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Bosnia-Herzegovina Country Risk Report Q1 2017

  • November 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views

Local elections in October confirmed strong support for parties that maintain a hard-line stance on protecting ethnic interests, once again exposing the inherent weakness at the core of Bosnia's dysfunctional political system. Economic growth eased in H116, but we expect a pickup in activity towards the end of the year and heading into 2017 as a new IMF deal shores up consumer and investor confidence. Budget policy will be anchored by the three-year IMF lending agreement, especially as the entity governments rely on external funding to cover budget deficits. This should ensure short-term financial stability and fiscal discipline, though has so far done little to address deeper structural problems.

Major Forecast Changes We have revised up our GDP growth targets for 2017 and 2018 to 3.0% and 3.4%, respectively, as external headwinds post-Brexit vote were not as severe as expected and domestic demand is set to accelerate. As deflation persisted through the first nine months of 2016, we have lowered our target for full-year average inflation to -0.8%, but expect a reversal to 1.1% inflation in 2017. We have increased our estimate for the 2016 current account deficit to 6.1% of GDP on account of disappointing remittance inflows and higher demand for imports as local investment picks up.

Table Of Contents

Bosnia-Herzegovina Country Risk Report Q1 2017
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks5
Chapter 1: Economic Outlook7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
IMF Deal Supports Sanguine Outlook, But Deeper Problems Remain 8
A new IMF loan deal will shore up economic stability and support steady growth in the coming quarters, with domestic demand driving
the expansion amid soft regional demand for exports Deep-rooted structural rigidities and elevated political risks will continue to weigh
on the country's growth potential, limiting income convergence with more developed states in the region
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS 9
TABLE: PRIVATE CONSUMPTION FORECASTS 9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS 10
TABLE: NET EXPORTS FORECASTS 10
Structural Fiscal Position 11
TABLE: FISCAL AND PUBLIC DEBT FORECASTS 11
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 2015 11
Outlook On External Position 12
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE 12
TABLE: CURRENT ACCOUNT BALANCE FORECASTS12
TABLE: CURRENT ACCOUNT BALANCE FORECASTS13
TABLE: TOP FIVE GOODS EXPORTS IN 2015 13
TABLE : TOP FIVE GOODS IMPORTS IN 2015 14
Monetary Policy Framework 14
TABLE: MONETARY POLICY FORECASTS 14
Chapter 2: 10-Year Forecast 17
The Bosnian Economy To 2025 17
Structural Rigidities To Limit Growth And Convergence Potential17
Bosnia's economic and political convergence will continue to be hampered by structural rigidities and underlying inter-ethnic tensions in
the country Over the long term, divisions among the ethnic Serb, Croat and Bosnian political parties will continue to slow progress on a
host of EU-related reforms That said, while we do not expect Sarajevo to obtain EU membership by 2025, we nevertheless maintain a
relatively sanguine outlook on the country's fundamental growth prospects
TABLE: LONG-TERM MACROECONOMIC FORECASTS 17
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index19
Domestic Politics20
Wins For Nationalist Parties Underscore Ethnic Divisions 20
Local elections revealed strong support for nationalist parties in Bosnia-Herzegovina, providing little hope for meaningful change in a
political climate dominated by ethnic divisions The EU and IMF provide important platforms for dialogue, and should at least maintain
the awkward status quo in the short term
TABLE: POLITICAL OVERVIEW 20
Long-Term Political Outlook 22
Political Unity To Remain Elusive Over Next Decade 22
Tensions between ethnic groups will continue to undermine Bosnia's EU accession prospects, development potential and risk profile
through the next decade, with a number of issues having the potential to result in a further deterioration in the political situation That
said, we expect the international community to remain firmly committed to Bosnia, which should prevent a relapse into large-scale
armed conflict
Chapter 4: Operational Risk 27
Operational Risk 27
TABLE: OPERATIONAL RISK 27
Business Crime 28
TABLE: BUSINESS RESPONSE TO RISKS IN BOSNIA 30
Government Intervention 32
TABLE: BUSINESS TAXES 32
Chapter 5: BMI Global Macro Outlook37
Global Macro Outlook 37
Austerity Has Peaked, But Populism Is Not Yet Policy 37
TABLE: GLOBAL ASSUMPTIONS37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: MACROECONOMIC DATA and FORECASTS 41

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