October 15, 2015 / 4:25 PM / 4 years ago

Bosnia region agrees $300 mln loan with U.S. fund to cover budget gap

SARAJEVO, Oct 15 (Reuters) - Bosnia’s Serb Republic has agreed a $300 million loan with a U.S.-based investment fund to cover its budget deficit in 2015 and 2016 in the absence of IMF funds, the president of the region, Milorad Dodik, said on Thursday.

Bosnia’s two autonomous regions, the Serb Republic and the Bosniak-Croat Federation, have been struggling to find financing to make up for lack of cash from the International Monetary Fund, after they failed to reach an agreement with the fund in June and a previous one expired.

Dodik, who had previously counted on a Russian loan which has never materialised, said the regional government has completed a loan agreement with the U.S.-based investment company Global Bankcorp Commodities and Investments Inc. (GBCI).

“This is a favourable arrangement which will support the budget and enable stable payments of pensions and wages and strengthen liquidity of the public sector,” Dodik said, according to the news agency Srna.

The $300 million loan will be withdrawn in tranches as needed, with a three-year grace period which can be extended for another three years and a 3 percent fixed interest rate, Dodik said.

He said the money will also be used to boost capital in the region’s Investment and Development Bank to enable it to support economy.

The government decision, which was not made public until now, was published in the region’s Official Gazette.

Critics said the decision was illegal because each new loan should fit within a legally regulated debt ceiling and be approved by the regional parliament.

But Dodik said the loan’s first instalment of $50 million, due to be withdrawn this year, was within the debt limits for 2015 and could be approved by the government alone.

Earlier this year, GBCI expressed interest in acquiring Slovenia’s second-largest bank Nova KBM, which was eventually acquired by U.S. investment firm Apollo Global Management and the European Bank for Reconstruction and Development.

Reporting by Daria Sito-Sucic, editing by Larry King

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