The International Monetary Fund said on February 9 it is unlocking the second tranche of around €75mn of a three-year loan deal for Bosnia & Herzegovina that has been frozen for a year as Sarajevo failed to make the required reforms. 

Although Bosnia’s two entities – the Muslim-Croat Federation and Republika Srpska – desperately need the cheap funds from the IMF, political disagreements have frozen key reforms for a year since the international institution finally put the three-year stand-by agreement on hold in January 2017. So far, Bosnia has only received the first tranche of the 36-month deal, which was signed in September 2016 and is supported by a SDR443.04mn (about €550mn) Extended Fund Facility (EFF).

However, at the end of 2017, Bosnian politicians finally managed to put their disagreements aside and complete the IMF’s requirements. This is also expected to unfreeze much-needed international financial support from other sources.

“The executive board of the International Monetary Fund (IMF) today completed the first review of Bosnia and Herzegovina’s economic performance under the Extended Fund Facility (EFF). The completion of the review will make available SDR63.4mn (€74.6mn) to [Bosnia] under the EFF, bringing the total funds available to SDR126.8mn (€149.3mn),” the IMF said in a statement.

The IMF required Bosnia to adopt changes that would increase excise duties on oil. Bosnia's two entities are also required to adopt budgets for 2018, while the state-level parliament must adopt new law on deposit insurance and the government of the Muslim-Croat Federation is required to finally launch due diligence at two of its telecoms companies, BH Telekom and HT Mostar.

According to the IMF, Bosnia has made progress in lowering internal and external imbalances in recent years.

“It is important that the authorities continue with efforts to enhance growth potential and address structural weakness, while maintaining economic and financial stability,” Tao Zhang, deputy managing director and acting chair of the fund, was quoted as saying in the statement.

As Bosnia has adopted the legislation allowing an increase of excise duties on oil, this is expected to unlock external financing for significant growth-enhancing infrastructure investment.

“Going forward, the authorities need to continue their efforts to improve the business environment, by reforming the labor market and reducing para-fiscal fees,” the statement reads.