Statement by the IMF Mission to Bosnia and HerzegovinaPress Release No. 13/353
September 20, 2013
An International Monetary Fund (IMF) mission, led by Ron van Rooden, visited Banja Luka and Sarajevo during September 4-19, 2013, to discuss recent economic developments and policies for the fourth review under Bosnia and Herzegovina’s Stand-By Arrangement (SBA). At the conclusion of the visit, Mr. van Rooden made the following statement:
“The economy of Bosnia and Herzegovina is showing signs of recovery, with industrial production and exports increasing. Growth is expected to reach close to 1 percent this year, and is projected to pick up further next year, in line with developments in Europe, although considerable downside risks remain. Unemployment, however, remains unacceptably high.
The authorities have made steady progress under the SBA so far this year, and program targets for end-June 2013 were met, but substantial challenges loom for the period ahead. It is crucial to ensure that economic policies remain on track so that the objectives of the program can be achieved.
Budget execution in particular has met considerable headwinds. The collection of indirect taxes has lagged the pick-up in activity and, together with new spending initiatives and shortfalls in some other revenues, has created gaps in the government budgets. The 2013 budgets adopted last December were consistent with a further reduction in the consolidated general government deficit to just over 2 percent of GDP (down from 5½ percent of GDP in 2009). Achieving this target, however, will require additional adjustment, notably in the Republika Srpska. It will also require that the new law on privileged pensions that was adopted in the Federation earlier this year is fully implemented and that audits of beneficiaries can continue unhindered. This will ensure that the system is not only socially fair, but also financially sustainable and able to safeguard old-age pensions. At the same time, it is essential to strengthen indirect tax collection.
In this context, the mission discussed with the authorities the broad policies that would allow meeting the end-2013 fiscal targets. The mission looks forward to finalizing the details of these policies together with the authorities in the coming weeks. Further ahead, it will be crucial that in preparing the government budgets for 2014 the authorities ensure that the gains made so far in fiscal consolidation are preserved and that public debt is placed firmly on a downward path.
With unemployment at a very high level, it is also critical to make Bosnia and Herzegovina a more attractive place to invest and create jobs. The authorities are working to improve the business environment, by making it easier to start and operate a business, while they are also preparing new labor laws that are more conducive to job creation. This objective can best be achieved through a constructive dialogue with all stakeholders, including trade unions and business representatives, that also takes into account the interests of those that are currently out of work.
The mission will work with the authorities in the coming weeks to firm up policies that could pave the way for consideration of the fourth review of the SBA by the IMF’s Executive Board.”