Press Release No. 13/156

Press Release: IMF Completes Second Review under the Stand-By Arrangement with Bosnia and Herzegovina and Approves €39 Million Disbursement

May 6, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Bosnia and Herzegovina’s (BiH’s) economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The completion of the review enables the disbursement of an amount equivalent to SDR 33.82 million (about €39 million, or US$51.1 million), bringing total disbursements under the program to an amount equivalent to SDR 135.28 million (about €155.9 million, or US$204.4 million).

The SBA with BiH was approved on September 26, 2012 (see Press Release No. 12/366) in an amount equivalent to SDR 338.2 million (about €389.7 million, or US$511 million).

In completing the second review, the Executive Board also approved requests for the waiver of applicability of end-March 2013 performance criteria for which data are not yet available, and for the modification of the performance criterion on the non-accumulation of domestic arrears to align it better with the authorities’ fiscal reporting framework and to take into account delays in data reporting by lower levels of government.

Following the Executive Board’s discussion, Ms. Minouche Shafik, Deputy Managing Director and Acting Chair, stated:

“BiH’s continued good progress under the program is testament to the authorities’ commitment to prudent policies amid a very challenging domestic and external environment. Fiscal consolidation remains on track, while sound financial sector policies are mitigating risks. The Fund-supported program continues to provide a valuable anchor for the authorities’ economic policies.

“Remaining within the spending envelopes in the 2013 budgets will be crucial to ensure sustained fiscal consolidation, leaving no room for fiscal stimulus. Nonetheless, a slightly slower pace of fiscal adjustment might be temporarily warranted should revenues disappoint in the event of weaker-than-expected growth.

“Achieving medium-term fiscal sustainability will require moving ahead with fiscal structural reforms to generate structural savings. Reforms of war-related benefit programs, adopted in the Republika Srpska in early 2012 and now also in the Federation, are welcome and bold steps in this direction. Other key areas for reform include streamlining the size and structure of the government and reducing the cost of health care. Additional efforts to improve the quality and timeliness of fiscal reporting by lower levels of government are also critical.

“Progress made in strengthening banking supervision, including by formalizing stress testing procedures and identifying systemically important institutions, should enhance the authorities’ risk assessment toolkit, thereby promoting financial stability. Nevertheless, the rise in non-performing loans (NPLs) warrants continued close monitoring of banks’ health. The ongoing review of the NPL resolution framework will help define measures to enable banks to strengthen their balance sheets.

“Reaching BiH’s growth potential will require further structural reforms to enhance competitiveness and create jobs. Improving the business environment and labor market flexibility are key to a thriving private sector and to making BiH an attractive place to invest.”