Bosnia Country Report - November, 2013

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Bosnia Country Report - November, 2013

This report covers the main macroeconomic releases for Bosnia from early November till early December 2013, as well as the financial and political events that took place in Bosnia during this period. The report also includes corporate news related to Shell and the launch of a new infrastructure tendering process.

Bosnia’s B3 rating with stable outlook remains constrained by the complexities of the country's political system, the reduction of its productive base, wide external deficits, and substantial unemployment, rating agency Moody’s said in early December in an annual update to markets (not a rating action). The IMF and Bosnia have settled on the country’s medium-term policy agenda and the 2014 central state and entities budgets, an IMF mission said in a statement on November 20. Bosnia’s state and entities parliaments need to approve the 2014 budgets by December 9 to enable the disbursement of the next tranche under its EUR 390mn standby deal with the Fund.

The IMF has revised its 2013 GDP forecast for Bosnia upward to 0.8% from 0.5% on higher exports, industrial output, and investments in the road and mining sectors.
On the other hand, the EBRD left its 2013 GDP growth outlook for Bosnia unchanged at just 0.1% in the November edition of its Regional Economic Prospects, as compared to the previous report in May. Both the IMF and the EBRD forecasts are considerably less optimistic than the latest projection of the government's Directorate for Economic Planning (DEP) for 2.3% GDP growth this year.

Key Points:

• In corporate news, Bosnia’s Muslim-Croat Federation plans to start talks on an oil concession deal with a unit of Royal Dutch Shell in February and wrap up the talks within nine months. The EBRD has advised that Bosnia will start tendering in the first quarter of 2014 for goods, works, and services required within a EUR 70mn project for revamping the railway infrastructure.

• October’s consumer price index fell 0.9% y/y after declining 0.5% y/y the month before on falling food, clothing and footwear, transport, and health costs.

• Bosnia's industrial production index increased 6.4% y/y in January–October on the back of higher manufacturing and electricity production. The unemployment rate ticked down to 44.8% at end-September from 44.9% at end-August, the country’s labor and employment agency said.

• The foreign trade gap shrank 11.8% y/y to EUR 2.85bn in January–October due to rising manufacturing and utilities exports, while imports declined over the period. Bosnia’s central bank gross foreign reserves increased 9.4% y/y to EUR 3.5bn at end-October, slowing down slightly from a 9.7% y/y rise the month before.

Table of Contents

Executive Summary
1. Macroeconomic Overview
1.1 Moody’s says Bosnia’s rating constrained by high level of external vulnerabilities and complex governance
1.2 Bosnia and IMF move closer to stand-by deal extension, final approval expected by year-end
1.3 IMF raises Bosnia’s 2013 GDP forecast to 0.8% on higher exports, industrial output
1.4 EBRD keeps Bosnia’s 2013 GDP growth forecast at 0.1%

2. REAL SECTOR
2.1 GDP, Inflation
2.1.1 Bosnia’s GDP growth weakens in Q3 on slower exports, industrial output, domestic demand - Directorate for Economic Planning
2.1.2 Bosnia's CPI inflation drops 0.5% y/y in Sept 2013
2.1.3 Bosnia’s PPI deflation deepens to 3.9% y/y in Oct 2013

2.2 Industry and Trade
2.2.1 Bosnia's industrial production increases 6.4% y/y in Jan-Oct 2013

2.3 Labour Market
2.3.1 Bosnia’s jobless rate edges down to 44.8% at end-September 2013 – employment agency
2.3.2 Bosnia’s number of employees edges down 0.7% y/y in September 2013

2.4 Tourism
2.4.1 Foreign tourist arrivals to Bosnia increase 21% y/y in Jan-Sep 2013

3. Fiscal Sector, Monetary Policy
3.1 Bosnia's central government adopts 2014 budget draft with 3.8% higher spending
3.2 Bosnia’s public debt reaches 43% of GDP at end-2012 – Directorate for Economic Planning
3.3 Bosnia’s Serb Republic parliament approves revised 2014 budget, ups revenue by 3.2%
3.4 Bosnia’s Jan-Nov indirect tax revenue edges up 0.2% y/y to EUR 2.8bn
3.5 Bosnia’s M1 growth eases to 6.1% y/y in October 2013
3.6 Bosnia's FX reserves rise 9.4% y/y to EUR 3.5bn at end-Oct 2013

4. Financial Intermediation
4.1 Share of non-performing loans in Bosnia rises to 14.9% in Q3 2013

5. External Sector
5.1 Bosnia’s Jan-Sep FDI drop 51% y/y to EUR 97mn – Directorate for Economic Planning

6. Structural Reforms, Corporate Plans
6.1 Bosnia to start talks on oil exploration concession with Shell in Feb 2014
6.2 Bosnia to start tendering for EUR 70mn railway infrastructure upgrade project in Q1 2014 – EBRD
6.3 Bosnia’s govt approves EUR 160mn loan from EIB for Banja Luka –Doboj motorway

7. Politics
7.1 Bosnia’s main political parties and EU advance on Sejic-Finci implementation
7.2 UN extends mandate of European peacekeepers in Bosnia until Nov 2014
7.3 Bosnia’s Parliament approves ID registrations law
7.4 EU says amendments to Bosnia’s law on conflict of interest not in line with intl standards

Number of pages: 22
Release Date: Thu, 05 Dec 2013