Page 37 - SE Outlook Regions 2023

The deficit of the financial account contracted 59.5% y/y to
BAM689.22mn to the end of June.

Net foreign direct investment (FDI) was negative at -BAM429.44mn,
with portfolio investments sinking y/y to -BAM20mn. Other investment
was -BAM13.18mn versus -BAM2.73bn a year ago.

The DEP has noted that the war in Ukraine put in question investments
by Russian companies in energy projects, while the disruption of global
supply chains would affect future projects too. FDI is expected to reach
2.1% of GDP in 2023 from an estimated 1.4% of GDP in 2022. It should
rise to 2.2% of GDP in 2024 and 2025.

Meanwhile, Bosnia’s foreign trade deficit amounted to BAM9.61bn
(€4.91bn) in the first eleven months of 2022, up by 46.9% y/y, according
to the latest available statistics office data. Exports increased by 28.5%
y/y to BAM16.6bn, whereas imports moved up 34.7% y/y to
BAM26.2bn. The coverage of imports by exports was 63.3%, down
from 66.3% a year earlier.

Bosnia’s foreign trade recovered in 2022 after the coronavirus
(COVID-19) pandemic, but the global economic crisis caused by the
Russian war in Ukraine could slow down exports and imports in 2023.

The stabilisation of external factors and an improvement of the working
environment in Bosnia could boost foreign trade in 2023, according to
the DEP. Exports could rise by 6.9% in 2023, 6.2% in 2024 and 6.1% in
2025. On the other hand, the growth rate of imports would be lower, at
4.1% in 2023, 4% in 2024 and 4.6% in 2025.

2.2.3 Inflation and monetary policy

The Directorate for Economic Planning (DEP) has projected Bosnia’s
inflation at 1.8% in 2023. The projection is based on the expectation
that prices of crude oil will fall by 11.7% in 2023, which would lower
food prices, and inflation in the Eurozone would reach 2.1%.

In 2024-2025, the DEP projects that inflation will fall to 1.5-1.7% on the
back of the continuous fall of the crude oil price.

The DEP has noted that the main risk to inflation is the continuation of
the war in Ukraine that would add between 1% and 2% to the
Eurozone’s inflation. That would lift consumer prices in Bosnia as well.

On the other hand, the International Monetary Fund (IMF) projected in
October that Bosnia’s inflation will reach 4.1% in 2023, cooling from an
estimated 9.5% in 2022.

The World Bank has projected that Bosnia’s inflation would reach 11%
in 2022 but should stabilise to pre-pandemic levels in 2023-2024.

Consumer prices in Bosnia increased by 16.3% year on year in
November, slowing down from a 17.4% y/y increase in October,
according to the latest available statistics office data. In monthly terms,

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