Press Release No. 14/36

Press Release: IMF Executive Board Completes Fifth Review Under the SBA for Bosnia and Herzegovina, Extends and Augments the Arrangement, and Approves €48 Million Disbursement

January 31, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the fifth 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 42.275 million (about €48 million, 25 percent of quota), which will bring total disbursements under the arrangement to SDR 253.65 million (about €287.9 million, 150 percent of quota).

All end-September 2013 performance criteria (PCs) and indicative targets were met.

The fifth review was delayed to allow for the adoption of government budgets for 2014 and due to the temporary interruption in the operations of the Federation of Bosnia and Herzegovina’s Ministry of Finance caused by the dismissal of the finance minister that was subsequently suspended by the constitutional court. The Executive Board approved waivers of applicability of the now controlling end-December 2013 PCs on the budget balances and accumulation of domestic arrears for the Institutions of BiH and the entity central governments, for which data are not yet available and for which there is no evidence they were not observed. The Executive Board also approved a nine-month and five-day extension and augmentation of the arrangement. Access would be increased by SDR 135.28 million (about €153.6 million, 80 percent of quota) to meet additional financing needs that arise mainly in late 2014.

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 €383.9 million).

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

“Commendable progress continued to be made under Bosnia and Herzegovina’s Stand-by arrangement despite heighted political uncertainty. Economic activity is picking up, benefiting from stronger external demand and prudent macroeconomic policies.

“The 2014 government budgets appropriately aim to protect the gains made so far in fiscal consolidation and place the public debt firmly on a downward path. Achieving this goal will require not only continued strict control over government spending, but more importantly, increased efforts to improve revenue collection and administration. Further efforts are also needed to streamline the public sector and revitalize the privatization process.

“The authorities have taken welcome steps to strengthen banking supervision, improve contingency planning and crisis preparedness, and enhance the resolution framework for non-performing loans. It is also important to modernize banking laws and strengthen supervisory cooperation across borders.

“Progress has also been made recently in streamlining business registration. Nevertheless, more remains to be done to improve the business environment and the functioning of the labor market. In this regard, it will be particularly critical to put in place new labor market legislation that will contribute to a lasting reduction in unemployment.

“A challenging domestic situation and the upcoming general elections pose significant risks to the timely implementation of the economic program. An extension and augmentation of the Stand-by arrangement from the Fund can provide a valuable anchor for economic policies during the election period and the political transition,” Ms. Shafik stated.