IMF says the war in Ukraine presents new challenges for Bosnia

IMF says the war in Ukraine presents new challenges for Bosnia
By bne IntelliNews March 28, 2022

The war in Ukraine is presenting new challenges for Bosnia & Herzegovina just as it rebounds from the COVID-19 crisis, the International Monetary Fund (IMF) said in the staff concluding statement published on March 25.

Growth is estimated to have accelerated to 5.8% in 2021, fuelled by strong external demand, pent-up domestic spending and a rebound in tourism. Strong economic activity also reflected the authorities’ COVID-related measures and their decision to not impose lockdowns during the Delta and Omicron variants despite a surge in cases amid vaccine hesitancy.

“The outlook is highly uncertain given the ongoing war in Ukraine and domestic political tensions. Initial effects of the war were felt in the financial sector and on confidence, as well as on households’ spending on food and transportation. Although direct economic ties with Russia and Ukraine are limited, BiH’s economy is vulnerable to soaring commodity prices, slower economic growth in Europe, and tighter financial conditions as a result of the war,” the IMF said.

Consequently, the IMF expects growth to moderate to 2.5% this year and average annual inflation to accelerate to 6.5%, but its forecast is subject to high uncertainty. The IMF added that the fiscal stance is estimated to have turned from deficit (4.7% of GDP) in 2020 to neutral in 2021. Revenues collected by the Indirect Tax Authority reached a record high level, driven by strong private consumption and higher prices. External financing was ample, with financing from the IMF (€306mn SDR allocation) and the European Union (€125mn macro-financial assistance) adding to a €300mn Eurobond issuance by the Republika Srpska.

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