Bosnia needs faster growth but reforms may lag this year: central bank head

SARAJEVO (Reuters) - Bosnia’s economy needs to grow at a faster pace to attain convergence with European Union living standards, but economic reforms may lose momentum this year due to elections, the governor of its central bank said on Monday.

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Senad Softic said he expected growth to have reached around 3 percent in 2017, the same level as in the previous two years, but did not provide projections for 2018.

“With such growth rates we cannot expect significant changes in living standard,” he told Reuters in an interview. “We need a more significant growth of 5 percent over a long period.”

In November, the World Bank said it would take as many as six decades for income levels in the Western Balkans to catch up with the EU if economies in the region continued to grow at the average speed achieved between 1995 and 2015.

The International Monetary Fund estimated Bosnian growth in 2017 at 2.5 percent and forecast 2.6 percent for 2018. The World Bank’s figures are 3.0 percent and 3.2 percent, respectively.

The IMF, EU and other international lenders froze aid for Bosnia last year after agreed economic reforms were interrupted by internal political bickering and ethnic tensions.

In December, parliament passed a long-delayed law on raising road tolls and excise taxes on biofuel, paving the way for unlocking about 1 billion euros ($1.23 billion) of international loans intended primarily for infrastructure projects.

Softic said he expected direct foreign investment to have reached 700 million Bosnian marka ($435 million) in 2017, up about 45 percent from the previous year.

Developments this year would however depend on how the reform program fared, the pace of economic recovery in the euro zone - Bosnia’s key trade partner - and trends on global markets.

“It is essential to direct resources in the economic development of the country, the process of European integration and reforms,” said Softic. “But this is an election year and the focus may rather be on political than on economic issues.”

Political campaigning has already started for parliamentary and presidential elections that will be held in October.

Softic said Bosnia’s banking sector was stable and liquid, with a 6.6 percent annual rise of new loans up to October 2017, while the rate of bad loans was down to 10.8 percent in the third quarter of 2017 from 12.1 percent in 2016.

Reporting by Daria Sito-Sucic; Editing by John Stonestreet, William Maclean