Bosnia-Herzegovina Country Risk Report Q1 2016
Partisan manoeuvring, ethnic divisions, and complex governing structures combine to make Bosnia-Herzegovina's political system largely dysfunctional. With few signs that radical improvements are forthcoming in even after last year's elections, we expect the country to muddle through in the coming years, with frustrating delays to badly-needed reforms.
The economic recovery is set to accelerate in 2016 and beyond, driven largely by household consumption and to a lesser extent fixed investment. Chronic unemployment and an under-developed infrastructure will remain impediments to even faster growth. Budget policy will continue to be guided by the IMF due to the government's reliance on external funding to cover its budget deficits.
This should ensure fiscal discipline, though has so far done little to address structural problems.
Political risks and business environment deficiencies will continue to weigh on foreign direct investment inflows, which are needed to cover the relatively wide current account shortfall.
Major Forecast Changes
We have adjusted our forecast for the current account deficit in 2015 to 7.3%, from a previous 8.1%, due to the impact of lower commodity prices on the import bill and an improving outlook in some of Bosnia's major export markets.
Sustained weakness in oil prices has kept inflation low for much of 2015, as such we have revised down our average inflation forecast for 2015 to -0.2%. Similarly, we have revised down our average inflation forecast for 2016 to 1.5% from 1.8% previously.
- Executive Summary
- Core Views
- Major Forecast Changes
- Key Risks
- Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Index
- Domestic Politics
- Political Infighting Will Continue To Undermine Reform Agenda
- The political climate in Bosnia-Herzegovina will remain highly unstable as party disputes hamper efforts at reform in the two entities, and
- st ate-level institutions continue to be undermined by ethnic tensions and separatist movements.
- TABLE: POLITICAL OVERVIEW
- Long-Term Political Outlook
- Unity Will Prove Elusive Over Next Decade
- 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.
- Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Index
- Economic Growth Outlook
- Growth To Gather Pace In 2016 And Beyond
- We expect economic growth in Bosnia-Herzegovina to accelerate to 2.8% in 2016 and 3.2% in 2017 as consumer confidence recovers
- and the improved regional outlook supports export growth.
- GDP By Expenditure Outlook
- TABLE: GDP GROWTH FORECASTS
- TABLE: PRIVATE CONSUMPTION FORECASTS
- TABLE: GOVERNMENT CONSUMPTION FORECASTS
- External Trade And Investment Outlook
- Wide External Imbalance To Remain A Risk To Stability
- Bosnia-Herzegovina's current account deficit is set to stabilise at around 7% of GDP in the coming years, leaving the country in need of
- increased FDI inflows to cover the gap.
- TABLE: FIXED INVESTMENT FORECASTS
- TABLE: NET EXPORTS FORECASTS
- Outlook On External Position
- TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
- TABLE: TOP FIVE GOODS IMPORTS IN 2014
- TABLE: TOP FIVE GOODS EXPORTS IN 2014
- Fiscal Policy and Public Debt Outlook
- Funding Dependency Will Anchor Fiscal Policy
- The central government in Bosnia-Herzegovina will maintain fiscal discipline due mainly to its reliance on IMF and EU funds to cover
- budget deficits in the country's two autonomous entities.
- Structural Fiscal Position
- Monetary Policy
- Low-Inflation Environment To Persist In 2016
- Bosnia-Herzegovina remains in deflation territory, with wage growth subdued and international fuel and food prices still comfortably
- below last year's rates.
- Monetary Policy Framework
- Chapter 3: 10-Year Forecast
- The Bosnian Economy To 2024
- Political Tensions To Slow Economic Convergence
- Bosnia's economic and political convergence will continue to be hampered by 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.
- TABLE: LONG-TERM MACROECONOMIC FORECASTS
- Chapter 4: Operational Risk
- SWOT Analysis
- Operational Risk Index
- Operational Risk
- TABLE: OPERATIONAL RISK INDEX
- TABLE: EMERGING EUROPE - EDUCATION RISK
- Government Intervention
- TABLE: EMERGING EUROPE - GOVERNMENT INTERVENTION
- Chapter 5: BMI Global Macro Outlook
- Global Outlook
- Exit The Dragon
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
- TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
- TABLE: EMERGING MARKETS, REAL GDP GROWTH, %