Bosnia and Herzegovina Country Report - June, 2016

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Bosnia and Herzegovina Country Report - June, 2016

This report covers the main macroeconomic releases from June 6 until July 5, 2016 as well as the financial and political events that took place in Bosnia during this period.
The World Bank has raised its forecast for Bosnia & Herzegovina’s economic growth in 2016 to 2.6%, though this is still below the estimated 3.2% in 2015, according to the June’s edition of the bank's Global Economic Prospects. On the other hand, , according to a 2017-2019 economic prospects paper, adopted by the government, Bosnia’s economy is expected to grow by 3.5% in 2017 from projected 3.1% this year.
The lower chamber of Bosnia & Herzegovina’s parliament, the House of Representatives, approved at an extraordinary session on June 16 changes to the public broadcasting law that should save the state-level public broadcaster BHRT from shutting down at the end of the month.
Bosnia & Herzegovina's state-level statistics office released on June 30 the long delayed final results of the 2013 census, despite strong objections from Republika Srpska, one of the entities making up the country. The census was the first conducted since the end of the Bosnian war in 1995.
Bosnia & Herzegovina’s tripartite presidency has delayed voting on the adjustment of its Stabilisation and Association agreement with the European Union as the country’s smaller entity, Republika Srpska, has rejected it.
If Bosnia & Herzegovina does not adopt adjustments of its Stabilisation and Association Agreement (SAA) and fails to approve a working coordination mechanism, the foreign affairs council of the European Union will not accept its membership application, according to the of the EU delegation to Bosnia, Lars-Gunnar Wigemark.

Key points:
• CPI deflation eased to 1.5% y/y in May
• The working-day adjusted industrial production increased 3.9% y/y in May
• The foreign trade gap narrowed 4.9% y/y to €1.3bn in the first five months of 2016

Table of Contents

EXECUTIVE SUMMARY 5
REAL SECTOR 6
1.GDP 6
Bosnia projects 3.5% economic growth for 2017 6
World Bank lifts Bosnia’s 2016 GDP growth forecast to 2.6% 6
2. Inflation 7
Bosnia’s industrial producer price deflation cools to 0.2% y/y in May 7
Bosnia’s CPI deflation eases to 1.5% y/y in May 7
Bosnian Federation's industrial PPI declines by 2.4% y/y in May 7
Bosnian Federation's CPI deflation holds at 1.6% y/y in May 8
Industrial producer prices in Bosnia’s Republika Srpska rise 3.4% y/y in May 8
Bosnia’s Republika Srpska deflation eases to 1.6% y/y in May 8
3. Industry and Trade 9
Bosnia’s industrial production growth accelerates in May 9
Bosnian Federation’s industrial production rises 3% y/y in May 9
Bosnia’s Republika Srpska retail sales growth slows in May 10
Bosnia’s Republika Srpska industrial production growth accelerates in May 10
4. Tourism 11
Foreign tourist arrivals in Bosnia rise 12.9% y/y through April 11
Bosnia’s Republika Srpska reports 14.3% y/y increase in foreign tourist arrivals through April 11
5. Labour Market 11
Bosnia’s registered unemployment rate falls to 42% in April 11
Number of unemployed in Bosnia continues decline in April 12
Bosnia’s average net wage falls 0.4% y/y in April 12
Bosnian Federation's real net wage rises 1.3% y/y in April 13
Real wage grows 2.7% y/y in May in Bosnia’s Republika Srpska 13
FISCAL SECTOR, MONETARY POLICY 13
Bosnia’s H1 indirect tax revenue rises 3.1% y/y to €1.6bn 13
Bosnia’s Q1 consolidated budget posts €4.3mn surplus 14
Bosnian Federation adopts budget framework for 2017-2019 14
Bosnian Federation’s 5-mo public revenues rise 11% y/y 15
Bosnian Federation sells out €10.2mn 6-month T-bills issue with negative yield 15
Bosnia’s Republika Srpska H1 public revenues stay flat y/y 15
Bosnia’s Republika Srpska raises €5.1mn in 12-month T-bills 16
Bosnia’s Republika Srpska raises €8.7mn from 6-month T-bills, above target 16
FINANCIAL INTERMEDIATION 17
Bosnian bank deposits grow 8.2% y/y at end-April 17
Bosnia’s M1 money supply grows 12.9% y/y at end-April 17
Bosnia’s bank assets cool annual growth in April to 4.3% 17
Bosnia’s FX reserves grow 9.7% y/y at end-April 18
Bosnian Federation’s banking system profit at €37.3mn in Q1 18
EXTERNAL SECTOR 19
Bosnia’s foreign trade deficit narrows 4.9% y/y through May 19
Bosnian Federation’s 5-mo foreign trade gap expands 4.6% 19
Foreign trade deficit in Bosnia’s Republika Srpska narrows 26.6% y/y through May 20
STRUCTURAL REFORMS, CORPORATE PLANS 20
ArcelorMittal, Israeli Investment Group reportedly file new bids for control of Bosnian iron ore mine 20
Second attempt to sell Bosnian insurer Sarajevo Osiguranje fails 21
Bosnia’s Pavlovic Banka to raise capital by €5.1mn 21
Drug producer Bosnalijek approves flat dividend for 2015 22
Bosnian Federation lowers price of stake in insurer Sarajevo Osiguranje 22
Sale of Bosnian insurer Sarajevo Osiguranje fails on lack of bidders 23
Bosnia to increase IMF quota by €120.5mn 23
Bosnia to borrow €65mn from EBRD for road upgrades 23
Hungarian companies eye €61mn investments in Bosnia in 2016 24
ArcelorMitta reportedlyl interested in buying control of Bosnian iron ore mine 24
Turkish Airlines reportedly interested in building new airport in Bosnian capital 24
Bosnian parliament approves changes to law to save public broadcaster BHRT 25
Bosnia to seek €50mn from IPA in 2016 25
Bosnia’s Republika Srpska probes state development bank 26
POLITICS 27
Bosnia & Herzegovina announces long delayed 2013 census results 27
Slower EU economic growth after Brexit could affect Bosnia, central bank says 28
Bosnia’s opposition SDS party files appeal at constitutional court against census results announcement 28
Bosnia’s presidency delays approval of SAA adjustment due to objection by Republika Srpska 29
EU will not approve Bosnia’s membership application without SAA adjustment, coordination mechanism 31
Bosnian authorities fail to agree on EU-required coordination mechanism 31
Bosnia’s central government approves SAA adjustment despite objections from Republika Srpska 32
Bosnia’s Republika Srpska turns down EU’s SAA adjustment proposal 33

Number of pages: 33
Release Date: Sun, 17 Jul 2016