World Bank Sees Crisis Spreading To Bosnia

resizer148Macroeconomic indicators over the past three months confirm that the global financial and economic crisis is spreading to the economy of Bosnia and Herzegovina, the World Bank said, suggesting a list of immediate and medium-term countermeasures.

This World Bank statement, carried out by local media on Friday, came only a few days after workers and invalids protested over to the worsening economic and social situation.

“The consequences of the global crisis have begun infecting the economy of Bosnia and Herzegovina through three main transmission mechanisms: the credit crunch, fall in export prices and demand, and a drop in remittances. Like the rest of transition economies,“ the latest World Bank newsletter said.

According to the World Bank, Bosnia’s financial sector remains stable, but credit growth has been reversed from an average monthly rate of 2.1% to a -0.4% decline in December 2008.

“In addition to the lack of credit, the export sector is suffering from weak prices and foreign demand,” the document said, adding that trade figures in December last year showed a “gloomy picture” with exports shrinking 4.1 percent (year to year) and imports 3.4 percent.

The Bank said that thanks to the Bosanski Brod refinery, which started operating in December, industrial production indexes remained “surprisingly” strong. The newsletter stressed that the country will “almost certain” experience “a drastic reduction in the rate of growth.”

The sharp drop in fuel, food and metal prices led to a -0.6% monthly deflation in December. Substantially lower commodity prices are also likely to result in a significant shrinking of the current account deficit, the World Bank said.

The World Bank document also listed some immediate policy recommendations. They include better coordination among Bosnia’s different administrative levels; continued efforts aimed at securing the stability of the monetary and financial system; temporary and targeted fiscal stimulus; reduced level and improved structure of public spending as well as reducing the burden of social contributions on enterprises.

Because of the worsening economic situation in the country, the head of the World Bank mission in Bosnia, Marco Mantovanelli, has suggested to local leaders that the country should start negotiations with the International Monetary Fund, IMF, sooner rather than later .

Most of the neighboring countries have already secured additional financial support from the IMF, to maintain their fiscal stability. Mantovanelli said that as a measure of precaution, Bosnia should open up negotiations with the IMF, although its fiscal and monetary system still shows no signs of instability.

Finance Minister in the Bosniak (Bosnian Muslim)-Croat entity of federation, Vjekoslav Bevanda, told local media on Friday that country’s leaders are unable to curb public spending, or undertake any other tougher decision for the mitigation of economic and social crisis. Because of this, Bosnia “has no other option” but to negotiate a loan with the IMF, Bevanda said.

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