S&P Global Ratings has affirmed Bosnia and Herzegovina’s sovereign credit ratings at ‘B+’ for long-term and ‘B’ for short-term foreign and local currency debt, keeping a stable outlook while warning that election-related spending would widen fiscal deficits.

S&P said pre-election spending, including higher pensions, public-sector wages and lower social contribution rates, would push Bosnia’s public deficit above 3% of GDP this year and result in average deficits of around 2.5% through 2029 without fiscal consolidation measures.

“Despite low debt levels, financing risks may rise during Bosnia and Herzegovina’s frequent periods of political tension,” S&P said.

The ratings agency said Bosnia’s highly complex political structure continued to constrain its credit profile, with tensions between the central government and the autonomous Republika Srpska entity often delaying decision-making and reforms.

Political sensitivity remained elevated ahead of October’s general and regional elections, although S&P said it did not expect a repeat of last year’s escalation over Republika Srpska secession threats.

“The stable outlook balances ongoing reforms — including at the Central Bank of Bosnia and Herzegovina (CBBH) — and resilient economic growth against rising fiscal imbalances ahead of this year’s elections,” S&P said.

The agency forecast net government debt would rise to 26% of GDP by 2029 from an estimated 21% in 2025, although it said debt levels remained moderate by international standards.

S&P said economic growth would be slightly above 2% this year, revised down due to weaker external demand, higher energy and transport costs linked to the Middle East conflict, and softer exports to key European markets including Germany and Italy.

Domestic consumption remained resilient, supported by increases in pensions, wages and social transfers, while industrial production continued to decline due to structural weaknesses in the electricity sector and weaker manufacturing output.

Bosnia’s progress towards European Union accession was also at risk from political deadlock, S&P said. Delays in reforms had already stalled the release of €1bn in funding linked to the Western Balkans Growth Plan.

The agency highlighted the country’s currency board arrangement, which pegs the convertible mark to the euro, as an important economic anchor but said it limited the CBBH’s ability to respond to shocks.

“S&P could raise the ratings if we see more consensus-based domestic policymaking that potentially accelerates structural reforms,” the agency said, adding that improved EU integration efforts and stronger fiscal performance could support an upgrade. Conversely, further political tensions or worsening public finances could put downward pressure on the rating.