Western Balkan economies count long-term cost of floods

By bne IntelliNews July 29, 2014

Clare Nuttall in Bucharest -


The cost of catastrophic floods in Bosnia-Herzegovina and Serbia this spring is still being tallied, with the latest estimates putting the total at €3.5bn. Beyond the immediate human cost and the need to rebuild essential infrastructure, the economies of the two countries – and to a lesser extent Croatia and Bulgaria, which were also hit by floods this spring – have been set back by the disaster.

The worst floods since records began engulfed large parts of Bosnia, Serbia and Croatia in mid-May, resulting in the deaths of over at least 77 people, 57 of them in Serbia. In neighbouring Bosnia, almost 40% of the population, over 1.5m people, either lost their homes or are without electricity and running water. This was followed in June by another wave of deadly floods in Bulgaria. 

Serbian Deputy Prime Minister Zorana Mihajlovic said July 7 that the Belgrade government’s first official estimate was around €1.5bn, while an international expert group put the economic impact on Bosnia at BAM3.98bn (€2bn), according to a July 9 statement from the EU delegation in Bosnia. In addition to the homes destroyed, this includes damage to roads, railways and other infrastructure, and power stations. In both countries, the agricultural sector was particularly badly hit.

As a result, 2014 growth forecasts are being revised downwards, despite promises of aid from both international organisations and country donors. Bosnia’s economy is expected to shrink by 1.1% this year, rather than growing by the 2.2% previously forecast. The Serbian government also expects GDP to drop in 2014. In May, output in the power sector fell by 20.3% and mining and quarrying by 18.7%, according to the Statistical Office of the Republic of Serbia.

In June, Bulgaria too was hit by flooding, resulting in at least 12 deaths in Varna and Dobrich, the worst affected areas. Sofia is still counting the cost of repairing roads and other infrastructure, but the damage was not as serious as in the Western Balkans. Lyubomir Peshev, analyst at Sofia-based Elana Trading, tells bne that he does “not expect serious impact of heavy rains on the country’s economy,” which is expected to sustain more damage from the ongoing political instability in Bulgaria. Elana has maintained its 2014 growth forecast at 1.8%. Despite earlier fears, tourism, which accounts for over 13% of GDP, is not expected to suffer, according to the Bulgarian Association of Travel Agents.

In a pickle

Across the region, the agricultural sector was badly affected. In Serbia, where agriculture accounts for 10% of GDP, wheat production is expected to be 19.6% lower than previously forecast at around 2.16m tonnes, the state statistics agency said June 30, according to local press reports.

A report from the United States Department of Agriculture (USDA) estimates damage caused by the flooding to Bosnia’s agricultural sector at $271m, including crop damage, livestock deaths and infrastructure. “Normally, domestic agricultural and food production only covers approximately 30% of BiH’s needs. With the flood losses and the preceding three-year drought, BiH’s agricultural sector is in dire condition,” the report warns.

Bulgaria, which had been expecting a bumper harvest in 2014, has also had its projections cut after hailstorms followed flooding in northwest Bulgaria, the main grain-producing region. The agriculture ministry has cut its forecast from 5.5m tonnes of wheat to 4.6m-4.8m tonnes, though this is still close to the average of the last five years. “The harvest season of Bulgaria is [at] its peak and the producers are facing a lot of problems... Still, it is a little bit to early to speak with certainty for this year production in terms of quantity and quality,” a spokesperson from Bulgaria's National Grain Producers Association tells bne.

Politically, governments across the region have come in for increased scrutiny for their preparedness – or lack thereof – and handling of the disasters.

In Serbia, the expected dip in GDP may force the new government under Prime Minister Aleksandar Vucic to put some of its ambitious reform plans on hold. Serbian Finance Minister Lazar Krstic resigned July 12 after Vucic refused to implement the radical austerity measures he had advocated. Talks with the International Monetary Fund (IMF) on a much-needed loan agreement have also been postponed while the government revises its budget, and are unlikely to take place before the autumn.

Meanwhile, the Serbian government has come under fire from both local activists and the European Commission after reports that articles critical of the government’s handling of the floods had been removed from the internet.

Sarajevo, the capital of the Bosnian Federation where the country's central authorities sit, has also come in for criticism over its response to the disaster, in particular in Republika Srpska, the Serb entity of the divided country, which was worst hit by the flooding. With parliamentary and local elections coming up in October, frustration with the authorities’ lack of progress could result in Milorad Dodik, president of Republika Srpska since 2010, and the Alliance of Independent Social Democrats being ousted from office.

“[The] government’s negligence in responding to the flood has further undermined public confidence in the political elite, which had already been very low, and public dissatisfaction is vast in both parts of BiH,” writes Marta Szpala, senior fellow at Centre for Eastern Studies (OSW), although she adds that, “It is difficult at present to predict whether this frustration will bring about any deeper changes in the political elite.”

As governments in the region struggle with the aftermath of this year’s floods, preparing for future catastrophes is becoming more important. Far from an isolated incident, flooding on this scale is likely to become ever more frequent, according to a report published by London-based Nature Climate Change in March. Economic losses from flooding within the EU alone are expected to increase by as much as 500% by 2050, which would mean an increase from an average €4.9bn to as high as €23.5bn a year.


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