October 3, 2017 / 2:23 PM / 10 months ago

UPDATE 1-Western envoys urge Bosnia to reform, unlock 500 million euro funding

(updates with Bosnian region’s loan agreement)

By Daria Sito-Sucic

SARAJEVO, Oct 3 (Reuters) - Western envoys urged Bosnia on Tuesday to revive stalled economic reforms and pass legislation to unlock more than 500 million euros ($587 million) in international loans and IMF cash.

Based on progress in 2015-2016, the European Union last year accepted Bosnia’s application to join the 28-member bloc and the International Monetary Fund approved a 553 million euro deal to support economic reforms in the once war-torn Balkan country.

But Bosnia so far has failed to meet terms of the IMF programme, which is part of a wider reform package devised by the EU to guide Bosnia’s integration with the bloc, prompting the lender to halt disbursements of 80 million euros under the deal.

Political bickering in ethnically-divided Bosnia has prevented the passage of a law raising taxes on fuel, required to unlock funding for transport infrastructure that would boost growth and create jobs.

“This represents a significant package of support but it cannot be left blowing in the wind forever,” said Lars-Gunnar Wigemark, the head of the EU delegation in Bosnia.

“Too much of this year has already been lost and needs to be caught up. It is now time to decide on whether this offer will be accepted.”

The Bosnian Serb, Croat and Bosniak ruling parties support the new taxation law but no longer command the majority in national parliament after some deputies had left their respective parties to become independent.

The opposition is opposed to raising taxes on fuel, saying it would bring additional burden on impoverished citizens.

“Reform process has become stuck in the mud,” said British Ambassador Edward Ferguson, adding that key challenges for Bosnia were to shift its public sector-oriented economy towards private sector, improve inefficient rule of law and tackle patronage in public sector and endemic corruption.

“We are not just putting money to this country but we are demanding something back, modernisation and dealing with these serious challenges,” Ferguson said.

The central government has said it would take all comments on the law into consideration and resend it to the parliament in the following months.

Although the IMF distributes the loan payments to Bosnia’s central government in Sarajevo, the country’s two autonomous regions, the Serb Republic and the Bosniak-Croat Federation, are the principal beneficiaries of the aid, which they have envisaged in their respective budgets.

But due to the lack of the IMF cash, both regions have had to resort to the issuance of domestic debt to cover the budget gap and finance maturing debt.

On Tuesday, the Serb Republic signed a 50 million Bosnian marka ($30 million) loan with Serbia’s second largest lender Komercijalna Banka. “It will help us secure budget liquidity,” Serb Republic Finance Minister Zoran Tegltija told reporters. ($1 = 0.8514 euros) ($1 = 1.665 Bosnian marka) (Additional reporting by Gordana Katana in Banja Luka and Maja Zuvela; Editing by Jeremy Gaunt)

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