In a report titled “Former Yugoslav Republics 25 Years After the Fall of Yugoslavia. Where Are They Now?”, the rating agency Standard & Poor’s (S&P) announced that most countries that emerged in that area are rated lower than their initial rating, specifically in the ‘B’ or ‘BB’ category, except for Slovenia, which has an A rating and stable outlook.
“With the exception of Serbia and Slovenia, we hold ratings lower than their initial ratings due to inherited issues that have pressured their credit ratings over the years. As these issues remain a key limiting factor for the rating, resolving them will be crucial for improving credit ratings,” says S&P analyst Felix Winnekens in a report published on Monday.
S&P maintains Bosnia and Herzegovina’s rating at ‘B/B’, with a stable outlook, Croatia at ‘BB/B’, with a negative outlook, Montenegro at ‘B+/B’ with a negative outlook, North Macedonia at ‘BB-/B’, with a stable outlook, and Serbia at ‘BB-/B’, with a stable outlook. Thus, all these countries have non-investment ratings.
Most of today’s characteristics of the former republics, such as their economic structure, political institutions, public finances, and monetary regimes, have been influenced and shaped by Yugoslavia and the violent breakup of the federal state, the agency states.
The region still carries parts of the socialist legacy related to political patronage and corruption and relatively weak ‘checks and balances’ that affect institutional effectiveness, the report states.
Inefficient and large public administrations are another inherited issue that undermines the business environment, it adds.
“EU accession remains on the agenda, but it seems very distant. The ruling parties in the region remain committed to EU integrations. This serves as an important anchor for our institutional assessments, although these countries are at different stages of the accession process. Slovenia and Croatia are the only EU members, while Serbia and Montenegro are in the accession process, and BiH and North Macedonia have not yet started membership talks,” the report states.
Today’s monetary policy regimes across the region reflect institutional constraints and historical experiences, and half of the countries that inherited Yugoslavia are at the lower end of S&P’s assessment of monetary flexibility.
The very different monetary regimes in these countries manifest historical bouts of hyperinflation and institutional constraints. The history of low savings rates and associated continuous deficits in the balance of payments has resulted in external vulnerabilities in most countries, the report highlights.
It adds that the main weaknesses of the former Yugoslav republics remain “democracies in their infancy” and insufficiently effective institutions.
“Low income levels and weak public finances, as well as stubbornly inefficient resource allocation, are still largely present in these countries, which are nonetheless on the path to becoming market economies. The process of convergence with the rest of Europe will be long and thorny, but some progress has been made under strong external ‘stabilizers’, such as the prospect of EU accession,” the report states.
