IMF Executive Board Approves Three-Year €553.3 Million for Bosnia and Herzegovina

The Executive Board of the International Monetary Fund (IMF) has approved a three-year extended arrangement under the Extended Fund Facility (EFF) with Bosnia and Herzegovina for an amount equivalent to SDR 443.042 million (about €553.3 million, or 167.06 percent of quota) to support the country’s economic reform agenda.

According to a release made available to Folakeinvestigates, the Executive Board’s decision will enable an immediate disbursement of SDR 63.4125 million (about €79.2 million), and the remainder will be available in 11 installments subject to quarterly reviews.

Following the Executive Board discussion on Bosnia and Herzegovina, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:

“The recovery of the economy of Bosnia and Herzegovina after the global financial crisis has been on a good track, with growth reaching 3.2 percent in 2015 despite fiscal consolidation. However, income convergence with advanced European countries has lagged and unemployment, especially among the youth, remains at very high levels. Important challenges remain in terms of improving the business climate, enhancing fiscal policy, and safeguarding financial sector stability.

“To reach faster growth and create more jobs, greater efforts will be necessary to drive forward the structural reform agenda. The recent adoption of the entity labor laws is welcome, but continued progress is needed to improve private sector incentives for job creation, including by addressing the very high labor tax wedge.

“Reorienting the budgets to make fiscal policy more conducive to economic growth will be critical by reducing current spending to create room for much needed infrastructure investment. The authorities’ commitment to reduce public sector employment is appropriate. Together with improved targeting of social spending and the envisaged pension and health care reforms, this will help put the debt-to-GDP ratio on a gradual downward path.

“The authorities are working on comprehensive financial sector policies to safeguard financial sector stability and revive bank lending. However, it will be critical to closely monitor bank vulnerabilities, while improving efficiency and effectiveness of banking supervision, including through better coordination and cooperation among the regulatory agencies.

“The authorities’ commitment to improve national policy coordination among different levels of governments is welcome and will be critical for successful implementation of reforms and will help build the single economic space in Bosnia and Herzegovina.

“The authorities’ program supported under the Extended Fund Facility provides an important opportunity to address the challenges in a sustainable manner, while preserving macroeconomic and external stability. It will also enable financial support from other international partners.”