IMF calls for Bosnia reforms

SARAJEVO – Bosnia should take advantage of a positive international environment and stable economic growth in recent years to start necessary public sector reforms, the International Monetary Fund said yesterday. Growth is expected to remain at 6 percent as in 2006, benefiting from strong European growth and the economic reforms already undertaken, Dimitri Demekas, the IMF chief for Southeastern Europe, told Reuters. Inflation is relatively low at 1-2 percent and the current account deficit has been reduced, but it is still about 12 percent of GDP, he said. But the government needs to put public finances in order and take measures to cut spending that may result in a deficit this year, Demekas said in an interview after a two-week visit. Postwar Bosnia consists of two autonomous regions, the Muslim Croat Federation government and the Serb Republic. There is also a central government with limited powers. Demekas led the IMF mission during the so-called Article IV consultations with Bosnia that ended yesterday, during which the IMF discussed economic performance in the country and advised governments on the areas that need to improve. «Unless measures are taken to curb spending this year, the general government will swing from a surplus last year to a deficit this year of 1-1.5 percent,» Demekas said. He said that a surplus of an estimated 3 percent of GDP last year was based mainly on the revenues from the value-added tax (VAT) that was introduced in 2006, part of which was one-off and will not repeat this year. «Our recommendation is… to try to take measures early to minimize this swing from surplus to deficit and if possible to prevent the emergence of the deficit,» Demekas said. He said that Bosnia’s governments missed the chance last year to begin further economic reforms mainly because of campaigning for the October general elections. Demekas said the Muslim Croat Federation government was particularly at risk from budget deficits because of laws granting huge benefits to demobilized soldiers, adopted as part of election campaigning. He said that banking supervision should be lifted to the state level from the regions, each of which now have separate banking agencies. «That will not only make supervision easier, it will also facilitate cooperation with foreign supervisors, which for Bosnia is extremely important because most of its banks are foreign-owned,» he said. The IMF also called for the creation of a single economic space that would allow for greater labor mobility and the harmonization of taxes and contributions in the country still divided along ethnic lines. (Reuters)