Inflation in Bosnia and Herzegovina is the highest in the Western Balkans and since economic growth will slow down, the government should reduce public spending and direct aid to the most vulnerable citizens, Andrew Jewell, permanent representative of the International Monetary Fund in Bosnia and Herzegovina, told Nezavisne novine.

Jewel warned that borrowing on international markets will be expensive, which can especially affect Bosnia’s Republika Srpska (RS) entity as its Government announced that part of its financing needs will be covered through international markets.
“We saw an increase in wages in the public sector, an increase in pensions, but we did not see putting the focus of aid toward those who need it the most”, he said, arguing that directing finances in a better manner will result in less burden on public finances.

Jewell explained that, according to some outdated projections, a growth of 2.4 percent and inflation for the whole of 2022 at 10.5 percent was predicted.

However, he announced a revision of the analysis for 2022 with data that was not available previously being taken into account.
“Thus, for 2023, we see growth slowing to two percent with many risks, and for inflation, we predict that it will slow down somewhat in the next few years, but we still think that it will be higher than it was in the past”, he said.

“What we see is that inflation in Bosnia and Herzegovina is probably the highest in the Western Balkans, but I do not believe that it is the highest in Europe,” he said.

Jewell said he does not have detailed data with which he could be able to explain why this is the case, but he pointed out that food makes up a third of the consumer basket, so if the price of food increases, it has a huge impact on the overall index.
“The two categories that affect inflation the most are food and transport prices, and transport prices are significantly affected by fuel prices”, he said, adding that most of the inflation in Bosnia and Herzegovina is “imported” because it is affected by the international prices of food and energy.

While a fiscal surplus in the entire country is expected this year, this data does not imply such a situation in Bosnia’s semi-autonomous entities, he explained.

Jewell said that a fiscal surplus is expected in BiH’s Deferaion (FBiH) entity, a deficit is expected in the Republika Srpska (RS) entity.

“Both entities benefited from strong growth in revenues, which was linked to inflation that boosted revenue. But in RS there was more public spending related to three wage increases and two pension increases so that spending overpowered income growth. Thus, in 2023, we see slightly greater risks in the RS, mainly because Eurobonds worth 168 million euros that were issued in 2018 will come due, and some other debt obligations will come due in 2023”, he said.

In the budget of the RS for 2023, the Government expects that it will have to borrow one billion marks, of which they expect to receive 780 million marks on foreign markets. At the same time, financial conditions in international markets are tightening, which means that borrowing will become more expensive than it was just a year ago”, he added.

“Our recommendation to the authorities even now is to devote themselves to solving the problem of the increase in the cost of living. Citizens are faced with inflation so real wages are falling. There are many vulnerable people who are going through difficult times. We think that it is a priority to start fighting the crisis of the rising cost of living,” he stressed.