IMF: Economic recovery of 3.5 percent expected in 2021

WASHINGTON, (Patria) - The Executive Board of the International Monetary Fund (IMF) today approved SDR 265.2 million (approximately US$361 million or Euros 329 million, 100 percent of quota in SDR) in emergency support for Bosnia and Herzegovina (BiH) under the Rapid Financing Instrument (RFI). This will help the country meet urgent balance of payments needs arising from the global COVID-19 pandemic.
The RFI provides rapid financial assistance to member countries facing an urgent balance of payments need, without the need for a comprehensive economic program or reviews. The RFI can support the fulfillment of a wide range of urgent needs, including those arising from price shocks, natural disasters, and conflict and post-conflict situations.

Financial assistance under the RFI is provided in the form of direct disbursement. The economic impact of the pandemic on BiH is expected to be significant in the near future, causing a rapid deterioration of the external accounts and urgent balance of payments needs. Economic growth is expected to fall by 5 percent in 2020 and recover to around 3.5 percent in 2021.

The RFI will support the authorities' efforts to increase resources to curb the loss of life caused by COVID-19 and mitigate its economic impact. Governments in BiH plan a significant fiscal expansion to increase spending on social assistance and the healthcare sector. This IMF financing will play a vital role in catalyzing emergency assistance from the international community, particularly assistance from the EU. The IMF will continue to closely monitor the situation in Bosnia and Herzegovina and is prepared to provide policy advice.

Following discussions on the Executive Board, Mr. Tao Zhang, Deputy Managing Director and Acting Chair, issued the following statement:

“Bosnia and Herzegovina’s economy is suffering the consequences of the COVID-19 pandemic, leading to urgent balance of payments needs. Due to the extensive and rapid deterioration of the current account of the balance of payments, the Rapid Financing Instrument will help by supporting increased priority spending on healthcare and social assistance while preserving debt sustainability. Fiscal expansion is needed to properly address urgent medical needs and the significant drop in output. In the short term, to mitigate the negative impact of the pandemic on healthcare and the economy, priority should be given to increasing spending on healthcare, expanding social and unemployment benefits, and providing support to businesses to preserve jobs. The authorities have committed to returning to a debt-stabilizing fiscal policy once the situation normalizes.

Preserving the currency board arrangement and increasing the resilience of the banking system play a key role in re-establishing external and internal balance. Frequent monitoring of banks, including their liquidity positions and asset quality, is crucial during this period.

Donor assistance and other forms of support from international financial institutions are needed to cover the remaining balance of payments gap.”