Statement by an IMF Mission in Bosnia and HerzegovinaPress Release No.10/203
May 18, 2010
An International Monetary Fund (IMF) mission, led by Costas Christou, visited Bosnia and Herzegovina (BiH) during May 4–17, 2010 to initiate discussions with the authorities on the second review of the country’s Stand-By Arrangement (SBA) with the IMF. At the conclusion of the visit, Mr. Christou made the following statement:
“An IMF staff mission has been assessing performance and prospects under the SBA. There are signs that the Arrangement has helped stabilize the economy in a difficult external environment: macro-financial vulnerabilities have been reduced, household deposits have fully recovered from their low point in late 2008, the central bank’s foreign exchange reserves have remained stable, and foreign-owned banks have broadly maintained their exposure to BiH. Positive developments so far this year include growth in industrial production in both BiH’s Entities, strong pickup in exports, and gains in indirect tax revenue collection.
“Accelerated implementation of policies is now needed to preserve these early gains. All the quantitative targets for end-March 2010, for which information is available, were met but effective implementation of the Federation’s structural benchmarks has been slow. The authorities are now considering measures to correct these slippages, including: expediting eligibility audits; finalizing the privileged pension reform; and taking steps to ensure that the budget allocation for the wage bill in 2010 will not be exceeded.
“Although there is general agreement on the need to improve the government’s financial position, the authorities need more time to reach consensus about how to achieve this objective. In this context, it would be helpful if the State and the Entity authorities were to agree on a common global fiscal framework for 2011-13, for which work has already begun.
“With the initial signs of the economic recovery under way, it is important that the BiH population’s hopes for better growth and employment prospects are not undermined by policy uncertainty ahead of the October elections. Against this background, strong leadership by all authorities will be required to mobilize support for the difficult decisions that may still need to be taken. Perseverance with reforms of rights-based benefits and continued efforts to strengthen the fiscal position will remain critical for the better targeting of social benefits, and for the financial integrity of the public pension systems.
“Discussions with the authorities will continue, as soon as the authorities have come to agreement on measures necessary to advance the program objectives under the SBA. The fourth tranche of support, SDR 33.82 million (about €40 million), is contingent upon satisfactory completion of this review. This would bring the overall support from the IMF, including the SDR allocation, provided to BiH to approximately €565 million.”