November 21, 2017 / 4:11 PM / a month ago

UPDATE 1-IMF says Bosnia must carry out stalled reforms to keep loan programme

* Bosnia must complete key reforms to keep IMF programme

* Tentative deadline for reforms is end of December

* IMF sees Bosnia’s growth in 2017 at 2.5 pct (Updates with interview with an IMF official)

By Daria Sito-Sucic and Maja Zuvela

SARAJEVO, Nov 21 (Reuters) - The International Monetary Fund (IMF) warned Bosnia on Tuesday it must meet the terms of its loan arrangement with the lender to unlock further payouts to help boost economic growth and job creation.

The IMF halted the 550 million euro ($645 million) stand-by loan programme in February after Bosnian authorities failed to carry out economic reforms agreed in November last year.

A tentative deadline for the authorities to make the required reforms, enabling the lender to complete its first review under the deal, is the end of December, when an IMF team should take its report on economic development in Bosnia to its executive board in Washington.

The programme is part of a wider reform package devised by the European Union to guide the Balkan country towards faster integration with the bloc.

“You are at the crossroads right now, you have to decide what you want to do and the way you want to go,” Nadeem Ilahi, the head of an IMF team that completed a two-week visit to Bosnia on Tuesday, said in an interview.

Bosnia’s two autonomous regions have made progress on structural reforms, but implementation of key measures “has been much slower than expected”, the IMF said in a statement.

The Serb Republic and the Bosniak-Croat Federation must adopt 2018 budgets, while the central parliament has to pass a law raising taxes on fuel and another law on deposit insurance, it said.

Political bickering in the ethnically divided country has prevented the passage of the fuel tax law, which is required to unlock “the largest package of external financing available in recent times for critical public infrastructure investments”, according to the statement.

“You are looking at a potential game-changer for this country in terms of getting on a different growth path,” Ilahi told Reuters.

He said the IMF had projected 4 percent growth for the economy in the medium term, assuming the reforms take place. Without reforms, growth is expected to be significantly lower at about 2.5 percent, which is also the lender’s growth estimate for Bosnia this year.

Ilahi also said the Federation must take steps to ensure due diligence is carried out on the region’s two state-owned telecoms firms, which without restructuring may pose a fiscal constraint on the budget.

The IMF distributes the loan payments to Bosnia’s central government in Sarajevo, but the country’s two autonomous regions are the principal beneficiaries of the aid.

They have factored the aid into their respective budgets but as the IMF cash has been frozen, both regions have had to resort to issuing domestic debt to cover the budget gap and finance maturing debt.

$1 = 0.8522 euros Reporting by Maja Zuvela and Daria Sito-Sucic; Editing by Susan Fenton and Mark Potter

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