November 22 (SeeNews) - Bosnia and Herzegovina’s economic programme remains on track with growth expected to accelerate to above 3% in 2017, following an estimated growth of 2.6% in 2016, the International Monetary Fund (IMF) said on Tuesday.
An IMF mission has reached an agreement with the Bosnian authorities on the policies needed to complete the first review under the Extended Fund Facility, the fund said in a statement upon the completion of the mission.
"Consideration by the board would follow the implementation of a number of measures," the fund noted.
Additionally, the IMF said that Bosnia's consumer price index is expected to drop by almost 1% this year, but inflation is expected to turn positive in 2017 reflecting the euro area inflation forecast imported though the currency board arrangement.
"The unemployment rate remains unacceptably high, especially among the youth. While the banking system is liquid and adequately capitalized at the aggregate level, vulnerabilities remain," it added.
Improving the business environment to attract investment, create private sector jobs, and raise the growth potential is of paramount importance, the international lender commented.
"The authorities are in the process of improving the functioning of the labour market by shifting the tax burden away from labour and by continuing to implement new labour legislation. Restructuring and privatization of state owned enterprises will help improve economic governance and competition. Raising excise taxes on fuel will generate resources to construct highway Corridor Vc, which will improve connectivity, competitiveness, and thus raise growth," it noted.
The IMF also commended the 2017 budgets prepared by the authorities, saying they are consistent with improving the quality of public spending and reducing the public debt to GDP ratio over the medium term.
It, however, cautioned that it will be critical to continue to strengthen tax administration and to strictly limit expenditures to meet program targets. "We support the authorities’ efforts to harmonize tax laws to lower the administrative burden on businesses," the IMF said.
Financial stability has been maintained, while international reserves held by the Central Bank of Bosnia provide strong backing to the currency board arrangement, the fund continued.
It, nevertheless, said that the authorities’ must enact new banking legislation at the entity and state levels that is in line with international best practice.
The executive board of the IMF is expected to discuss the first review in the first quarter of 2017. Approval of the review would enable the disbursement of $63.4125 million (about euro 80 million).
Bosnia and Herzegovina’s 36-month EFF arrangement was approved on September 7, 2016.