February 13, 2018 / 2:51 PM / a year ago

UPDATE 1-IMF cuts Bosnia's 2018 growth forecast to 3.2 pct from 3.5 pct

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By Daria Sito-Sucic

SARAJEVO, Feb 13 (Reuters) - The IMF said on Tuesday it had cut Bosnia’s 2018 economic growth forecast to 3.2 percent from 3.5 percent previously, citing downside risks from domestic politics even as macroeconomic conditions remained stable.

In a report, the International Monetary Fund said Bosnia should press on with economic and financial reforms to boost growth needed to create badly needed jobs and achieve income convergence with the European Union that it aspires to join.

The IMF board last week signed off on a review of Bosnia’s 553-million-euro ($683.07 million), three-year loan programme and approved a disbursement of a 74.6-million-euro loan tranche after the Balkan country met key requirements.

The global lender released 79.2 million euros for ethnically divided Bosnia’s two autonomous regions in 2016, but the new injection was held up for a year due to a failure to implement agreed steps to liberalise the economy.

In its report following the review, the IMF said it had supported Bosnian authorities’ request for a 12-month extension of the loan deal and rescheduling of payments. It also agreed to requested waivers on non-observance of the performance criteria, saying the deviations were temporary and small.

Bosnia is heading for presidential and parliamentary elections in October, and campaigning with nationalist overtones - which diplomats say is not helpful for the country’s economic development and EU ambitions - has been heating up.

But the IMF report said that with the economic turnaround in Europe it expected economic activity in Bosnia to pick up over the medium term, driven by planned public infrastructure investment and an implementation of structural reforms that should improve the investment climate.

It also said that Bosnia, which is highly decentralised with 13 different governments, needs to reorient the composition of public spending from primarily wage bills to capital investments, improve the financial regulation framework and strengthen the country’s single economic space.

“Priority should be given to upgrading physical infrastructure, lowering the fiscal and administrative burden on businesses, further reforming the labour market, improving governing of state-owned enterprises and enhancing competition.”

The IMF underlined the importance of adopting a long-delayed deposit insurance law and the need to overhaul development banks in Bosnia’s Serb Republic and Muslim-Croat federation. ($1 = 0.8096 euros) (Reporting by Daria Sito-Sucic; Editing by Mark Heinrich)

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