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© 2008 International Monetary Fund

October 2008

IMF Country Report No. 08/327

Bosnia and Herzegovina: 2008 Article IV Consultation—Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Bosnia and Herzegovina

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the Article IV consultation with Bosnia and Herzegovina, the following documents have been released and are included in this package:

  • The staff report for the 2008 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on June 24, 2008, with the officials of Bosnia and Herzegovina on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on August 28, 2008. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • A Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its September 17, 2008 discussion of the staff report that concluded the Article IV consultation.

  • A statement by the Executive Director for Bosnia and Herzegovina.

The document listed below has been or will be separately released.

Selected Issues

The policy of publication of staff reports and other documents allows for the deletion of market–sensitive information.

Copies of this report are available to the public from

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Price: $18.00 a copy

International Monetary Fund

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Staff Report for the 2008 Article IV Consultation

Prepared by the Staff Representatives for the 2008 Consultation with Bosnia & Herzegovina

Approved by Poul M. Thomsen and Martin Fetherston

August 28, 2008

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Executive Summary

Background: The economy has been exhibiting robust growth, but imbalances have emerged: the current account deficit has widened and underlying inflation has picked up. Procyclical fiscal policy has added to these imbalances. Moreover, large public sector wage increases threaten to spill over to private sector settlements, thus exacerbating inflation pressures and weighing on competitiveness. Credit growth has started to slow down and tightened financial conditions have resulted in a fall in bank profitability. Looking ahead, the signing of the Stabilization and Association Agreement (SAA) with the EU and progress in fiscal coordination could provide impetus for much–needed structural reforms.

Staff views: The main challenge is to tighten fiscal and public sector wage policies. Moreover, fiscal policies should be more coordinated and anchored within a medium-term framework, and aim at reducing the size of the government and raising its efficiency. It is also important to further strengthen banking supervision and contain risks to financial stability. These policies should provide a solid basis for the stability of the currency board arrangement.

Authorities’ views: The authorities broadly agreed with the staff’s diagnosis and recommendations. On account of the SAA signing, they felt optimistic about their country’s prospects and reform momentum, and hoped that recent progress in fiscal coordination would keep public finances on a strong footing.


  • Executive Summary

  • I. Overview

  • II. Background

  • III. Policy Discussions

    • A. Outlook

    • B. Public Finances

    • C. Financial Sector Issues

    • D. Capacity Building

  • IV. Staff Appraisal

  • Boxes

    • 1. External Competitiveness

  • Figures

    • 1. Income and Growth

    • 2. Growth Performance

    • 3. Indicators of Economic Activity

    • 4. Competitiveness Indicators, 2000–08

    • 5. External Position

    • 6. Inflation, January 2006–May 2008

    • 7. Financial Market Indicators, 2003–08

    • 8. Financial Sector Developments

    • 9. Progress in Structural Reforms, 2003–07

    • 10. Institutional Quality and Reform, 2007

    • 11. Outlook under Alternative Scenarios, 2005–13

    • 12. Public Administration Wages and Employment, 2006

  • Tables

    • 1. Selected Economic Indicators, 2004–09

    • 2. Balance of Payments, 2004–13

    • 3. Selected Vulnerability Indicators, 2004–08

    • 4. General Government, 2004–13

    • 5. Elements of General Government, 2004–13

    • 6. Monetary Survey, 2003–08

    • 7. Monetary Authorities’ Balance Sheet, 2003–08

    • 8. Survey of Domestic Money Banks, 2003–08

    • 9. Baseline Medium–Term Outlook, 2004–13

    • 9b. Alternative Medium–Term Outlook, 2004–13

    • 10. Financial Soundness Indicators, 2002–08

    • 11. Implementation of FSAP and Staff Recommendations

    • 12. Response to Past Fund Policy Recommendations

    • 13. General Government Reconciliation, 2007

  • Attachments

  • I. Debt Sustainability Analysis

  • Appendices

    • I. Fund Relations

    • II. World Bank Relations

    • III. Statistical Issues

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Public Information Notice (PIN) No. 08/122


September 19, 2008

International Monetary Fund

700 19thStreet, NW

Washington, D. C. 20431 USA

On September 17, 2008, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bosnia and Herzegovina.1

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September 17, 2008

Bosnia and Herzegovina: 2008 Article IV Consultation: Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Bosnia and Herzegovina
Author: International Monetary Fund