The International Monetary Fund, IMF, has postponed approval of a 550-million-euros program for Bosnia and Herzegovina after Bosnia’s authorities failed to sign the already reached agreement.
“Due to a delay in the signing of the Letter of Intent, LOI, the IMF Executive Board meeting to consider the authorities' request for an arrangement under the Extended Fund Facility had to be delayed until further notice,” Francisco Parodi, the IMF Representative to Bosnia, said in a statement on Thursday.
While Bosnian politicians remained silent about the causes and details of the delay, experts warn that longer delays in IMF payments - expected soon after the approval of the new program - would worsen the country's liquidity issues and could also escalate political tensions that have been running high ahead of local elections in October.
“This is a sign that things are getting much more serious,” Banja Luka-based economic analyst Zoran Pavlovic told BIRN, adding that any delays in IMF funds - which have already been calculated in the state and entities' budgets - will a liquidity crisis and worry potential investors.
“If the IMF cancels this loan to Bosnia and Herzegovina, we will have major problems implementing the budget,” analyst Srdjan Puhalo told BIRN. He added that this could lead to blocked payments of salaries, pensions, social benefits and other financial obligations. “That, in turn, could lead to public dissatisfaction and protests,” he added.
“The elements of the program and the content of the LOI had been agreed by the IMF mission and BiH authorities in May 2016. To date, the IMF has not received a duly signed LOI,” the IMF explained.
The Finance Ministry of Bosnia’s Serb-dominated entity of Republika Srpska told BIRN that all the relevant RS representatives - including the Prime Minister Zeljka Cvijanovic and Finance Minister Zoran Tegeltija - had signed the LOI.
They said the problem was that the letter was not signed by the Prime Ministers of the state and Federation entity governments, Denis Zvizdic and Fadil Novalic.
The RS government held a session on Thursday morning on this issue, while the state and Federation entity governments said they would issue statements during the day.
“This is a warning to the authorities that they need to reach an agreement, to fulfil obligations required by the international community,” Pavlovic said. “This is a clear message and whoever does not understand it, does not understand how the world functions,” he added.
In May, the IMF said that it would lend Bosnia over half a billion euros under a three-year programme but at the same time it required Bosnia to cut its public debt, improve the business climate and secure the stability of the financial sector.
The IMF said at the time that the agreed program had three objectives – to improve the business environment so as to attract investment, reduce public indebtedness through gradual fiscal consolidation, safeguard financial sector stability and revive credit growth.