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Bosnia and Herzegovina Country Report - March, 2016

Bosnia and Herzegovina Country Report - March, 2016

This report covers the main macroeconomic releases from March 6 until April 5, 2016 as well as the financial and political events that took place in Bosnia during this period.
A UN war crimes tribunal has sentenced former Bosnian Serb leader Radovan Karadzic to 40 years in jail after finding him guilty of ten of the 11 charges against him. The sentence issued on March 24 includes the time Karadzic has already spent in custody since 2008.
The EU enlargement commissioner Johannes Hahn has urged Bosnia & Herzegovina to adopt by early May a working coordination mechanism and adjust its Stabilisation and Association agreement with Croatia’s entry in the bloc in order to give its membership application credibility.
The Foreign Affairs Committee of the European Parliament said on March 22 that Bosnia & Herzegovina should improve the effectiveness of its fight against terrorism and expressed concerns about high political pressure on judicial institutions.
Ratings agency Standard & Poor's (S&P) affirmed on March 11 its credit ratings on Bosnia & Herzegovina at B/B as it expects that the country will continue to benefit from international financial support. The outlook is confirmed at stable.
On the corporate side, the government of Bosnia & Herzegovina’s bigger entity, the Muslim-Croat Federation, has decided to launch the sale of its stake in blue chip pharmaceuticals producer Bosnalijek.

Key points:
CPI deflation worsened to 1.3% y/y in February
The working-day adjusted industrial production declined by 3.3% y/y in January
The foreign trade gap narrowed 4.2% y/y to BAM793.5mn (€405.7mn) in the first two months of 2016


EXECUTIVE SUMMARY 5
REAL SECTOR 6
1.GDP 6
Bosnia’s GDP growth slows to 2.1% y/y in Q4t 6
Bosnian Federation’s GDP rises 2.9% in 2015 6
GDP growth accelerates in Bosnia’s Republika Srpska 7
2. Inflation 7
Bosnia’s CPI deflation deepens in February 7
Bosnia’s industrial producer price deflation softens to 1.1% y/y in January 8
Bosnian Federation CPI deflation deepens to 1.3% y/y in February 8
Bosnian Federation's industrial PPI declines by 2.3% y/y in February 8
CPI deflation in Bosnia’s Republika Srpska worsens to 1.3% y/y in February 9
3. Industry and Trade 9
Bosnia’s industrial production turns to 3.3% y/y fall in January 9
Bosnian Federation’s industrial production turns to increase in February 10
Bosnia’s Republika Srpska retail sales grow by real 19.3% y/y in February 10
4. Tourism 11
Foreign tourist arrivals in Bosnia rise 7.6% y/y in January 11
Bosnia’s Republika Srpska reports 12.5% y/y increase in foreign tourist arrivals through February 11
5. Labour Market 12
Bosnia’s average net wage inches up 0.2% y/y in January 12
Bosnia’s registered unemployment rate stays at 42.9% in January 12
Bosnian Federation real net wage rises 0.7% y/y in January 13
FISCAL SECTOR, MONETARY POLICY 13
Bosnia’s indirect tax revenue rises 3.3% y/y to €762.3mn in Q1 13
Bosnian Federation sells out €15.3mn 6-month T-bills issue 14
Bosnian Federation sells out €15.3mn 3-month T-bills issue 14
Bosnian Federation sells out €10.2mn 6-month T-bills issue 14
Bosnia's Republika Srpska sells six-month T-bills worth €7.6mn, yields rise 15
Bosnia's Republika Srpska sells one-month T-bills worth €6.8mn, below target 16
Bosnia’s Republika Srpska Q1 public revenues fall 3.0% y/y 16
Bosnia's Republika Srpska sells six-month T-bills worth €12.7mn, above target 17
FINANCIAL INTERMEDIATION 17
Bosnia’s bank assets slow annual growth in January 17
Bosnia’s bank deposits grow 7.0% y/y at end-January 17
Bosnia’s M1 money supply grows 12.1% y/y at end-January 18
Bosnia’s FX reserves growth slightly improves to 10.8% y/y at end-January 18
Bosnian Federation’s banking system profit at €76.2mn in 2015 19
Bosnian banking regulator, nine others arrested in €63mn bank scam 19
EXTERNAL SECTOR 20
Bosnia’s 9-mo net FDI sinks 33.8% y/y 20
Bosnia’s 2-mo foreign trade deficit narrows 4.2% y/y 20
Bosnian Federation’s foreign trade gap up 2.7% y/y to €289mn through February 21
Foreign trade deficit in Bosnia’s Republika Srpska narrows 24.4% y/y through February 21
STRUCTURAL REFORMS, CORPORATE PLANS 22
Bosnia's Brod refinery swings to profit in 2015 22
S&P affirms Bosnia’s B/B ratings on expected international support 22
EC to provide €67.2mn to Bosnia, Croatia and Montenegro for cross-border cooperation 23
Bosnia to put stake in drug producer Bosnalijek up for sale 23
Bosnian Federation gives green light to €36mn EBRD loan for Corridor Vc construction 24
Bosnia’s Elektroprivreda HZ BH awards €71.9mn wind farm contract to Siemens-led consortiumt 25
INA-MOL drops plans to sue Bosnian Federation’s govt over Energopetrol capital hike 25
Bosnia’s BH Airlines faces bankruptcy procedure 25
POLITICS 26
Foreign affairs MEPs say Bosnia needs to improve fight against terrorism 26
EU urges Bosnia to adopt coordination mechanism, adjust SAA by May 27
Bosnia’s prosecution to interrogate statistics office officials on 2013 census 28
Bosnia’s ruling SDA and HDZ BiH near agreement on Mostar’s new statute 28
UN tribunal finds Radovan Karadzic guilty of genocide 29
Bosnia divided over Karadzic conviction 31

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