EBRD says recent floods will hit Balkan economies

by Reuters
Thursday, 29 May 2014 17:10 GMT

People walk past an electric pole damaged by floods in Topcic Polje, Bosnia, May 20, 2014. REUTERS/Dado Ruvic

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Floods could cost Bosnia and Serbia up to 10 percent of their economic output, lender warns

BELGRADE, May 29 (Reuters) - Recent devastating floods in the Balkans could cost Bosnia and Serbia up to 10 percent of their economic output, the European Bank for Reconstruction and Development said on Thursday.

The lender gave a preliminary estimate for damages from floods in Serbia at between 1.5 and 2 billion euros ($2.72 billion), or about 7 percent of gross domestic product.

It said the damage in Bosnia could amount to 1.3 billion euros, or 10 percent of GDP.

More than 65 people were killed by flooding in Serbia, Bosnia and Croatia earlier this month after the heaviest rainfall in more than a century caused rivers to burst their banks, sweeping away roads, bridges and homes.

The agricultural sector, which accounts for 1 percent of national output in Serbia and 6 percent of Bosnia's economy, had been hit hardest by the floods, the EBRD said, adding that lower yields could lead to higher food prices, fuelling inflation.

The bank said its growth forecasts for the two countries will need to be revised downwards. The bank currently forecasts 2014 growth of 1.8 percent for Bosnia and 1 percent in Serbia.

Serbia's Prime Minister Aleksandar Vucic told parliament on Thursday the government plans to finish reconstruction of major roads affected by the flooding within five months.

"For me the easiest thing would be to say we will fix every house, but I don't know where we can find the money," Vucic added. "The power sector is my biggest concern."

Floods disrupted production in the Kolubara coal mine, which supplies the country's biggest power plant, and management has said it could take a year to fully restore output.

Vucic hinted that a donors' conference for the region would be organised soon, adding he would be able to give further details after his meeting with German Chancellor Angela Merkel on June 11.

Serbia was struggling to cap its budget deficit at 7 percent of GDP even before the floods. The International Monetary Fund said on Wednesday that negotiations with Belgrade set for June will be postponed until autumn.

Vucic, who took over in late April, has pledged to reform the bloated public sector and cut subsidies to loss-making state companies to curb spending. Both could led to job losses, further increasing an unemployment rate of around 20 percent.

"We think that the impact of the floods on Serbia, while serious, are likely to be manageable," Standard Bank's Tim Ash wrote in a note.

"Indeed, ultimately it could benefit by generating significant goodwill and aid flows to the country."

($1 = 0.7345 Euros) (Reporting by Ivana Sekularac; Editing by Catherine Evans)

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