Increasing political maneuvering ahead of the October 2018 general election in Bosnia & Herzegovina could again derail external financing flows and the country’s solid economic growth, Standard & Poor’s said on March 9.

The rating agency affirmed Bosnia’s B/B ratings and stable outlook, mainly thanks to the unfrozen loan deal with the International Monetary Fund (IMF), which has enabled also external financing for infrastructure projects.

“Our ratings on BiH [Bosnia & Herzegovina] are supported by the sovereign's steady economic growth, which supports indirect tax revenues that BiH uses to service its external debt, together with its relatively low and predominantly concessional debt burden. BiH's stable fiscal position and our assessment that the sovereign will continue to contain its budget deficits during periods of less-available external financing also underpin the ratings,” S&P said in a statement.

However, it added that the rating is constrained by the country's divisive politics, which frequently bring policymaking to a standstill, as well as by limited monetary policy flexibility and Bosnia’s still low income level.

“The stable outlook on BiH balances our assessment of a solid cyclical upswing in economic activity against our concerns that political maneuvering ahead of the general election in October 2018 could result in notable gridlock — characterised by derailed structural reform momentum and disruptions in external debt inflows — and ultimately curtail growth potential,” S&P also noted.

It also warned that Bosnia’s rating could be lowered if political developments in 2018 create a bottleneck that reverts progress made under the reform agenda so far, hinders external financing and notably reduces the growth momentum.

“Political tensions have intensified as the constituents gear up for the general election in October. This is likely to make 2018 a lost year in terms of meaningful reform, creates uncertainties regarding the predictability of concessional debt inflows, and challenges fiscal policymaking and the transition to investment-led growth,” the statement reads.

On the other hand, the ratings could be raised if external financing continues. “Despite the unpredictable domestic politics, we expect economic growth to remain solid, supported by private consumption, a positive external environment, and large-scale public investment projects,” the statement noted.

The complicated political structure in Bosnia is complicating policymaking, and will most likely delay Bosnia’s progress towards being granted EU candidate status.

“While we expect the European Council to deliver an opinion on the progress of BiH's accession to the EU toward the end of the year, we do not anticipate any notable traction in the short term,” the statement reads.