March 19 (SeeNews) - Any attempt to use the international reserves of Bosnia's central bank for fiscal purposes would undermine the country's currency board, threaten its financial stability, and cause significant inflationary pressures, the International Monetary Fund (IMF) said.
"Such attempts undermine the anchor of macroeconomic stability. They should be avoided at all times and particularly in a situation of crisis," the IMF resident representative office in Bosnia said in a statement on Wednesday.
The IMF noted it is issuing the statement in response to recent calls for the use of central bank funds to fight the coronavirus crisis.
Earlier this week, local media cited the member of Bosnia's tri-partite presidency representing Bosnian Serbs, Milorad Dodik, as saying he would propose cutting in half the mandatory reserves rate of the central bank in order to release some 2.5 billion marka ($1.38 billion/1.28 billion euro) of liquid funds that local banks could extend in financing the economy.
The IMF said that the currency board has served Bosnia well in the past two decades, helping to contain inflation, and provide for its financial stability and the confidence in the local Bosnian convertible marka currency.
It also recalled that in order to maintain the local currency's fixed exchange rate to the euro, the central bank, CBBH, must have at all times adequate international reserves to cover at least 100% of the issued domestic currency.
The Fund noted that the Bosnian banking sector is stable at present and banks are well-capitalised, liquid and profitable.
"Excess liquidity in the banks implies that banks are able to lend. Nevertheless, credit and liquidity trends should be monitored closely," it said.
"The IMF, together with the World Bank, stands ready to provide emergency assistance to help BiH [Bosnia and Herzegovina] fight the effects of the coronavirus pandemic,” the Fund added.
(1 euro = 1.95583 marka)