The Resident Representative of the International Monetary Fund (IMF) in Bosnia and Herzegovina (BiH), Andreas Tudykaa, stated yesterday in Sarajevo that the IMF projects economic growth in BiH to strengthen to 2.5% this year and stabilize at around 3% in the medium term.
“This growth is driven by increased private consumption, rising wages, and a slight uptick in investments. However, these figures do not account for the recent developments with the floods, so we will need to revise them, likely downward,” Tudyka added.
The IMF presented a report titled “Regional Economic Outlook for Europe,” which covers the latest developments, forecasts, and risks for the economic prospects of Europe, including BiH. Discussing the segment of the report concerning BiH, Tudyka identified several risks that could impact the forecast, potentially leading to a downturn.
“There has been a renewed slowdown in Europe, along with political tensions and productivity challenges, while expansionary fiscal policies could undermine fiscal stability,” Tudyka said.
He noted that inflation in BiH has significantly declined, peaking at 17.4% in October 2022 and now standing at 0.8%, mainly due to falling food and fuel prices. According to him, overall inflation is expected to average 2.2% in 2024, with a projected rate of 2% for 2025 and beyond in the medium term.
“Regarding the fiscal position, we are seeing a continuous increase in social spending and public sector wages. The projected fiscal deficit is 2.2% for 2024 and 2025. Without implementing measures, this deficit is unlikely to decrease in the future. Rising deficits and debt repayments are leading to greater financing needs, which are already proving difficult to meet,” Tudyka emphasized.
In the financial sector, he noted that banks remain well-capitalized and liquid.
“Given that production is close to its potential, authorities need to identify areas for spending reductions. Both entities must prepare to address financing needs, rebuild fiscal buffers, and improve fiscal policy. Maintaining the currency board and closely monitoring monetary risks are also essential,” Tudyka outlined among the recommendations.
The challenges facing BiH were also discussed by five panelists, including Goran Mirascic, an economic adviser to the Prime Minister of the Federation of BiH (FBiH). Speaking to reporters about the economic situation and debt levels, he described BiH as a moderately indebted country.
“However, when discussing debt, we must carefully distinguish the type of debt being referred to. All budget-related borrowing is defined by budget law or the law on budget execution. The question is whether all these borrowings are actually realized. If you look at the debt structure in most BiH budgets, the majority of repayments go to end users. For the federal budget, these are primarily public enterprises, infrastructure projects, and that’s where most of the borrowing goes,” Mirascic explained.
He added that, in most years, the FBiH borrows primarily to repay debts, without creating additional debt.
In terms of economic growth, he noted that BiH shares the fate of its major trading partners.
“We are aware that Germany has been stagnating for some time, arguably even in a recession, alongside Italy, Austria, and Hungary, which are also experiencing modest growth. This naturally impacts our growth and demand for our products, as these countries account for roughly two-thirds of our exports,” Mirascic said.
Consequently, industrial production has declined to some extent, but Mirascic stated that growth of 2.5% to 2.8% is still expected for this year.
“Of course, this is not the growth we are satisfied with. However, in terms of internal substitutions to support and sustain this growth, these primarily include public investments in infrastructure projects – road, rail, and energy infrastructure. These are areas where we have room within our debt limits and relatively low debt levels. All of this must be accompanied by private investments and consumption, which is what we are striving for, always mindful of our fiscal capacity. We expect a combination of public and private investments to provide a boost to growth,” Mirascic concluded.
