Country Report Bosnia-Hercegovina November 2009

Outlook for 2010-11

• The governments of Bosnia and Hercegovina (BiH) and its two largely autonomous entities are expected to stay in office until the end of their terms in late 2010, despite many differences within the ruling coalitions.
• The approaching elections will represent a serious obstacle to reaching agreement on a range of reforms required for BiH's closer integration with the EU as politicians representing different ethnic groups play the nationalist card.
• The international Office of the High Representative (OHR), which has overseen BiH's post-war reconstruction since 1995, is likely to be closed down before the end of the forecast period.
• The prime minister of Republika Srpska (RS), Milorad Dodik, is expected to continue to assert the powers of his entity against efforts by Bosniak (Bosnian Muslim) leaders to strengthen the central institutions of the state.
• The RS and BiH's other entity, the Bosniak-Bosnian Croat Federation, will tighten fiscal policy, as required by BiH's stand-by agreement with the IMF.
• The Economist Intelligence Unit forecasts that economic growth will return in 2010, after a contraction in real GDP, of an estimated 3%, in 2009. We forecast growth of 1% in 2010, accelerating to 3% in 2011 as external demand picks up.
• We expect the current-account deficit to shrink from the equivalent of an estimated 9.5% of GDP in 2009 to an average of 7.4% of GDP in 2010-11 as exports pick up and tight fiscal policies in BiH limit import demand growth.

Monthly review

• A new EU-US initiative to promote constitutional reform in BiH got off to a bad start when almost all of the country's main political parties rejected it.
• The European Commission's latest annual progress report on BiH was highly critical, noting only "limited progress" in the implementation of reforms required for BiH's EU integration.
• The consolidated budget balance deteriorated sharply in January-June, when a deficit of KM180m (US$123m) replaced a surplus registered a year earlier.
• The Federation parliament has voted against cuts in war veterans' allowances, putting at risk the disbursement of the next tranche of an IMF stand-by loan.
• Industrial output in the Federation shrank by 16.2% year on year in September as demand remained weak. In the RS output rose by 21.5%, following the resumption of production at the Bosanski Brod oil refinery.
• The foreign trade deficit, at KM4.4bn (US$3.1bn), contracted by 29.1% year on year in January-August as the fall in imports outpaced the contraction in exports.

Source: Country Report