Bosnia: Country Economic Forecast: 07 Feb 2012

The economy grew by about 2% in 2011 as slowdown in the Eurozone and other former Yugoslav countries held down exports and capital inflows. Domestic political uncertainty also weighed on investment. Disappointing growth has led to a rise in non-performing debt, adding to restraint on banks' lending as they build up provisions and capital. Prospects for 2012 have deteriorated and growth is now forecast at only about 1.5%. With EU and IMF funds not fully covering Federation and republic borrowing needs, and external conditions making foreign borrowing unrealistic, the government will have to defer some capital spending as well as seeking cuts in public pension, welfare, healthcare and administrative costs. Inflation is set to fall to Eurozone levels after spiking above 4% in 2011, with the external deficit imposing monetary restraint. Greater price stability will make it easier to contain wages and other public sector costs, but is mainly a symptom of economic slowdown. Economic reform and progress on EU trade access are to re-start following the formation of a government, more than a year after the October 2010 election. Prime Minister Bevanda has promised reforms to win EU candidate status (to unlock pre-accession funding) by end-year. A national census, for which the EU was pressing, has already been authorised for 2013. But Bevanda may struggle to revise the fiscal framework as the official growth forecasts are now too high.