Bosnian parliament misses chance to save IMF deal

Bosnian parliament misses chance to save IMF deal
By Denitsa Koseva in Sofia May 11, 2017

Bosnia & Herzegovina’s parliament missed on May 10 the last chance to adopt key legislative changes proposed by the government that would unlock the second tranche under an agreement with the International Monetary Fund (IMF), signed in 2016.

In the best case, this would mean a significant delay of the tranche’s disbursement, but the more likely outcome seems an end to the much needed deal with the fund. Even the desperate need of Bosnia’s two entities to get cheap funding in order to patch their budgets seemed insufficient for politicians to put aside their strong disagreements and adopt the required amendments. 

The country had to adopt a set of legislative amendments it pledged in its letter of intent to the IMF in order to receive the second tranche under the 2016 agreement. Bosnia needed to implement a set of measures, including to cut public spending, improve control of employment and increase the excise duties on oil, none of which have been completed.

Earlier in May, the parliament’s finance and budget committee gave a negative opinion on the legislative amendments. The House of Representatives had two options – to accept this opinion or to ask the committee to discuss the changes once again. On May 10, the parliament said in a statement that the chamber had accepted the opinion, ending all legal options to adopt the current set of changes. The only option left would be for the government to draft completely new amendments.

However, the IMF could decide not to wait any more and end the deal, which would put very strong pressure on the budgets of the two entities as their governments will have to seek other funding options to cover their spending this year.

MPs reportedly suggested that the government cuts public spending instead of raising excise duties, according to Klix.ba. They also criticised the government for failing to explain well enough exactly how it plans to use the higher income for road construction, and accused it of planning to patch gaps in the infrastructure budget instead.

Back in March, the lower house of parliament failed to adopt the amendement. The following month, they were approved by the lower chamber but not the House of Representatives; approval from both chambers is needed for them to become law. The IMF said at the time that completion of the first review of its agreement with Bosnia would be delayed significantly.

In January, the IMF put the arrangement on hold for the same reasons and extended the deadline to mid April. The funding tranche was agreed in principle in September 2016, when Bosnia and the IMF agreed on a new 36-month deal, supported by a SDR443.04mn (about €550mn) Extended Fund Facility (EFF).

The country had been trying for almost a year to secure a new IMF deal after the previous arrangement expired in June 2015. The new deal was expected to help the governments of Bosnia’s two entities – the Muslim-Croat Federation and Republika Srpska – patch their budget gaps and give them some stability over the next three years.

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