News & Analysis

IMF Completes First Bosnia EFF Review

SARAJEVO, BOSNIA AND HERZEGOVINA - AUGUST 19 2017: Panoramiv view of Sarajevo from Yellow fortress with skycrapers in the background

Bosnia has made progress in lowering internal and external imbalances and enhancing growth potential, according to the International Monetary Fund which in February completed the first review of the country’s economic performance under the Extended Fund Facility (EFF). The completion of the review will make available 74.6 million euro under the EFF, bringing the total funds available to 149.3 million euros.

“There has been progress in advancing structural reforms, including harmonising tax laws across the entities and improving corporate governance in state-owned-enterprise,” said Tao Zhang, deputy managing director of the IMF. “The recent increase in excise rates on fuel products is expected to unlock external financing for significant growth-enhancing infrastructure investment. Going forward, the authorities need to continue their efforts to improve the business environment, by reforming the labour market and reducing para-fiscal fees.”

“The budgets for 2018 envisage continued lowering of the wage bill in relation to GDP through a general wage freeze and hiring restraints. The authorities are encouraged to continue with public sector employment reforms, including by conducting functional reviews. Wage bill savings should be channeled to boost growth-enhancing capital spending. Addressing the issue of public sector arrears is key to mitigating potential fiscal risks, and reforms that help lower arrears accumulation should commence promptly,” he continued.

Mr Zhang also said the authorities have also implemented economic policies and structural reforms under the Fund-supported program, including maintaining fiscal discipline, safeguarding financial stability, and improving the business environment. “It is important that the authorities continue with efforts to enhance growth potential and address structural weakness, while maintaining economic and financial stability,” he added.

According to the IMF, the banking sector remains broadly stable, but vulnerabilities remain and vigilance is warranted.

“Commendable progress has been made in modernising the legal and regulatory environment of the financial sector by adopting new banking laws and amending the banking agency laws. Prompt passage of the new deposit insurance law will be important. Sustained efforts are needed to improve coordination, cooperation, and information exchange among various financial sector authorities to safeguard financial sector stability,” Mr Zhang concluded.