, Bosnia’s ratings are backed by the favorable structure of state debt.

“Even taking into account the impact of the pandemic, net general government debt should remain about 30% of GDP over the next four years. Almost all external debt (which accounts for more than 70% of gross general government debt) is due to official bilateral or multilateral lenders, and is characterized by long maturities and favorable interest rates. In our view, this lower leverage awards BiH some fiscal space, partially offsetting a lack of monetary flexibility, given the hard peg of the konvertibilna marka to the euro,” S&P noted.

It also projected that Bosnia will post a general government deficit of 4.5% in 2020 due to the coronavirus-related measures aiming to support economy and due to weaker economic performance.

The budget gap will be funded by loans from international financial institutions. Bosnia’s government has estimated that would need to borrow €900mn and has already secured €330mn from the IMF and another €250mn should be provided by the EU. The remaining €300mn should be borrowed by multilateral institutions, including the European Bank for Reconstruction and Development and the World Bank.

AS a result, Bosnia’s general government debt is seen rising to 31% of GDP in 2020 from 25% of GDP in 2019.

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