Country Report Bosnia-Hercegovina

Outlook for 2008-09

• Bosnia and Hercegovina (BiH) will sign an EU stabilisation and association agreement (SAA) on June 16th, after leading parties approved a largely cosmetic series of reforms to BiH's decentralised police structures.
• The approach of the local elections in October is raising the political temperature and making it less likely that BiH's parties will reach agreement on the rest of the internationally backed reform agenda.
• The Republika Srpska (RS) authorities are unlikely to push for secession in response to Kosovo's independence declaration, but the risk of such a development is greater than before.
• BiH is unlikely to recognise Kosovo's independence, since this would be another source of internal division.
• There is a risk of further delays in structural reform and privatisation. Spending pressures will persist. BiH's currency board arrangement will remain the cornerstone of macroeconomic stability.
• We forecast a slowdown in real GDP growth in 2008-09, to an annual average of 5%. This reflects our expectation of slower growth in BiH's euro zone export markets, as well as a recent tightening of monetary policy in BiH.

Monthly review

• BiH's prime minister, Nikola Spiric, has tried unsuccessfully to dismiss the foreign minister, Sven Alkalaj, on the grounds of a conflict of interest.
• Public broadcasting reform is stalled, as positions have hardened on the questions of a separate Croatian-language channel in the Bosniak-Bosnian Croat Federation and the future of the state-level public broadcaster.
• Political tensions in BiH are rising ahead of local elections scheduled for October 5th, although an internationally brokered deal will allow Bosniak parties to keep control of the highly sensitive Srebrenica municipality in RS.
• The Federation ran a larger than expected budget deficit in the first quarter of 2008, despite strong revenue growth, and may have to rebalance the budget later in the year.
• The Federation government announced a privatisation plan in May for the entity's two telecommunications companies, potentially bringing their long-delayed sales a step closer.
• Consumer price inflation in BiH accelerated to 7.5% year on year in April, driven by higher food and energy costs.
• BiH ran a (fob-cif) trade deficit of KM2.9bn (US$2.3bn) in January-April, more than one-third higher than the deficit in the year-earlier period.

SOURCE: Country Report