Transcript

Transcript of the press briefing on the approval of the Extended Arrangement under EFF for Bosnia and Herzegovina

September 9, 2016

Also available in Bosnian

Participant: Nadeem Ilahi, IMF mission chief for Bosnia and Herzegovina.

Mr. Ilahi: On September 7, 2016, the Executive Board of the IMF considered and approved a request of the Bosnia and Herzegovina authorities for financial support under a 3-year Extended Fund Arrangement (EFF). The EFF will help the authorities’ economic reforms by filling the country’s balance of payments needs in the amount of about €554 million and supporting structural reforms.

In addition to the authorities’ Letter of Intent (LOI), the Executive Board also considered the Staff Report that makes the case for the IMF support arrangement. Both these documents, and other attachments, are published today on the IMF’s website.

I will take a few moments to discuss the main features of the IMF Arrangement which is laid out in these documents.

The economy of Bosnia and Herzegovina has continued to recover over the past two years, within a stable macroeconomic environment. But since the global financial crisis, the speed with which the economy has been closing the gap with advanced European countries has been among the slowest in Eastern Europe. Unemployment is high and persistent, and particularly severe among young citizens. Bosnia and Herzegovina economy suffers from structural and policy distortions that prevent the country from reaching its full potential.

There is an urgent need for more private-sector led growth that creates employment opportunities through greater investment. The program focuses on policies that will allow the government to lower the taxes on employment in the formal sector, restructure or privatize unhealthy state enterprises and improve bankruptcy laws.

The program supports fiscal policies that will lower the public wage bill and poorly targeted social spending and raise growth-boosting capital investment. It also envisages a moderate reduction in public debt over the medium term.

Maintaining financial stability and reviving bank lending are another key feature of the program. Safeguarding the currency board arrangement is an important pillar. The authorities will address bank vulnerabilities, and improve the framework for taking care of non-performing loans. They will also modernize laws that will strengthen banking supervision.

Last, but not least, the IMF program supports the strengthening of a common economic space within the country so that the economy can reach its growth potential. The highly decentralized administrative structure of the country calls for coordination and cooperation among governments in various spheres. The program envisages harmonization and cooperation in the areas of taxation, financial regulation and supervision, and fiscal discipline in lower levels of government.

The Extended Fund Arrangement will be monitored by IMF staff’s frequent monitoring and assessment of progress. Financial disbursements would be based on Board approval of reviews on a quarterly basis. This would include regular assessment of macroeconomic policies but also progress on structural reforms that are laid out in the Letter of Intent. Progress on implementation of the IMF program and the Reform Agenda should help the country access financial and technical support from other international partners, including the European Union and the World Bank.

Note to TV stations: A high-quality video file of the opening remarks can be downloaded here .