Moody's may upgrade Bosnia, Herzegovina

Moody's Investors Service said it placed on review for possible upgrade Bosnia and Herzegovina's B3 foreign-currency country ceiling for debt, Caa1 foreign-currency country ceiling for bank deposits and B3 domestic- and foreign-currency issuer ratings. The local-currency guideline and local-currency bank ceiling are unchanged at Ba1.

The review reflects the meaningful progress in nation building that has taken place since the ratings were first assigned in March 2004, the agency said. Bosnia and Herzegovina has begun negotiations with the European Union on a Stabilization and Association Agreement following important reforms to unify both the police and military forces. Moody's said it believes that the agreement would bolster integration with Europe and further underpin the country's political and economic maturation.

Recent economic policy advances include this year's successful implementation of the value-added tax following the creation of the Indirect Tax Authority, the establishment of a National Fiscal Council, a consistent acceleration of export growth and the fact that the consolidated State and entity budgets have been in balance or registered small surpluses, the agency said.

Factors that constrain the ratings include a lack of resolution on the issuance of domestic debt to compensate claimants for frozen foreign-currency deposits and war reparations, Moody's said, and the large current account deficit, which could exert stress on the currency board arrangement.

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