Abstract
2017 Article IV Consultation, First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Extension of the Arrangement, Rephasing of Purchases, and Waiver of Nonobservance of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Bosnia and Herzegovina
On February 9, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Bosnia and Herzegovina.
Macroeconomic conditions in Bosnia and Herzegovina have remained stable. BiH has made progress in reducing internal and external imbalances in recent years, thanks to a prudent fiscal position, and a strong monetary anchor provided by the currency board. However, job creation has been limited, unemployment has remained high, particularly among the youth, and the income convergence with the EU has stalled.
Fiscal stability has been maintained, mainly through continued restraint on current government spending. Progress in improving budget composition has been limited and reforms of state enterprises have not progressed as envisaged. While current spending has declined as share of GDP, capital spending has not risen as expected, largely due to financing constraints. The authorities have also undertaken measures to strengthen and safeguard financial stability include modernization of banking sector legislations and addressing banking weakness indicated by asset quality reviews.
The authorities have made some progress in improving the business environment and enhancing the functioning of labor market. However, institutional weaknesses and weak coverage and quality of public infrastructure remain the key factors undermining private sector development and foreign investment. The recent increase in excise duties will facilitate the implementation of key infrastructure projects.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for the progress under the Fund-supported program, which has contributed to macroeconomic and financial stability. However, Directors noted that significant challenges and risks remain. They emphasized that strong ownership and commitment to the program objectives and targets is essential to enhance job creation, boost growth, and achieve income convergence with the European Union.
Directors welcomed the progress in strengthening the business environment and reforming the labor market. However, they noted that stronger reforms are needed to address the remaining weaknesses. They underscored that priority should be given to upgrading physical infrastructure, lowering the fiscal and administrative burden on businesses, further reforming the labor market, improving governance of State-Owned-Enterprises, and enhancing competition.
Directors welcomed the authorities’ efforts to maintain a prudent fiscal position. They welcomed the plan to scale up public investment and emphasized that fiscal policy should continue to focus on rebalancing current spending to growth-enhancing capital expenditures in a sustainable manner. Directors emphasized the importance of strengthening the public finance management framework to mitigate fiscal risks and agreed that decisive measures are needed to tackle the issue of public sector arrears.
Directors commended the authorities for the progress in modernizing and harmonizing banking sector legislations. They underscored that continued efforts are needed to safeguard financial stability and to improve the regulatory framework. In this context, Directors encouraged prompt passage of the new deposit insurance law. They also highlighted the need to reform development banks.
Bosnia and Herzegovina: Selected Economic Indicators
Bosnia and Herzegovina: Selected Economic Indicators
| 2014 | 2015 | 2016 | 2017 | 2018 | |||
|---|---|---|---|---|---|---|---|
| Proj. | |||||||
| Nominal GDP (KM million) | 27,304 | 28,586 | 29,899 | 31,283 | 32,795 | ||
| Gross national saving (in percent of GDP) | 10.4 | 10.3 | 10.9 | 11.0 | 11.8 | ||
| Gross investment (in percent of GDP) | 17.8 | 15.9 | 16.0 | 16.3 | 17.7 | ||
| (Percent change) | |||||||
| Real GDP | 1.1 | 3.1 | 3.2 | 2.7 | 3.2 | ||
| CPI (period average) | −0.9 | −1.0 | −1.1 | 1.7 | 1.6 | ||
| Money and credit (end of period) | |||||||
| Broad money | 7.3 | 8.0 | 8.3 | 8.6 | 9.4 | ||
| Credit to the private sector | 1.8 | 2.6 | 3.7 | 6.0 | 6.3 | ||
| (In percent of GDP) | |||||||
| Operations of the general government | |||||||
| Revenue | 43.4 | 43.2 | 42.7 | 43.5 | 43.9 | ||
| Of which: grants | 1.0 | 0.8 | 0.7 | 0.7 | 0.7 | ||
| Expenditure | 46.3 | 43.4 | 42.3 | 41.4 | 42.6 | ||
| Of which: investment expenditure | 5.3 | 3.6 | 3.8 | 3.9 | 5.5 | ||
| Net lending | −2.9 | −0.2 | 0.3 | 2.1 | 1.2 | ||
| Net lending, excluding interest payment | −2.1 | 0.6 | 1.2 | 3.0 | 2.1 | ||
| Total public debt | 45.0 | 45.5 | 43.7 | 40.5 | 38.9 | ||
| Domestic public debt | 14.9 | 15.1 | 14.4 | 13.3 | 11.7 | ||
| External public debt | 30.1 | 30.4 | 29.4 | 27.2 | 27.1 | ||
| (In millions of euros) | |||||||
| Balance of payments | |||||||
| Exports of goods and services | 4,754 | 5,056 | 5,372 | 6,208 | 6,581 | ||
| Imports of goods and services | 7,927 | 7,801 | 7,993 | 8,935 | 9,516 | ||
| Current transfers, net | 2,029 | 1,825 | 1,826 | 1,876 | 1,946 | ||
| Current account balance | −1,033 | −826 | −776 | −834 | −997 | ||
| (In percent of GDP) | −7.4 | −5.7 | −5.1 | −5.2 | −5.9 | ||
| Foreign direct investment (+=inflow) | 400.8 | 248.9 | 240.5 | 351.4 | 365.6 | ||
| (In percent of GDP) | 2.9 | 1.7 | 1.6 | 2.2 | 2.2 | ||
| Gross official reserves | 4,013 | 4,413 | 4,886 | 5,288 | 5,739 | ||
| (In months of imports) | 6.2 | 6.6 | 6.6 | 6.7 | 6.8 | ||
| (In percent of monetary base) | 112.1 | 113.3 | 113.9 | 115.7 | 116.1 | ||
| External debt, percent of GDP | 63.7 | 62.9 | 63.8 | 61.1 | 61.0 | ||
Bosnia and Herzegovina: Selected Economic Indicators
| 2014 | 2015 | 2016 | 2017 | 2018 | |||
|---|---|---|---|---|---|---|---|
| Proj. | |||||||
| Nominal GDP (KM million) | 27,304 | 28,586 | 29,899 | 31,283 | 32,795 | ||
| Gross national saving (in percent of GDP) | 10.4 | 10.3 | 10.9 | 11.0 | 11.8 | ||
| Gross investment (in percent of GDP) | 17.8 | 15.9 | 16.0 | 16.3 | 17.7 | ||
| (Percent change) | |||||||
| Real GDP | 1.1 | 3.1 | 3.2 | 2.7 | 3.2 | ||
| CPI (period average) | −0.9 | −1.0 | −1.1 | 1.7 | 1.6 | ||
| Money and credit (end of period) | |||||||
| Broad money | 7.3 | 8.0 | 8.3 | 8.6 | 9.4 | ||
| Credit to the private sector | 1.8 | 2.6 | 3.7 | 6.0 | 6.3 | ||
| (In percent of GDP) | |||||||
| Operations of the general government | |||||||
| Revenue | 43.4 | 43.2 | 42.7 | 43.5 | 43.9 | ||
| Of which: grants | 1.0 | 0.8 | 0.7 | 0.7 | 0.7 | ||
| Expenditure | 46.3 | 43.4 | 42.3 | 41.4 | 42.6 | ||
| Of which: investment expenditure | 5.3 | 3.6 | 3.8 | 3.9 | 5.5 | ||
| Net lending | −2.9 | −0.2 | 0.3 | 2.1 | 1.2 | ||
| Net lending, excluding interest payment | −2.1 | 0.6 | 1.2 | 3.0 | 2.1 | ||
| Total public debt | 45.0 | 45.5 | 43.7 | 40.5 | 38.9 | ||
| Domestic public debt | 14.9 | 15.1 | 14.4 | 13.3 | 11.7 | ||
| External public debt | 30.1 | 30.4 | 29.4 | 27.2 | 27.1 | ||
| (In millions of euros) | |||||||
| Balance of payments | |||||||
| Exports of goods and services | 4,754 | 5,056 | 5,372 | 6,208 | 6,581 | ||
| Imports of goods and services | 7,927 | 7,801 | 7,993 | 8,935 | 9,516 | ||
| Current transfers, net | 2,029 | 1,825 | 1,826 | 1,876 | 1,946 | ||
| Current account balance | −1,033 | −826 | −776 | −834 | −997 | ||
| (In percent of GDP) | −7.4 | −5.7 | −5.1 | −5.2 | −5.9 | ||
| Foreign direct investment (+=inflow) | 400.8 | 248.9 | 240.5 | 351.4 | 365.6 | ||
| (In percent of GDP) | 2.9 | 1.7 | 1.6 | 2.2 | 2.2 | ||
| Gross official reserves | 4,013 | 4,413 | 4,886 | 5,288 | 5,739 | ||
| (In months of imports) | 6.2 | 6.6 | 6.6 | 6.7 | 6.8 | ||
| (In percent of monetary base) | 112.1 | 113.3 | 113.9 | 115.7 | 116.1 | ||
| External debt, percent of GDP | 63.7 | 62.9 | 63.8 | 61.1 | 61.0 | ||
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.