Country Risk Service Bosnia-Hercegovina January 2013

Country Risk Service Bosnia-Hercegovina January 2013

Overview

Political stability in Bosnia and Hercegovina (BiH) is set to remain precarious, despite the resolution in November of a six-month crisis that had paralysed the central government. The Economist Intelligence Unit expects limited reforms, required for EU integration, to be agreed by the government of the prime minister, Vjekoslav Bevanda, but there will be delays because of disputes between the main political parties. The international High Representative, Valentin Inzko, will try to promote further reforms before his post is abolished, probably by end-2014. Economic policy will focus on fiscal consolidation, while trying to encourage economic growth, and on the implementation of the stabilisation and association agreement with the EU. The currency board will remain the cornerstone of monetary policy. We forecast that, after an estimated contraction of 0.5% in real GDP in 2012, economic activity will rebound modestly, by 0.4%, in 2013, with growth accelerating to an annual average of 2.9% in 2014-17. The current-account deficit is forecast to shrink to an average of 6.1% of GDP in 2013-14, as domestic demand remains weak, but is set to widen to an average of 7.8% of GDP in 2015-17.

Key changes from last month

Political outlook

EU foreign ministers, meeting on December 11th, expressed their "disappointment" with BiH's lack of progress in implementing EU-mandated reforms, and called for the formation of stable governments at all levels. Reforms will be delayed by recurring disputes between rival parties.

Economic policy outlook

The BiH parliament adopted the 2013 budget on December 6th, projecting expenditure of KM1.74bn (US$1.14bn). The adoption of the budget will pave the way for the disbursement of a second EUR60m (US$78m) tranche from the IMF's EUR405m stand-by loan for BiH.

Economic forecast

The consumer price index in the Federation remained unchanged in November, bringing down annual inflation to 1.9%, from 2.3% in October. Inflation will slow in 2013 as domestic demand is set to remain weak.

Do to the nature of this product there is no table of contents.