Country Risk Service Bosnia-Hercegovina November 2012 Updater

Country Risk Service Bosnia-Hercegovina November 2012 Updater

Overview

Political stability in Bosnia and Hercegovina (BiH) is set to remain precarious, as fresh disputes have followed the formation of a new central government in February 2012, after a 16-month deadlock. 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 (SAA) with the EU. The currency board will remain the cornerstone of monetary policy. We forecast that after an estimated contraction of 0.2% in real GDP in 2012, economic activity will rebound modestly, by 0.8%, in 2013, and then accelerate to an annual average of 3% 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, and is then set to widen to an average of 7.6% in 2015-17.

Key changes from last month

Political outlook

Parliament voted on 22nd October to dismiss two ministers representing the main Bosniak political force, the Party of Democratic Action (SDA). The move, which will be followed by a reshuffle, should end the five-month deadlock that has paralysed the central government.

Economic policy outlook

Fiscal performance was poor in January-September, with indirect tax receipts rising by only 0.05% year on year, as economic activity weakened-supporting our estimate that the budget deficit in 2012 will widen.

Economic forecast

In January-September exports shrank by 12.5% year on year in US dollar terms and imports shrank by 9.1%, with the trade deficit narrowing by 5.6%, to US$3.59bn. The current-account deficit is set to narrow in 2012-14.

Please Note: Due to the Nature of This Report The Toc is Not Available