The Executive Board of the International Monetary Fund (IMF) today completed the sixth and seventh reviews of Bosnia and Herzegovina’s (BiH) economic performance under a program supported by a Stand-By Arrangement (SBA). The Executive Board also approved an augmentation of the SBA by SDR 84.55 million (about €95.7million) to meet the country’s urgent balance of payments need caused by severe floods in May 2014. The completion of the reviews and the augmentation enables a total disbursement of an amount equivalent to SDR 169.1 million (about €191.4 million), which will bring total disbursements under the arrangement to SDR 422.75 million (about €478.5 million).
The Board also granted the authorities’ request for modification of the end-June 2014, end-September 2014, and end-December 2014 performance criteria on the fiscal balances (net lending) of the central government of the Federation of Bosnia and Herzegovina (FBiH) and the Republika Srpska (RS) to reflect the impact of the natural disaster on government finances.
The 24-month SBA was approved on September 26, 2012 (see Press Release No. 12/366) and was extended for nine months and augmented by SDR 135.28 million (about €153.1 million) on January 31, 2014 to meet additional financing needs that arose mainly in late 2014 (see Press Release No. 14/36). The total arrangement will reach SDR 558.03 million (about €631.6 million, or 330 percent of quota) after the two augmentations.
Following the Executive Board’s discussion, Mr. David Lipton, First Deputy Managing Director and Acting Chair, stated:
“The Executive Board expressed its regret at the major damage and hardship caused by the recent natural disaster that affected Bosnia and Herzegovina. The economy had been on a good track prior to the disaster, with growth picking up and external imbalances narrowing. The impact of the disaster has made the economic outlook more uncertain. Growth is expected to slow down appreciably and the current account deficit to widen substantially. The donor conference planned for mid-July will be critical to mobilize international donor support for the reconstruction.
“With fiscal consolidation having progressed largely as planned prior to the disaster, there is room for a temporary easing of fiscal policies to absorb the revenue losses and additional spending needs and avoid a further decline in activity. Nonetheless, to maintain public debt firmly anchored, it will be critical to strictly contain non-priority spending and sustain ongoing efforts to improve revenue collection.
“The authorities have adopted a well-coordinated strategy to assess and manage the impact of the disaster on the banking system. Continued progress in improving bank supervision and contingency planning, as well as the legal and regulatory framework for the banking sector in general and the resolution of non-performing loans in particular, will deliver a more resilient banking sector. Remaining shortcomings in the anti-money laundering framework will also need to be addressed.
“Renewed efforts to drive forward the structural reform agenda will be crucial to emerge from the disaster stronger, with faster growth and more jobs. Measures to facilitate business registration and operation are already yielding positive results, but more needs to be done to improve economic governance. Adopting new labor market legislation that is more conducive to job creation is essential to reduce the high level of unemployment.
“Given the authorities’ performance and the additional financing needs created by the natural disaster, an augmentation of the Stand-By Arrangement is appropriate to smooth the adjustment process. The Arrangement remains a valuable anchor for economic policies during this uncertain and difficult period.”