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By Daria Sito-Sucic
SARAJEVO, May 24 (Reuters) - The International Monetary Fund and Bosnia reached a long-awaited agreement on Tuesday on a new, 3-year 550 million euro ($613 million) loan arrangement with a 4-year grace period, an IMF official said.
The IMF sees Bosnia's economic growth this year at about 3 percent, Nadeem Ilahi, the head of an IMF mission, said on completion of its two-week visit to Bosnia.
Bosnia has sought to clinch a deal with the fund since a previous, 33-month programme worth around $720 million expired last June after the IMF froze it because of delays to reforms.
Bosnia's two autonomous regions, the Bosniak-Croat Federation and the Serb Republic, whose total budget deficit amounts to about 1 billion Bosnian marka, need IMF cash to secure their financing needs.
The IMF returned to Bosnia this month after authorities in the Serb Republic liquidated a troubled state-controlled bank, fulfilling the fund's main condition for resuming talks.
Ilahi said the focus of a new programme for Bosnia, known as an extended fund facility, would be on structural reforms, including the improvement of the business environment, restructuring and privatisation of state-owned enterprises, and cuts in taxes to encourage employment.
The authorities also agreed in a Letter of Intent on a gradual fiscal consolidation to reduce public debt, to reduce Bosnia's complex government, and better target government spending.
"We expect to see improvements in the financial safeguards of the economy as well as improvements in credits going forward," Ilahi told a news conference.
The measures sought by the IMF are part of a wider programme the European Union wants Bosnia to implement to further its bid to join the bloc, particularly on social welfare, pensions and health funding. ($1 = 0.8977 euros) (Reporting by Daria Sito-Sucic; editing by Giles Elgood)