RS owes 5.4 billion KM, finding it harder to repay loans

The Bosnian entity of Republika Srpska owes a total of 5.4 billion KM, and the authorities from Banja Luka plan to increase that debt by an additional approximately 608 million KM in 2017.

The RS Ministry of Finance confirmed that in the coming year, the Government plans to borrow an additional 411.1 million KM in long-term loans, while short-term borrowing could amount to around 197 million KM.

For comparison, the total public debt of Bosnia and Herzegovina, including external and internal debt, amounted to 11.9 billion KM at the end of last year, with external debt accounting for 8.4 billion KM and the remainder going to internal debt.

According to information from the BiH Ministry of Finance and Treasury, BiH's external public debt at the end of December 2015 amounted to 8.4 billion KM and was allocated to Republika Srpska, the Federation of BiH, and Brčko District, as well as BiH institutions. This debt increased further in 2016, as authorities borrowed an additional one billion and one hundred million KM from the IMF.

In the total amount of internal debt, which in 2016 amounts to about 4 billion KM, Republika Srpska participates with 63.99 percent, FBiH with 35.74 percent, and Brčko District with 0.27 percent.

The Bosnian entity of Republika Srpska, experts warn, will not be able to sustain excessive borrowing for much longer. Also, many analysts say that the Federal authorities must also stop relying on useless loans, reduce cumbersome administration, and increase contributions to the economy.

- Public debt in Bosnia and Herzegovina has been growing for seven years, and at the end of last year, it reached a historic maximum of 43 percent. This percentage will increase further this year, given the new borrowing by Bosnia and Herzegovina both domestically and externally – Adis Arapović from CCI recently stated at a press conference in Sarajevo.

- We have a partial GDP growth, which is positive. Although, GDP this year will probably not exceed 3 percent, despite earlier announcements. But, at the same time, we also have growth in external and internal debt. The data we present covers the period up to June 2016. As a reminder, the arrangement with the IMF (new borrowing by BiH for about one billion and 100 million KM, author's note) was realized in September this year, and it has not yet been included in the public debt analysis for 2016, which means that this percentage of 43 percent of public debt to GDP at the end of 2016 will very likely increase further.

But, that is not the worst news regarding Bosnia and Herzegovina's public debt. The worst news about public debt is the structure of public debt and the distribution of public debt by entities. Public debt in Republika Srpska in 2016 very likely exceeds the limit of 60 percent of GDP. At the end of 2015, it was 58 percent, and at the end of 2016, which saw much more borrowing, we expect this limit to be breached.

The problem is that excessive borrowing undermines the fiscal stability of both the entities and the state of Bosnia and Herzegovina, which is very dangerous – Arapović said.