November 7, 2016 / 3:48 PM / a year ago

IMF to start first review of Bosnia's loan this week

SARAJEVO, Nov 7 (Reuters) - The International Monetary Fund will begin the first review on Wednesday of its 553.3 million-euro ($612.23 million) loan supporting economic reform in Bosnia, the fund’s resident representative in the Balkan country told Reuters on Monday.

In September, the IMF’s executive board approved a three-year extended loan arrangement for Bosnia, which was initially agreed in May in exchange for structural reforms and measures to safeguard financial stability.

The IMF has disbursed 79.2 million euros to Bosnia’s two autonomous regions, the Bosniak-Croat Federation and the Serb Republic. The next instalment of about 150 million Bosnian marka ($85 million) will depend on the progress of the reforms agreed under the programme.

The two regions, which are linked via a weak central government, need IMF cash to secure their financing.

“The focus will remain on the fiscal policies, financial stability and structural reforms needed to raise the growth potential,” said the IMF resident representative, Francisco Parodi.

Parodi said the IMF will discuss the 2017 budgets of the two regions. It also wants the regions to increase bank supervision and allow for the sale of bad loans.

In addition, the regions have agreed to reduce tax burdens on private companies to attract investment. They will also restructure big state-owned companies to prepare them for sale.

The authorities had agreed to raise excise taxes on fuel and to direct money raised towards helping to build a pan-European highway. A proposed law on such indirect taxation would have unlocked funds of about 1 billion marka from the European Bank for Reconstruction and Development (EBRD).

However, the national parliament last month rejected the legislation, saying the increase would be a burden on citizens. The IMF would still like to see the taxes raised.

“We see the excise taxes’ hike as critical to create revenue, raise the growth potential and improve Bosnia’s competitiveness,” Parodi said.

The IMF’s extended fund facility replaced a 33-month, $720 million programme that expired in June 2015 after the IMF froze it because of delays to pledged reforms by the government.

$1 = 0.9038 euros $1 = 1.763 Bosnian marka Reporting by Daria Sito-Sucic, editing by Larry King

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