Country Report Bosnia-Hercegovina April 2009

Outlook for 2009-10

• Disagreements over proposed constitutional reforms are undermining the stability of the government in the Bosniak (Bosnian Muslim)-Croat Federation, the larger of the two entities in Bosnia and Hercegovina (BiH).
• The dispute within the government may lead to a reshuffle. The prospect of a pre-term election, before the government's mandate runs out in October 2010, is fading, as the parties are reluctant to test their strength at the ballot box.
• Talks on constitutional reforms are facing fresh obstacles as the Bosnian Serb entity, Republika Srpska (RS), insists on the right to secession from BiH.
• Plans to replace BiH's international High Representative with a less powerful EU Special Representative (EUSR) will be delayed by the slow pace of reform.
• The Economist Intelligence Unit forecasts real GDP to contract by 1% in 2009followed by modest growth, of 1%, in 2010because of tighter macroeconomic policies and the recession in BiH's main export markets.
• We forecast a contraction in the current-account deficit from an estimated 15.5% in 2008 to an average of about 9% in 2009-10, owing to slowing import demand and lower international oil prices.

Monthly review

• The multinational Peace Implementation Council (PIC) has decided not to set a timetable for closing the Office of the High Representative (OHR) in BiH, despite a call by Russia for its immediate closure.
• Parliament has adopted the first amendment to the constitution, drafted at Dayton in 1995, settling the status of the self-governing district of Brcko.
• The Federation government has rebalanced the 2009 budget, increasing expenditure by 19%, to cover the deficit from 2008.
• The BiH government has increased excise duties on alcohol and cigarettes, and road tax, to offset the weakening performance of indirect taxes in 2009.
• Year-on-year industrial output in the Federation fell again in February, owing to a drop in demand in BiH's main export markets, whereas in the RS output was boosted by the resumption of work at Bosanski Brod oil refinery.
• The trade deficit contracted by 24% year on year in January-February as imports declined more rapidly than exports, following a sharp drop in domestic demand.

Source: Country Report