Country Report Bosnia-Hercegovina January 2009

Outlook for 2009-10

• The local elections in October have reinforced the positions of leading political parties representing the three main ethnic communities of Bosnia and Hercegovina (BiH), and this may lead to a government reshuffle.
• The parties that have gained ground in the elections have shown willingness to agree constitutional amendments and other reforms, which, if implemented, would help to facilitate BiH's integration with the EU.
• BiH is unlikely to recognise the independence of Kosovo, as the Bosnian Serb entity, Republika Srpska (RS), remains firmly opposed to this.
• There is a risk of further delays in structural reform and privatisation, owing to political disagreements and a slump in asset prices in the wake of the global economic downturn.
• The Economist Intelligence Unit forecasts a slowdown in real GDP growth to an annual average of 2% in 2009-10, reflecting an expectation of tighter macroeconomic policies and a recession in BiH's euro zone markets.
• We expect a current-account deficit of 15.6% of GDP in 2008 to be followed by a contraction to an average of around 12% of GDP in 2009-10, as a result of falling international oil prices and slowing import demand.

Monthly review

• The country's three main political parties have taken the first practical steps to push through constitutional amendments and other reforms that are required to facilitate BiH's integration with the EU.
• The government has adopted a national strategy for processing war crimes cases, which envisages all high-priority cases being tried within seven years.
• BiH has had to resort to temporary financing arrangements, following the ruling coalition's failure to agree a budget for 2009.
• The Bosniak (Bosnian Muslim)-Croat Federation has adopted a balanced budget for 2009. It makes no provisions for payments to war veterans, and cuts in public administration are under consideration.
• The Central Bank of BiH has reduced commercial banks' reserve requirement ratio from 14% to 10% of deposits to boost liquidity and lending.
• The consumer price index decreased by 0.6% month on month in November, following lower transport costs, bringing the annual rate of inflation down to 5.5% from 7.3% in October.
• BiH's merchandise trade gap amounted to KM8.8bn (US$6.6bn) in January-November, an increase of 18.9% on the year-earlier period, compared with an increase of 34.7% in January-October, as imports fell sharply in November.

This report covers the following industry codes:
SIC Code: 60;39
NAICS Code: 52;31