SARAJEVO (Bosnia and Herzegovina), March 6 (SeeNews) – Moody's Investors Service said on Monday that Bosnia and Herzegovina's growth will reach 3.2% in 2017 and 3.7% in 2018, but will remain below the levels recorded prior to the global financial crisis.
In its newest annual report on the country, Moody’s said its B3 rating on Bosnia with a stable outlook continues to be constrained by challenges related to government effectiveness, wide external deficits and a high unemployment rate.
"The political landscape is hindering the pace of reforms and the country's ability to adhere to conditions set out by international lenders," Evan Wohlmann, a Moody's assistant vice president and co-author of the report, said in a press release. "Its large current account deficits and the lack of access to private external capital makes the economy heavily dependent on concessional inflows to repay the same lenders”.
According to the report, Bosnia's credit strengths include the high affordability of its mainly concessional government debt relative to its rating peers, as well as the smooth operation of the country's currency board arrangement which benefits from significant reserves. Further positives, which provide a sound basis to address the economy's structural rigidities, comprise of the country's 2015 Reform Agenda and a new IMF agreement in 2016.
In terms of Bosnia's recent progress on EU candidacy, Moody's said it demonstrates the authorities' commitment to EU integration, but warned that more fundamental progress on EU accession faces obstacles, including from the challenging political environment.
"Upward pressure on the sovereign rating could stem from any strengthening of institutions through structural reforms, either independently or as part of the EU accession process", Moody's explained. "Other credit positive measures would include a streamlining of the policymaking process and continuous compliance with the new IMF agreement that leads to fundamental reforms which help ensure government debt sustainability".
Conversely, downward rating pressure could occur if the country were to fail to comply with the new IMF agreement, which would increase uncertainty about the government's ability to roll over the large IMF repayments due over the coming years, the ratings agency concluded.
Bosnia is made up of two autonomous entities, the Federation and the Serb Republic.
The country's directorate for economic planning, DEP, recently predicted that Bosnia's economy expanded by 3.1% last year.