On October 23, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Bosnia and Herzegovina.
Economic growth in Bosnia and Herzegovina is expected to rebound to over 2 percent this year as economic activity is picking up in Europe. Industrial activity and exports have been gathering momentum and, together with the decline in fuel prices, boost incomes and consumption. Deflation has been imported through the currency board arrangement.
The economy of Bosnia and Herzegovina fell into recession in the aftermath of the global crisis. After several starts and stops, the economy started to recover in 2013, with growth reaching 2½ percent, but this progress was interrupted by the floods that hit the country in May 2014. Nonetheless, the economy proved more resilient to the impact of this natural disaster than initially expected and growth still reached over 1 percent in 2014.
Bosnia and Herzegovina still faces major challenges. Convergence to European Union (EU) income levels has been slow for both cyclical and structural reasons. A lack of progress in structural reforms—partly reflecting the country’s complex constitutional set up—has held back private investment, limiting potential output and keeping unemployment high, especially among the youth. The authorities recently adopted a comprehensive Reform Agenda—prepared in cooperation with the EU and the international financial institutions—aiming to accelerate reforms and to move forward on the path toward EU accession.
Domestic political risks weigh heavily on the outlook. The risk of policy slippages and delays in implementation of the Reform Agenda is significant given the complex political set up and the strong opposition to reforms from vested interests. On the external side, risks are more balanced, as stagnation in Europe, possible financial market strains, or geopolitical tensions could dampen growth, while a faster recovery in Europe or the resolution of trade issues with the EU could spur exports.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.