SARAJEVO (Bosnia and Herzegovina), January 24 (SeeNews) – French credit insurance agency Coface said Bosnia and Herzegovina's GDP growth will accelerate to 3.2% this year from 2.9% in 2017 driven by consumption and exports.
Despite a low-quality institutional and political environment in Bosnia, economic activity is expected to continue to grow moderately in 2018, Coface said in its Country and Sector Risks 2018 report, published on Tuesday.
Household consumption should be further improved by rising income, which will benefit from the vitality of immigrant workers’ remittances (9% of GDP) and the tourism boom, according to Coface.
Retail trade too will benefit from this favourable trend, unless the problem of Croatian Agrokor’s local distribution subsidiaries (Konzum and Mercator) is not resolved.
"Primary sector and industry exports, particularly mineral extraction, forestry, basic metallurgy, chemicals, shoes, and machinery, will grow thanks to the favourable economic situation of the main trading partners," Coface said.
Public investment, however, will depend on the release of funding by the IMF as part of the global lender's expanded credit facility and, indirectly, funding from the EU.
The Executive Board of the International Monetary Fund plans to consider the first review under its three-year loan deal with Bosnia and Herzegovina on February 9, the Fund told SeeNews earlier this week.
In September 2016, the IMF approved a three-year 553.3 million euro ($683.8 million) loan to Bosnia to support the country's economic reform agenda. However, the IMF delayed the release of the second loan tranche in May, after the Bosnian authorities failed to meet the agreed economic reform targets.
The IMF funds, Coface said, would boost construction activities through the continuation of the construction of the Corridor Vc motorway, which is expected to cross Bosnia from the border with Croatia to the Adriatic Sea.
On the other hand, Coface noted, both domestic and foreign private investment will remain modest because of the persistence of institutional weaknesses and a mediocre business climate not offset by the low cost of labour.
Coface predicts Bosnia's inflation will accelerate to 2.0% in 2018, from 1.4% last year.
Bosnia's budget deficit is expected to increase to 1.0% in 2018 from 0.6% last year due to a slight loosening of fiscal policy, coupled with the non-renewal of Russia’s repayment of ex-Soviet debt in July 2017.
Coface also noted that a small budget deficit and moderate economic growth will stabilise the public debt-to-GDP ratio, the foreign component of which represents 29% of GDP. Bosnia's public debt is thus expected to remain at some 40.0% of the GDP in 2018.
The current account deficit should remain high in 2018 at 5.0%, up from 4.5% in 2017, Coface added.
Bosnia's political situation is not expected to improve, both at the central level and at the level of the two entities, after the October general elections, with voters continuing to vote exclusively in favour of nationalist parties.
"The political instabilities will remain, with the Bosniak Muslim politicians attempting to increase the role of the central government, whilst Croat politicians, striving to establish their own autonomous entity, as well as the Serb politicians work to block the legislative process," Coface concluded.
Bosnia and Herzegovina is made up of two entities, the mostly Bosniak and Croat-populated Federation and the Serb Republic predominantly populated by Serbs.
($=0.810514 euro)