IMF Executive Board Approves Three-Year €553.3 Million Extended Arrangement under EFF for Bosnia and Herzegovina
September 7, 2016
- Decision will enable an immediate disbursement of about €79.2 million
- New program will support boosting economic potential and maintaining macroeconomic stability
- The arrangement will also help strengthen the single economic space
The Executive Board of the International Monetary Fund (IMF) today 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.
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.”
ANNEX
Recent Developments
Economic growth in Bosnia and Herzegovina (BiH) has begun to pick up recently and external and internal imbalances have eased. Growth reached over 3 percent in 2015, despite a stronger-than-expected fiscal consolidation brought about by a financing shortfall. Nevertheless, economic performance has been lackluster over the past few years and growth and income convergence with advanced Europe have lagged since the onset of the global financial crisis. The budget was close to balance in 2015 and current account deficit narrowed. Inflation was negative, largely reflecting low inflation in the euro area imported through the currency board arrangement. High youth- and long-term unemployment, which encourages emigration, remains a concern. The quality of the business environment is below par: over the past two decades, BiH has trailed regional peers in implementing growth-enhancing structural reforms.
The near term outlook is relatively positive. In line with pick up in the region, growth in 2016 is expected to remain at 3 percent, as public investment recovers following financing and implementation problems in 2015. As the recovery in Europe continues and structural reforms are successfully implemented, growth could increase to 4 percent over the medium term. Prices are expected to continue to fall in 2016, with inflation picking up in later years. The current account deficit is projected to fall over the medium term, after peaking in 2017.
In 2015, the authorities adopted a comprehensive Reform Agenda, which promises the most significant reorientation of the BiH economy since the time of the Dayton Accords. The Agenda builds on the lessons learnt from earlier experiences, namely, the need to improve labor market performance and the composition of government spending. It also emphasizes the need to harmonize rules and regulations and to improve intra governmental coordination. International community has pledged to provide financial and technical assistance to support strong implementation of the Reform Agenda. Over the past year, all governments have drawn up action plans and have taken significant steps towards implementation.
Program Summary
The new three-year IMF-supported program aims to address BiH’s medium term balance of payment need, and the availability of IMF financing will allow the release of compression in public capital spending. It will also support policies for boosting economic potential and maintaining macroeconomic stability.
The program would have three main objectives:
Structural Reforms: Raise growth potential and boost private sector employment by intensifying structural reforms that improve the business environment and attract investment.
Fiscal Policy: Improve the composition and quality of public spending, while gradually lowering public indebtedness.
Financial Sector: Revive bank lending and credit growth while safeguarding financial stability through financial sector reforms.
The arrangement will also help improve coordination and cooperation among the authorities in BiH to strengthen the single economic space.
Additional background
Bosnia and Herzegovina, which became member of the IMF on December 14, 1992, has an IMF quota of SDR 265.20 million. For additional information on the IMF and Bosnia and Herzegovina, see http://www.imf.org/external/country/BIH/index.htm
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Bosnia and Herzegovina: Selected Economic Indicators, 2012–21 |
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|
2012 |
2013 |
2014 |
2015 |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
||||
|
Est. |
Proj. |
||||||||||||
|
Nominal GDP (KM million) |
26,193 |
26,743 |
27,304 |
28,208 |
29,113 |
30,430 |
31,982 |
34,005 |
36,336 |
38,757 |
|||
|
Gross national saving (in percent of GDP) |
9.5 |
11.7 |
10.3 |
10.3 |
11.8 |
12.3 |
13.6 |
15.1 |
16.1 |
17.3 |
|||
|
Gross investment (in percent of GDP) |
18.1 |
17.0 |
17.8 |
16.0 |
17.1 |
18.3 |
19.3 |
20.6 |
21.2 |
22.2 |
|||
|
(Percent change) |
|||||||||||||
|
Real GDP |
-0.9 |
2.4 |
1.1 |
3.2 |
3.0 |
3.2 |
3.7 |
3.9 |
4.0 |
4.0 |
|||
|
CPI (period average) |
2.0 |
-0.1 |
-0.9 |
-1.0 |
-0.7 |
1.1 |
1.5 |
1.8 |
2.1 |
2.1 |
|||
|
Money and credit (end of period) |
|||||||||||||
|
Broad money |
3.4 |
7.9 |
7.3 |
8.0 |
7.2 |
7.5 |
7.4 |
7.5 |
7.6 |
7.5 |
|||
|
Credit to the private sector |
2.8 |
2.3 |
1.8 |
2.6 |
3.2 |
3.6 |
5.1 |
6.3 |
6.9 |
7.1 |
|||
|
(In percent of GDP) |
|||||||||||||
|
Operations of the general government |
|||||||||||||
|
Revenue |
44.2 |
43.2 |
43.4 |
43.6 |
43.4 |
43.5 |
43.4 |
43.4 |
43.4 |
43.3 |
|||
|
Of which: grants |
1.1 |
0.9 |
1.0 |
0.9 |
0.9 |
0.9 |
1.0 |
1.0 |
1.0 |
1.1 |
|||
|
Expenditure |
46.9 |
45.1 |
46.3 |
43.7 |
44.2 |
44.3 |
44.0 |
43.8 |
43.7 |
43.7 |
|||
|
Of which: investment expenditure |
5.1 |
5.0 |
5.3 |
3.5 |
4.4 |
5.1 |
5.9 |
6.9 |
7.2 |
7.6 |
|||
|
Net lending |
-2.7 |
-1.9 |
-2.9 |
-0.1 |
-0.8 |
-0.8 |
-0.6 |
-0.3 |
-0.3 |
-0.3 |
|||
|
Net lending, excluding interest payment |
-1.9 |
-1.1 |
-2.1 |
0.7 |
0.1 |
0.2 |
0.4 |
0.6 |
0.6 |
0.6 |
|||
|
Total public debt |
44.3 |
43.5 |
44.0 |
44.7 |
44.2 |
43.2 |
42.3 |
40.4 |
38.0 |
36.6 |
|||
|
Domestic public debt |
15.5 |
13.1 |
13.9 |
14.5 |
13.8 |
13.1 |
12.6 |
11.9 |
11.1 |
11.2 |
|||
|
External public debt |
28.8 |
30.4 |
30.1 |
30.3 |
30.3 |
30.2 |
29.7 |
28.5 |
26.9 |
25.5 |
|||
|
(In millions of euros) |
|||||||||||||
|
Balance of payments |
|||||||||||||
|
Exports of goods and services |
2,587 |
2,905 |
2,983 |
3,122 |
3,170 |
3,320 |
3,477 |
3,632 |
3,761 |
3,894 |
|||
|
Imports of goods and services |
5,730 |
5,693 |
6,146 |
5,892 |
6,088 |
6,547 |
6,873 |
7,163 |
7,487 |
7,834 |
|||
|
Current transfers, net |
1,881 |
1,889 |
2,030 |
1,819 |
1,968 |
2,170 |
2,284 |
2,409 |
2,544 |
2,738 |
|||
|
Current account balance |
-1,159 |
-725 |
-1,041 |
-812 |
-793 |
-921 |
-939 |
-947 |
-965 |
-984 |
|||
|
(In percent of GDP) |
-8.7 |
-5.3 |
-7.5 |
-5.6 |
-5.3 |
-5.9 |
-5.7 |
-5.4 |
-5.2 |
-5.0 |
|||
|
Foreign direct investment (+=inflow) |
258.8 |
196.0 |
366.5 |
205.9 |
330.3 |
445.4 |
438.9 |
467.8 |
519.0 |
598.5 |
|||
|
(In percent of GDP) |
1.9 |
1.4 |
2.6 |
1.4 |
2.2 |
2.9 |
2.7 |
2.7 |
2.8 |
3.0 |
|||
|
Gross official reserves |
3,340 |
3,627 |
4,013 |
4,413 |
4,672 |
4,986 |
5,254 |
5,558 |
5,855 |
6,181 |
|||
|
(In months of imports) |
5.4 |
5.5 |
6.2 |
6.5 |
6.5 |
6.6 |
6.6 |
6.7 |
6.7 |
6.8 |
|||
|
(In percent of monetary base) |
112.6 |
113.3 |
112.1 |
113.3 |
113.2 |
114.5 |
114.3 |
114.5 |
114.5 |
113.7 |
|||
|
External debt, percent of GDP |
62.7 |
61.7 |
63.7 |
63.7 |
63.3 |
62.4 |
61.3 |
59.5 |
57.1 |
55.0 |
|||
|
Sources: BiH authorities; and IMF staff estimates and projections. |
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IMF Communications Department
MEDIA RELATIONS
PRESS OFFICER: Wiktor Krzyzanowski
Phone: +1 202 623-7100Email: MEDIA@IMF.org