Bosnia's two regions adopt 2013 budgets to get IMF cash

SARAJEVO (Reuters) - Bosnia's two autonomous regions rushed through their 2013 budgets on Tuesday to meet a deadline set by the International Monetary Fund (IMF) for the release of new funds.

The Bosniak-Croat Federation and the Serb Republic badly need the extra IMF cash, agreed under a two-year loan deal, to finance holes in their budgets and to manage rising debts.

Bosnia has a 405 million euro ($529 million) standby arrangement with the IMF, which made its next payment conditional on the country's central and regional governments adopting 2013 budgets early this month.

The Federation parliament approved the budget of 2.2 billion Bosnian marka ($1.5 billion), up 10.8 percent from this year's rebalanced budget, targeting a deficit of 3 percent of gross domestic product (GDP), unchanged from this year.

In the Federation, foreign and local debt repayment accounts for 800 million marka or nearly a third of the budget. Social payments relating to the 1992-95 war, including money for veterans and the disabled, amount to more than 555 million.

The 418 million marka gap should be covered with IMF and European Commission funds, as well as by selling new government bonds, Federation Prime Minister Nermin Niksic told parliament.

Niksic sent the budget proposal to parliament last week without government confirmation, saying he did not want to jeopardize the IMF deal after half of the ministers failed to attend the cabinet's budget session.

The Federation government still does not reflect a new parliamentary majority formed last summer.

Niksic said the budget would be rebalanced in the first quarter of next year to reflect the new majority, and vowed to sack any ministers who "are obstructing the government's work".

The Serb Republic parliament adopted a tighter 2013 budget, which has already prompted protests from some public sector workers over a proposed 10 percent pay cut. The workers said they will continue to protest.

The government has shaved 114 million marka off the budget, based on a wage bill cut of nearly 60 million and other reductions in the 1.94-billion budget, the region's Prime Minister Aleksandar Dzombic said.

A 414 million marka deficit due to accumulated debt will be covered just as in the Federation by the IMF and European Commission funds and through the issuance of treasury bills.

"The budget guarantees that we will keep the fiscal and financial stability," Dzombic said.

Besides the two regional parliaments, Bosnia's central parliament must also approve its 2013 budget, set at 1.74 billion marka and including nearly 790 million marka for foreign debt financing.

The IMF has demanded that the consolidated government budget deficit, including regional and central budgets, be set at 2.5 percent of GDP. But because of the country's complex structure it is not clear if the governments will achieve this target.

The IMF sees Bosnia's economy contracting 0.7 percent this year and growing only 0.5 percent in 2013. ($1 = 0.7650 euros)

(Additional reporting by Gordana Katana; Editing by Louise Ireland)