The economies of Bosnia and Montenegro could grow by around 3 percent this year and next if authorities pursue the structural and fiscal reforms they have respectively pledged to take, the World Bank manager for the two countries said on Friday. Both countries need to reduce their bloated public sectors and create the conditions for the growth of the private sector to drive economic growth and job creation in the future, Tatiana Proskuryakova told Reuters.
But while in ethnically divided Bosnia political bickering represents a key obstacle to badly needed structural reforms, Montenegro must urgently restore its macro-economic stability and downsize its ballooning public debt, Proskuryakova said. "The issue in Bosnia is not the short-term balance of payments issue," she said, explaining that the country has the lowest fiscal deficit in the Western Balkans region. "The problem is structural, and it requires a lot of political will and consistency. The risks to growth are political risks."
The International Monetary Fund halted its programme for Bosnia after lawmakers in April prevented the passage of laws that are part of a wider reform package devised by the European Union to guide Bosnia, mired in ethnic and political disputes, towards faster integration with the bloc.
"We think the economy grew at 2.8 percent in Bosnia last year and we estimate around 3-3.2 percent growth for 2017 which we may revise again ... depending what will happen with the reform programme," Proskuryakova told Reuters. "If the reform programme persists, and is maintained and is restored, then we expect higher growth," she added. Montenegro, however, where growth has been driven by a large public investment project - as opposed to Bosnia where it has been driven by consumption - is in a much "more precarious fiscal situation" and needs to implement a fiscal consolidation plan, Proskuryakova said.
Montenegro accumulated the public debt, estimated at 77 percent of GDP this year, after taking a loan it could not afford that accounted for a quarter of its GDP, and after raising salaries, pensions and benefits ahead of an election last year.
"The government has already taken serious measures to put the situation back on track, and they have now adopted additional fiscal plan which we believe, along with the IMF, is robust and will allow them to stabilise their debt and arrive to a balanced budget by 2019," Proskuryakova said. She said new measures would be taken both on the revenue and on the expenditure sides. The government this month announced plans to increase value-added tax and excise duties on tobacco and coal in 2018, and cut this year public sector wages and benefits.
Proskuryakova said Montenegro needed to shift its growth model from large infrastructure projects to private sector development to achieve the growth of around 3 percent this and the next year. Its economy grew 2.1 percent in 2016.