Statement by the IMF Mission in Bosnia and HerzegovinaPress Release No. 10/328
September 2, 2010
An International Monetary Fund (IMF) mission, led by Costas Christou, held discussions with the authorities of Bosnia and Herzegovina (BiH) during August 18–September 1, 2010 on the second review of the country’s Stand-By Arrangement (SBA) with the IMF and the 2010 Article IV consultation. At the conclusion of the visit, Mr. Christou made the following statement:
“An IMF staff mission and the BiH authorities have reached agreement on a set of policies aimed at completing the second review under the SBA. In the next few weeks the authorities intend to implement several agreed measures. These include adopting the rebalanced 2010 budget by the Federation Parliament, and strengthening the audit process of war disability benefit recipients by the Federation Government. Assuming adoption of these measures and approval by IMF Management, the second review could be considered by the Executive Board by end-September. Completion would allow BiH to draw SDR 33.82 million (about €40 million) for Entity budget support.
“Despite the difficult external environment, the strengthening of the authorities’ policies and the financial support under the SBA have helped stabilize the economy of BiH: macro-financial vulnerabilities have been reduced; household deposits continue flowing into the banking system; the decline in the central bank’s reserves has been contained; foreign banks have maintained their overall exposure to the country; and the financing pressures on Entity budgets have eased. Export growth has accelerated in the first half of 2010, and industrial production and indirect tax collection have begun to recover.
“The performance under the SBA has been broadly on track. The quantitative targets for end-March and end-June have been met, except for the ones on accumulation of domestic arrears by the Federation and Republika Srpska. After delays in implementing agreed structural benchmarks, the Federation has advanced the program’s reform agenda: Parliament adopted public wage legislation; the government approved a pension reform strategy; and eligibility audits of privileged pension and war disability benefit recipients started in July.
“It is now critical to keep the reform implementation momentum in the run-up to the October elections and beyond. The global economic recovery is expected to support expansion in BiH’s exports, leading to a gradual resumption of economic growth. However, this will not be sufficient to eliminate fiscal deficits. Bringing public finances onto a sustainable path without compromising funding for much needed public infrastructure investment underscores the importance of continued strong efforts to reduce current public expenditure. We welcome the authorities’ commitment to maintain fiscal discipline and their intention to reduce the general government deficit to 3 percent of GDP in 2011. A speedy adoption of the Global Framework of Fiscal Balance and Policies in BiH that provides a basis for the preparation of the 2011 budgets of the State and the Entities will be critical in this respect.”