The International Monetary Fund said on Thursday it had delayed approval of a three-year, 550 million euro ($608 million) loan agreement for Bosnia after authorities there failed to sign the deal in what appeared to be an internal political spat.
The two autonomous regions, the Bosniak-Croat Federation and the Serb Republic, whose total budget deficit amounts to about 1 billion Bosnian marka ($570 million), badly need IMF cash to help cover their financing needs, and the IMF Executive Board had been expected to approve the deal in mid-July.
"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," the IMF's Resident Representative in Bosnia, Francisco Parodi, said in a statement.
The reforms sought by the IMF are part of a wider programme of measures in social welfare, pensions and health funding that the European Union wants Bosnia to implement to further its bid to join the bloc.
But the Balkan country's Prime Minister Denis Zvizdic and Bosniak-Croat Federation Prime Minister Fadil Novalic said they could not sign a deal in which they pledge to make difficult reforms while at the same time these very reforms were already put on hold.
The two Bosniak officials, in separate statement, did not name those obstructing the reforms. But they were clearly referring to Bosnian Serb politicians who had blocked the signing of a trade agreement with the European Commission, effectively halting Bosnia's path towards joining the EU.
"It is the fact that our country is presently facing the blockade ... and that Bosnia's path towards the EU has been slowed down," Novalic said, adding however that the region's budget was liquid and would be able to service its obligations.
The Serbs have also disputed the results of a population census in 2013 that the EU had been urging Bosnia to publish, and delayed the adoption of a mechanism on how Bosnia's complex government should deal with the EU.
"It's a completely political decision," said a Western diplomat close to the deal who asked not to be named. "We were caught by surprise."
Serb Republic Prime Minister Zeljka Cvijanovic said that by delaying the IMF deal Bosnia showed it was an unreliable partner. She added that her government had an alternative plan for financing the budget, which is already facing a widening gap.
A previous, 33-month programme worth around $720 million, frozen by the IMF because of delays to reforms, expired in June 2015.
Implementing the programme would also help Bosnia to unlock financial aid from other institutions such as the World Bank and the EU.