Page 30 - SE Outlook Regions 2022

2.2.2 External environment

The DEP estimates that in the period 2021-2023, the current account
deficit could be expected to remain in the range of 2.7% to -3.3% of
GDP. The IMF estimates that the current account deficit was around
4.9% in 2021.

According to the DEP, the main factors likely to increase or decrease
the current account deficit are in the foreign trade deficit, ie changes in
export and import rates of goods and services, as well as changes in
world market prices.

2.2.3 Inflation and monetary policy

The Bosnian currency is the convertible mark (BAM) which is fixed at
BAM1.935583 to the euro by the Law on the Currency Board. The law
also stipulates that Bosnia can only print as much money as it has
foreign exchange reserves. Therefore, the monetary policy of the
CBBH has been reduced to only one lever, the reserve requirement
rate. However, this monetary lever does not work in Bosnia either,
given that commercial banks hold significant amounts of money above
the prescribed required reserves.

The DEP estimates that, assuming that food prices and utility prices
grow moderately, in the period 2021-2023 prices can be expected to
prices in the range of 1.2-1.4%. The IMF forecasts 1.1% inflation in
2021 and 1.1% in 2022. The DEP adds that inflation projections in the
baseline scenario rely on crude oil and food price developments as
factors that significantly determine price developments in Bosnia.

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