Press Release No. 12/497

Press Release: IMF Completes First Review under Stand-By Arrangement with Bosnia and Herzegovina and Approves €58.9 Million Disbursement

December 19, 2012

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Bosnia and Herzegovina’s economic performance under a program supported by a 24-month Stand-By Arrangement (SBA). The completion of the review enables the disbursement of SDR 50.73 million (about €58.9 million, or US$78.4 million), bringing total disbursements under the program to an amount equivalent to SDR 101.46 million (about €117.9 million, or US$156.8 million).

The SBA with Bosnia and Herzegovina was approved on September 26, 2012 (see Press Release No. 12/366) in an amount of SDR 338.2 million (about €392.9 million, or US$522.7 million). In completing the review, the Executive Board also approved a request for the waiver of nonobservance of the end-September 2012 performance criterion on the Federation of Bosnia and Herzegovina’s central government fiscal balance.

Following the Executive Board's discussion, Ms. Minouche Shafik, Deputy Managing Director and Acting Chair, stated:

“Bosnia and Herzegovina’s (BiH) strong performance thus far under the program is encouraging, with continued fiscal restraint, improved economic policy coordination, and prudent financial sector policies. The Fund-supported program continues to provide a valuable anchor for economic policy amid a difficult external and domestic environment.

“The 2013 budgets strike a good balance between supporting growth and pursuing medium-term consolidation. By containing or reducing current spending, room has been created for increased social assistance and private sector support.

“Success in achieving sustainable fiscal consolidation over the medium term will depend on progress in structural fiscal reforms. Moving ahead with the reform of the privileged pension system in the Federation, and streamlining the government wage structure and the ministries and agencies in all of BiH will generate structural savings and create room for growth-enhancing capital investments and priority social spending. In addition, enhanced control over lower-level governments, extra-budgetary funds, and public companies, as well as steps to improve tax administration will help improve government finances. The success of these reforms will require strong political will and a careful design of reform measures.

“Prudent financial sector policies continue to promote financial stability. Nevertheless, vigilance to any sign of stress in the financial sector is essential. Plans to enhance the monitoring of banks and improve crisis preparedness and review the resolution framework for non-performing loans are steps in the right direction. Close coordination and cooperation among the central bank, the banking supervision agencies and home-country supervisors, and the deposit insurance agency will be crucial.”