Country Report Bosnia-Hercegovina October 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 expect 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

• The Organisation for Security and Co-operation in Europe (OSCE) has urged the BiH authorities to end the delay in the filling of vacant senior posts.
• Bosnian Croat ministers ended a boycott of the Federation government after party leaders agreed on how to settle a dispute over the siting of a new road.
• The RS government revised the entity's 2009 budget in August, cutting expenditure by 4.2% compared with the original budget, to KM1.66bn? (US$1.15bn).
• The World Bank is to provide a loan, worth ???186m (US$253m) over three years, to help BiH's governments to reform their budgets and cut expenditure.
• Industrial output in the Federation shrank by 10% year on year in August, owing to sluggish demand. In the RS output grew by 11.8%, following the resumption of production at the Bosanski Brod oil refinery.
• The consumer price index (CPI) declined in July by 1.2% year on year, reflecting lower international oil prices and weak domestic demand. Higher excise duties on alcohol resulted in a 0.7% month-on-month rise in the CPI.