Bosnia and Herzegovina and the IMF
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The Executive Board of the International Monetary Fund (IMF) today completed the second and third reviews of Bosnia and Herzegovina's economic performance under the Stand-By Arrangement for the period August 2002-November 2003. The decision enables Bosnia and Herzegovina to draw SDR 24 million (about US$34 million) from the IMF immediately.
The Stand-By Arrangement, which was approved on August 2, 2002, totals SDR 67.6 million (about US$96 million). So far, Bosnia and Herzegovina has drawn SDR 31.6 million (about US$45 million).
Following the Executive Board discussion, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
"Bosnia and Herzegovina has continued to make commendable progress under its Fund-supported program. In completing the second and third reviews under the program, Executive Directors were encouraged in particular by the good fiscal and economic growth performance, with both exceeding initial expectations, and the new governments' strong commitment to build on the reform efforts undertaken by the previous governments.
"The immediate challenge ahead arises from the strong expansion in credit growth to households and the associated sharp deterioration in the external current account balance. To stem the credit boom, the authorities have appropriately tightened liquidity, and have adopted a range of regulatory reforms as well as prudent adjustments to the expenditure ceilings in the 2003 budgets. Continued vigilance and readiness to take timely corrective action will, however, be needed.
"Fiscal consolidation is the cornerstone of the program, and further efforts will help ensure progress toward a strong and viable macroeconomic framework. The new administrations have acted swiftly to establish their fiscal credentials by holding expenditure below budget ceilings in the first half of the year, and by committing not to exceed the consolidated deficit and spending targets of the original 2003 budgets when those budgets are revised. Prudent expenditure management and tax administration reform will be the pillars of the fiscal adjustment effort in 2003. The authorities have also laid the groundwork for the settlement of domestic claims on the government.
"The currency board arrangement will continue to help ensure monetary stability and low inflation in a context of prudent fiscal policies and sustained structural reform. The timely nomination of a new central bank board is an important step in ensuring that market confidence is maintained. Recent initiatives to strengthen the banking system through privatization and the application of international regulatory standards, and to enhance the role of bank credit in corporate investment, are welcome, and the authorities are encouraged to continue their efforts in these areas.
"Over the medium term, Bosnia and Herzegovina faces the challenges of sustaining economic growth and improving employment prospects significantly while preparing for a prospective decline in reconstruction aid inflows. This will require ambitious reforms, in particular in the enterprise sector, to stimulate private sector led growth and support export competitiveness. Efforts to further strengthen privatization, the business environment, labor markets, the legislative framework for credit extension, and bankruptcy procedures will be among the priorities to meet these challenges successfully. To improve the quality of economic analysis, the authorities are committed to strengthening the statistical framework," Mr. Aninat said.
IMF EXTERNAL RELATIONS DEPARTMENT