Investing.com -- S&P Global Ratings has affirmed the ’B+/B’ long- and short-term issuer credit ratings for the Federation of Bosnia and Herzegovina (FBiH), one of two constituent entities of Bosnia and Herzegovina (BiH). The outlook remains stable, as announced on May 23, 2025.
The FBiH’s economic prospects face limitations due to political conflicts within the country, which impede political cooperation and investments. The slow progress in infrastructure projects, funded through the budget and state-owned companies, suggests that FBiH’s debt burden will continue to be moderate.
The stable outlook reflects S&P’s assumption that FBiH will slowly address its significant spending needs without a substantial increase in debt. This is due to an increase in income from rising wages and access to European Union funding for infrastructure development.
However, S&P Global Ratings could lower the long-term rating if FBiH’s management follows an aggressive financial strategy, leading to a significant accumulation of debt at either the Federation or its companies. The rating could also be reduced if there is a disruption in FBiH’s access to funding sources.
An upgrade would depend on positive developments in BiH’s credit quality, as FBiH is currently rated at the same level as the sovereign. An upgrade would also require an improvement in the planning, project management, and control over FBiH’s contingent liabilities, while maintaining sufficient liquidity.
FBiH’s rating is constrained by regular escalations of political tensions between FBiH and Republika Srpska, and the country’s central authorities. These political complications delay the country’s progress toward EU accession and reduce investors’ interest in projects in the Federation.
Despite these challenges, the government is gradually addressing large spending needs by raising social security contributions following a minimum wage increase. The debt burden is set to remain moderate, with FBiH’s tax-supported debt, including indebtedness of its companies and municipalities, projected to stay at about 70% of consolidated operating revenues.
FBiH’s economy is relatively poor compared with Eastern European peers, and it faces significant demographic challenges. We expect real GDP growth to accelerate to a sound 2.8%-3.0% per year over 2025-2027, in line with the national trend. The regional economy is diversified, with trade and manufacturing being the leading economic activities. Inflation has been declining and is expected to fall to close to 2% from 2025.
FBiH’s institutional framework is constrained by frequent political tensions that challenge the balance of power between various authorities. Despite FBiH’s autonomy in managing its fiscal policy, its budget priorities are not fully realized in practice due to weak project management and lax control over state companies.
Operating surpluses are projected for the next three years, given persistent pressure to increase social and pension payments, as well as transfers to municipalities and state-owned enterprises. A 60% rise in the minimum wage from the beginning of 2025 will help FBiH to increase revenues and address its spending needs. A demand for infrastructure projects, specifically in transportation, will result in a contained budget deficit of about 4% of total revenues.
FBiH benefits from access to necessary financing from multilateral organizations and commercial banks. FBiH’s market access will remain satisfactory, in contrast to the current limited access of its national peer, Republika Srpska. FBiH’s internal liquidity position and access to domestic short-term funding should be sufficient to cover about 50% of annual debt service. FBiH maintains a cash buffer of at least 30 days of operating expenditures and prioritizes debt service payments.
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