Statement by the IMF Staff Mission to Bosnia and Herzegovina

An International Monetary Fund (IMF) mission led by Costas Christou visited Bosnia and Herzegovina (BiH) during November 2–15 to hold discussions with the authorities on the 4^th review under the Stand-By Arrangement (SBA). At the conclusion of the mission Mr. Christou made the following statement today in Sarajevo:

“An IMF staff mission has been assessing performance and prospects under the SBA. Following the decline in economic activity in 2009, an export-led recovery has been advancing. Output growth is expected to turn positive this year and reach 2¼ percent in 2011. Other encouraging signs include acceleration in indirect tax collections and gains in manufacturing production.

“Performance under BiH’s SBA has been broadly on track. All end-September 2010 performance criteria and structural benchmarks were observed, and achievement of the end-2010 fiscal targets, including the consolidated general government deficit of 4½ percent of GDP, is within reach. It will be essential to maintain expenditure restraint in the closing months of the year.

“Regarding the 2011 budgets, there was agreement on the consolidated general government deficit target of up to 3 percent of GDP. While the discussions on the 2011 budgets of the institutions of BiH and the Entities advanced significantly, they could not be finalized during the mission’s stay. The mission and the authorities have identified a menu of policy measures necessary to achieve the agreed target and close the remaining financing gaps. However, it is clear that full ownership and adoption of these measures will need to await the formation of the new governments.

“The mission also discussed financial sector stability issues, including stress test updates and trends in foreign parent bank exposures to BiH. There are encouraging signs that, despite adverse trends in nonperforming loans and profitability, the banking sector remains stable and adequately capitalized overall. “Discussions with the authorities will continue as soon as the formation of the new governments has advanced with a view to reaching a staff-level agreement on completing the 4^th review under the SBA.”

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