IMF delays loan tranche after Bosnia fails to adopt reforms

IMF delays loan tranche after Bosnia fails to adopt reforms
By Denitsa Koseva in Sofia April 6, 2017

The International Monetary Fund (IMF) said on April 6 that the completion of the first review of its agreement with Bosnia & Herzegovina will be delayed significantly after state-level lawmakers failed to adopt key legislative amendments the previous day. This means disbursement of a BAM155mn (€79.3mn) loan tranche will be delayed. 

In March, the IMF warned that the country risked losing its loan agreement if it failed to complete a set of reforms including changes to the excise tax regime. It gave Sarajevo until the middle of April to achieve this. In January, the fund put the arrangement on hold for the same reasons.

However, on April 5 state-level MPs did not agree to vote on the changes at an urgent session and left them for a regular session. Theoretically, the parliament could adopt the changes before the deadline as a regular session has been called for April 7, but the changes are not included in the agenda.

“The IMF took note that the BiH parliament did not adopt the amendments to the law on excise tax and the new law on deposit insurance during a session held on April 5, 2017. This will have implications for mobilising external financing for much needed infrastructure projects and for the authorities’ efforts to modernise banking sector legislation. Both are key requirements of the authorities’ programme, supported by the IMF under the Extended Fund Facility (EFF). We now expect a significant delay in completion of the first review of the programme,” the IMF said in an emailed statement.

It added that will support the country if its authorities decide to implement the pledged reforms.

“The authorities need more time to make further progress in a number of key areas of their programme, such as securing financing for key infrastructure project, modernising banking sector legislations, and improving corporate governance of state owned enterprises. In the period ahead, we will maintain close dialogue with the authorities and remain committed to assist them in their efforts,” the statement reads.

In September 2016, Bosnia and the IMF finally 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.

Before that, the country lost the last two tranches from its previous deal with the fund, again because it failed to do the needed reforms.