Country Report Bosnia-Hercegovina May 2009

Outlook for 2009-10

• Disagreements over proposed constitutional reforms are undermining the stability of the government in the Bosniak (Bosnian Muslim)-Bosnian 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 continue to be delayed by the slow pace of reform.
• The Economist Intelligence Unit has revised down its forecast for real GDP growth, to -2% in 2009, because of the deepening recession in BiH's main export markets. We expect modest growth, of 0.5%, to return in 2010.
• We forecast a contraction in the current-account deficit from an estimated 15.3% of GDP in 2008 to an average of 8.7% of GDP in 2009-10, as a result of slowing import demand and lower oil prices.

Monthly review

• Tensions have risen within the main Bosniak political force, the Party of Democratic Action (SDA), ahead of its convention on May 26th, where the party's chairman, Sulejman Tihic, faces a leadership contest.
• The prime minister of the Federation, Nedzad Brankovic, who is believed to be close to Mr Tihic's opponents within the SDA, is among senior officials who have been charged with corruption.
• The government has opened talks with the IMF to arrange a stand-by loan to help to stabilise BiH's fiscal position, which has deteriorated as tax receipts have weakened and the Federation authorities have failed to rein in spending.
• The Central Bank of BiH has cut the commercial banks' reserve ratio requirement from 10% to 7% to boost liquidity.
• Industrial output in the Federation shrank by 10.9% year on year in January-March as demand dropped in BiH's main export markets; in the RS output grew by 13.1% after the resumption of work at the Bosanski Brod oil refinery.
• The trade deficit contracted by 35.8% year on year in US dollar terms in the first quarter as imports declined faster than exports, following a drop in domestic demand and demand for raw materials to be processed for export.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336