Press Release: IMF Executive Board Approves US$1.57 Billion Stand-By Arrangement for Bosnia and Herzegovina
IMF News, July 8, 2009
Source details
- Canonical URL
- Press Release: IMF Executive Board Approves US$1.57 Billion Stand-By Arrangement for Bosnia and Herzegovina
Other formats
Bibliographic details
- Published: July 8, 2009
Executive Board approval and financing
- Arrangement type and size: 36-month Stand-By Arrangement for SDR 1.01 billion (about US$1.57 billion).
- Immediate availability: SDR 182.63 million (about US$282.37 million) immediately available; remainder in installments subject to quarterly reviews.
- Purpose: To support an economic program designed by the authorities to mitigate the effects of the global financial crisis.
Authorities’ program objectives
- Reduce the structural fiscal balance to limit the government's financing needs and bring public finances on a sustainable medium-term path.
- Reestablish public wage restraint.
- Support adequate liquidity and capitalization of banks.
- Secure sufficient external financing and improve confidence.
- Broader aims: Safeguard the currency board, consolidate public finances, maintain adequate liquidity and capitalization of banks, secure sufficient external financing, restore confidence, and position the economy for a strong recovery and medium-term sustainable growth and convergence with the European Union.
Deputy Managing Director Takatoshi Kato — summary of remarks
- Recent performance: Solid growth in recent years reflecting reforms in key sectors, benefits of the currency board, and a favorable external environment.
- Imbalances and causes: Rapid credit expansion funded by large capital inflows drove domestic demand past sustainable levels; loosening of fiscal and income policies in 2008 aggravated overheating and left public finances vulnerable.
- Policy orientation: Emphasis on safeguarding the currency board; determined implementation of fiscal, income, and financial sector policies seen as the best guarantee of continued viability of the currency board.
- Fiscal stance: Fiscal policy strikes an appropriate balance between near-term adjustment and reforms for medium-term sustainability; containment of recurrent expenditure to create space for public investment and social spending; better targeted social programs recommended.
- Financial sector measures: Welcome steps to maintain confidence in the banking system — establishment of a standing committee for crisis prevention and management, strengthened capacity for stress tests; foreign parent banks’ commitment to maintain exposures and enhance subsidiaries’ capital critical; need to bolster deposit insurance framework and improve bank resolution procedures.
- Communication: Given risks to the external environment and challenges implementing fiscal policies, clear communication of policy objectives and effective public engagement on reform benefits are of prime importance.
- Outlook: Authorities’ strong commitment to appropriate policies and measures needed to achieve program objectives bode well for a successful outcome.
Recent economic developments (narrative)
- Growth and inflation (2003–08): Growth averaged 6 percent per year during 2003-08 while inflation remained low.
- Capital inflows and imbalances: Bank privatizations, financial sector reforms, and improved growth prospects attracted large capital inflows; capital inflows drove a domestic demand boom, worsening internal and external imbalances (sharp rise in bank credit, acceleration of core inflation, widening current account deficit).
- Crisis impact (late 2008 onward): Stock market indices slumped, international reserves began to decline, bank credit growth halted, financial soundness indicators deteriorated; construction activity faltered and layoffs rose; revenue weakened while expenditure (driven by increases in wages and social benefits) rose sharply.
- Fiscal outcome: General government deficit widened to 4 percent of GDP from a near-balance in 2007.
Program summary (narrative)
- Design: Program designed to safeguard the currency board and cushion effects of the deteriorating external environment while redressing fiscal imbalances and strengthening the financial sector.
- Medium-term aim: Help position the economy for a strong recovery when the global environment improves and set the stage for sustainable growth and EU convergence by providing a framework for structural supply-side reforms and safeguarding competitiveness.
Selected economic indicators, 2005–09
- Real GDP (Percent change)
- 2005: 3.9
- 2006: 6.9
- 2007: 6.8
- 2008: 5.5
- 2009 Est. Proj.: -3.0
- CPI (period average) 1/
- 2005: 3.6
- 2006: 6.1
- 2007: 1.5
- 2008: 7.4
- 2009 Est. Proj.: 1.6
- Money and credit (end of period)
- Broad money
- 2005: 18.2
- 2006: 24.7
- 2007: 21.6
- 2008: 4.3
- 2009 Est. Proj.: 0.6
- Credit to economy
- 2005: 27.5
- 2006: 23.3
- 2007: 28.1
- 2008: 20.8
- 2009 Est. Proj.: 0.0
- General government budget (In percent of GDP)
- Revenue
- 2005: 45.5
- 2006: 47.4
- 2007: 45.8
- 2008: 45.0
- Expenditure (on a commitment basis)
- 2005: 44.7
- 2006: 45.2
- 2007: 47.5
- 2008: 49.9
- 2009 Est. Proj.: 49.7
- Overall balance
- 2005: 0.8
- 2006: 2.2
- 2007: -0.1
- 2008: -4.0
- 2009 Est. Proj.: -4.7
- External public debt (In percent of GDP)
- 2005: 25.6
- 2006: 21.2
- 2007: 18.3
- 2008: 17.1
- 2009 Est. Proj.: 21.5
- NPV of external public debt (In percent of GDP)
- 2005: 19.6
- 2006: 16.2
- 2007: 14.0
- 2008: 13.0
- 2009 Est. Proj.: 16.5
- Total public debt (In percent of GDP)
- 2005: 22.0
- 2006: 29.8
- 2007: 27.8
- 2008: 34.7
- Balance of payments (In millions of euros)
- Exports of goods and services
- 2005: 2,832
- 2006: 3,589
- 2007: 4,062
- 2008: 4,580
- 2009 Est. Proj.: 3,843
- Imports of goods and services
- 2005: 6,393
- 2006: 6,493
- 2007: 7,656
- 2008: 8,688
- 2009 Est. Proj.: 7,050
- Current account balance (In millions of euros)
- 2005: -1,555
- 2006: -816
- 2007: -1,401
- 2008: -1,842
- 2009 Est. Proj.: -1,201
- Current account balance (In percent of GDP)
- 2005: -18.0
- 2006: -8.4
- 2007: -12.7
- 2008: -14.7
- 2009 Est. Proj.: -9.7
- Gross official reserves (In millions of euros)
- 2005: 2,145
- 2006: 2,761
- 2007: 3,425
- 2008: 3,219
- 2009 Est. Proj.: 2,932
- Reserves (In months of imports)
- 2005: 4.0
- 2006: 4.7
- External debt service (In millions of euros)
- 2005: 267
- 2006: 412
- 2007: 326
- 2008: 364
- 2009 Est. Proj.: 433
- External debt service (In percent of exports of goods and services)
- 2005: 9.4
- 2006: 11.5
- 2007: 8.0
- 2008: 11.3
- Exchange rate regime: Currency board since August 1997
- Exchange rate, July 8, 2009: 1KM = Euro 0.5113
- Real effective exchange rate (2000=100, increase=appreciation) 2/
- 2005: 87.8
- 2006: 89.8
- 2007: 88.2
- 2008: 90.1
Press Release No.09/258, July 8, 2009 — International Monetary Fund