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News 09 Sep 16

IMF Loan Pulls Bosnia Back From Brink

New loan averts danger of liquidity crisis - but the IMF’s strict terms will pose a challenge to politicians hunting votes in the October elections.   

Maja Garaca Djurdjevic
Banja Luka

The IMF approved a three-year 553.3-million-euro loan to Bosnia and Herzegovina to support the country’s economic reform agenda. Photo World Bank Photo Collection/Flickr

Experts warn that if Bosnia fails to provide concrete proof of reforms in some three months’ time, the International Monetary Fund, IMF, will likely cancel the second instalment of its new loan.

The IMF approved a three-year 553.3-million-euro loan to Bosnia and Herzegovina to support the country’s economic reform agenda on Wednesday.

Bosnia will have immediate access to about 79.2 million euros. The remainder will be available in 11 instalments subject to quarterly reviews.

Approval of the loan was previously put on hold after Bosnia’s authorities failed to initial in time the agreement reached with the fund in May.

Long delays in IMF payments, the last of which were received in September 2014, have added to political tensions in the country. However, out of pocket and facing local elections in October, the politicians of both Bosnian entities eventually came to an agreement in July and so averted a liquidity crisis.

Banja Luka-based economic analyst Zoran Pavlovic told BIRN that the political truce would not last long, with politicians desperate to get their hands on IMF cash and plug budget holes prior to October.

“The most important thing [for politicians] is to settle all the debts and subsidies that they previously had no funds for, and enter the October elections with a few less disgruntled people,” Pavlovic explained.

However, once the dust has settled after the elections, Bosnia will likely find itself in renewed deadlock, with leaders unable to follow the IMF’s strict conditions.

 “We will definitely find ourselves in the same place we are in now. Promises are easy to make, but savings, employee cutbacks, reductions in administrative costs and wages and so on, will all await a more favourable time,” Pavlovic said.

Bosnia’s last agreement with the IMF expired in June 2015, when the fund froze the disbursement of new loan instalments due to unfulfilled conditions, and kicked off negotiations for the conclusion of a new deal.  

Political wrangles again threatened Bosnia’s liquidity this year when politicians feuded over the Letter of Intent to the IMF.

Analysts warned at the time that if the IMF cancelled another loan, Bosnia’s two entities would have major problems in implementing their budgets, which could lead to blocked payments of salaries, pensions, social benefits and other financial obligations.

Following the IMF’s latest discussion on Bosnia, the fund warned that although the country is on track towards mending its failing economy, it has a long way to go.

The new IMF programme is provided through the Extended Credit Facility ECF and seeks evidence of concrete reforms under three objectives: improvements to the business environment so as to attract investments; reduction of public indebtedness through gradual fiscal consolidation; revived bank lending and credit growth amid safeguards to financial stability.

Pavlovic cautioned that if Bosnian authorities are unable to provide proof of reforms in some three months’ time, they face a cancelation of the loan’s second instalment

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