S&P Global Ratings has upheld the Federation of Bosnia and Herzegovina's long- and short-term issuer credit ratings at 'B+/B' and reaffirmed its 'B+' senior unsecured issue rating on the constituent entity, while maintaining a negative outlook.
The negative outlook, S&P says, reflects the risk that a newly formed government might not be able to consolidate public finances over 2027-2028. That concern stems from substantial increases in budget spending that the Federation implemented in the run-up to the general election scheduled for Oct. 4, 2026, which have produced a large budget shortfall across 2026-2027.
S&P's own projections show a marked widening of the deficit after capital accounts in 2026, approaching nearly 20% of total revenue. This deterioration follows two policy moves: a reduction in the social contribution fee in 2025 and a 17% increase in the state pension in 2026, each adopted by parliament and cited by the rating agency as drivers of the revenue-pressure and spending surge.
As a result of these policy changes and the elevated deficit, S&P forecasts that tax-supported debt - a figure that includes indebtedness carried by entities such as public companies and municipalities - will spike to roughly 140% of consolidated revenue in 2026. The agency expects that measure of indebtedness will fall back below 120% over 2028-2029 as fiscal adjustment takes hold after the election period.
Despite the near-term fiscal deterioration, S&P anticipates steady economic growth and significant financial autonomy for the Federation will contribute to deficit reduction and a return of the debt burden toward more moderate levels in the years following the 2026 vote. The agency projects regional GDP per capita to remain under $12,500 through 2028 and real GDP growth in the Federation to run between 1.5% and 2.7% annually over 2026-2028.
S&P also outlined conditions that could trigger a rating downgrade: if fiscal management does not produce material and rapid improvement in budgetary performance within 12-24 months after the elections, or if the Federation's access to external financing weakens.
Separately, the Federation plans to tap international debt markets with a Eurobond planned for the second quarter of 2026. This issuance follows a €350 million Eurobond the entity sold on the London Stock Exchange in July 2025.
The rating action leaves the Federation on a precarious fiscal path in the near term while S&P's baseline expects gradual stabilization and debt reduction beyond the election-related spike.