IMF Mission to Bosnia and Herzegovina Reaches Staff-Level Agreement on First Review of Stand-By Arrangement

Press Release No. 09/421
November 20, 2009

An International Monetary Fund (IMF) mission, led by Costas Christou, held discussions with the authorities of Bosnia and Herzegovina (BiH) during November 3–20, 2009 as part of the first review of the country’s Stand-By Arrangement (SBA). 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 first review under the SBA. In the next few weeks the authorities intend to implement several agreed measures, including approval of the 2010 budgets by the State and the Entity Parliaments. Assuming adoption of these measures and approval by IMF Management, the first review could be considered by the Executive Board in January 2010. Completion would allow BiH to draw SDR 87.93 million or about €94 million.

“There are initial signs of positive effects of the SBA: output losses appear to have been contained and the current account deficit is shrinking faster than projected; public confidence is recovering; financial sector pressures have eased, and household deposits have resumed flowing into the banking system. In addition, the first drawing under the SBA helped buttress the central bank’s reserves and ease the short-term funding pressures of the entity budgets.

“The country’s performance under the IMF-supported economic program has been encouraging. The quantitative targets for end-September were met and entity parliaments adopted the rebalanced budgets last August. The structural benchmark on the publication on the State government’s website of quarterly consolidated general government accounts with a five-week lag was also met, although with a slight delay. In the financial sector, a Standing Committee on Financial Stability was established and a draft Memorandum of Understanding on financial stability, crisis preparedness and crisis management, is about to be signed.

“But the general government deficit has been widening, as a result of uneven implementation of agreed fiscal policy measures and some revenue shortfalls. Agreement was reached on corrective measures. In addition, the authorities have committed to implement several structural spending reforms, including in the areas of public wages and transfers, over the next few months. These reforms will be critical to keep fiscal policy on track in 2010, improve the targeting of social benefits for the most vulnerable groups, and preserve financial integrity of the public pension system.

“Going forward, the global economic recovery is expected to support the expansion of BiH’s exports in 2010, thus leading to a gradual return to stronger growth. But 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.”



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