Country Report Bosnia-Hercegovina March 2009

Outlook for 2009-10

• Disagreements over proposed constitutional reforms may lead to a government reshuffle in the Bosniak (Bosnian Muslim)-Bosnian Croat Federation, the larger entity in Bosnia and Hercegovina (BiH).
• If no reshuffle takes place, a parliamentary election may be called in the Federation well before the government's mandate runs out in October 2010.
• Talks on constitutional reforms are facing fresh obstacles as the Bosnian Serb entity, Republika Srpska (RS), insists on its 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 has revised down its forecast for real GDP growth in 2009, and now expects a contraction of 1%, followed by a rebound to 1% growth in 2010, in light of tighter macroeconomic policies and the deepening recession in BiH's euro zone markets.
• We forecast a contraction in the current-account deficit from an estimated 15.9% in 2008 to an average of about 9.5% in 2009-10, as a result of slowing import demand, and lower international oil and other commodity prices.

Monthly review

• An Austrian diplomat, Valentin Inzko, has been appointed as the High Representative to BiH, following the resignation of Miroslav Lajcak.
• The three-party talks on constitutional reform were broken off when the Bosnian Serb side walked out of a meeting in February, demanding that its negotiating partners recognise the RS's right of secession.
• The Federation's government is urgently trying to raise a loan from commercial banks to finance its budget deficit. The government's plans to cut social benefits have provoked protests.
• The Federation government has adopted an ambitious privatisation programme, hoping to raise KM1bn (US$683m) over the next 15 months.
• Industrial output in January fell by 11.1% year on year in the Federation and by 5.6% in the RS, as manufacturing contracted sharply under the impact of the global economic downturn.
• Exports and imports both dropped in January, resulting in a 16.4% year-on-year fall in the trade deficit, to KM430.6m.

This report covers the following industry codes:
SIC Code: 70;60;10;49
NAICS Code: 72;52;212;22