The increase in the credit rating of Bosnia and Herzegovina means that we are perceived as less risky compared to the previous period, it was confirmed for Fena from the Central Bank of Bosnia and Herzegovina.
They clarify that this does not mean that the yields on the current public debt will decrease, or that any new issues of public debt on the international markets will be cheaper compared to before, because there are factors on the international markets that affect the cost of borrowing for all issuers, but it means that we are currently perceived by one of the leading rating agencies as slightly less risky compared to the previous period.
“Any improvement in the credit rating means that the debtor or the issuer, in this particular case our country, is perceived by the rating agency as safer for foreign investments, compared to the previous period. The foreign investor wants independent information about the debtor’s ability to service current and international obligations that are due in the short and medium term, and information on how safe his invested capital is in the country,” the CBBH states.
They add that not only the economic picture of the country and its potential is observed and evaluated, but also the rule of law and political stability, all with the aim of assessing how far, and in what procedure, the national regulation, which is essential for the business of a current or future foreign investor, can change. Based on such independent information and evaluations, investors make evaluations in which country they want to invest, and how much return they expect for the risk they are knowingly exposed to.
“Our current rating of B+, assigned by Standard & Poor’s, is descriptively still classified as a highly speculative investment category, but we are now one step away from the speculative investment category. Unlike a change in the rating level, which was the case recently, a change in outlook gives indications of future rating assessments. In other words, it gives indications of whether we are moving towards a more or less risky category of investors. When the rating level is initially changed, it is usual for the outlook to be assessed as stable,” the CBBH explained.
They emphasize that in the report with the rating assessment, it was stated that economic activity proved to be more resistant to macroeconomic shocks, including an inflationary shock, than was initially assumed, and as a result, their projection of economic activity in BiH for 2023 was revised from one to two percent.
Also, the CBBH specified that the report highlighted a comfortable fiscal position, in terms of the ratio of the level of public debt to GDP, which is the basic assumption for policy responses to potential shocks, and it was also stated that political compromises are expected to strengthen at the state level.
From that institution, they state that the rating agency cited the political climate in the country as a key determinant of the credit rating in the period of one year, and the factor that it is stated could result in further growth of the sovereign rating in the next year is the continuous determination and implementation of domestic consensus-based politics.
“It is estimated that in this way, in the medium term, reforms would be accelerated, which would have a positive effect on economic growth. A factor that could be decisive for lowering the credit rating is the escalation of confrontations between political actors in the country, especially if the confrontations escalate to level to jeopardize the servicing of the public debt”, it was concluded from the CBBH.
