Bosnia's current account deficit dropped to record low in 2020

Bosnia's current account deficit dropped to record low in 2020
By Eldar Dizdarevic in Sarajevo March 31, 2021

The Central Bank of Bosnia & Herzegovina has released Q4 and FY 2020 balance of payments statistics, which brought a substantial downward revision mostly of current account (CA) components, thus bringing the CA deficit to the lowest level as a percentage of GDP in modern Bosnian history.

The CA deficit stood at -3.2% of GDP, which was in line with Raiffeisen's FY 2020 forecast (-3.1% of GDP), before its upward revision due to negative Q3 CA data release (-3.7% of GDP), Raiffeisen Bank commented in a note. 

The main reason for the improvement of Bosnia’s external imbalances was the decline of the trade deficit, which was down by 20.8% year-on-year and amounted to €3.2bn (-18.4% of GDP) which is also the lowest trade deficit on record.

The slump of domestic private investments and consumption resulted in a steep double-digit decline in merchandise imports (-13.3% y/y). On the other hand, merchandise exports in 2020 were down more moderately (-7.3% y/y) to €4.8bn, showing some resilience to the COVID-19 crisis despite a sharp contraction of foreign demand.

Secondary income and remittances from the Bosnian diaspora, which is also an important CA stabilising factor, saw a decline of 10% y/y. Secondary income, also important for financing private consumption, amounted to €1.9bn, a still substantial 10.7% of GDP, in 2020.

Raiffeisen analysts said that given the lower CA deficit level in 2020, they have slightly adjusted the FY forecast of the CA deficit to -4% of GDP in 2021. 

The major risk for Raiffeisen's CA forecast and overall economic scenario of a moderate rebound in 2021 (3% real GDP growth), comes in the form of a prolonged third wave of COVID-19 infections and if vaccination has not been achieved from Q2 onwards, followed by a prolonged period of containment measures in Q2 and Q3.