IMF expects Bosnia’s GDP growth to speed up to 2.5% in 2024

"Growth has proven resilient despite the continued fallout from the war in Ukraine and is set to strengthen starting this year albeit to subpar levels," the IMF said in a Concluding Statement 2024 Article IV Consultation Mission last week.

Risks remain elevated, including from an intensification of regional conflicts and an abrupt slowdown in Europe, and domestically, from rising political tensions and more expansionary macroeconomic policies, according to the global lender.

"On the other hand, opening of European Union accession talks could sustain the reform momentum and boost confidence," it added.

The European Union leaders decided on March 21 to open accession negotiations with Bosnia and Herzegovina, eight years after the country applied to join the bloc.

IMF recommended that fiscal policy should focus on restoring sustainability by curbing current spending while preserving growth-enhancing investment expenditures. Both entities face large financing needs that are unlikely to be met solely in the domestic market and should prepare contingency plans in case of financing shortfalls.

"Reforms, including a review of public employment, wages, and social benefits are needed to return to a fiscal surplus over the medium term and rebuild buffers," the IMF added. It suggested that resources should be reallocated from current to capital spending, primarily on infrastructure, green energy, and digitalization. A review of public employment and wages is needed to identify redundancies and reduce the wage bill. Annual pension increases pose risks in both entities given unfavorable demographics.

IMF said it expects that Bosnia’s fiscal gap will widen from an estimated 0.7% of GDP last year to 2.4% this year, 2.3 in 2025 and 2.1% in 2026.

According to the IMF, the central bank of Bosnia should further strengthen the reserve requirement framework, including by increasing remuneration rates on bank reserves.