IMF opposes VAT rate reduction, calls for interest rate hikes and public sector wage cuts

(Patria) - Head of the International Monetary Fund Mission Alina Iancu stated today in a press conference that the IMF strongly opposes changes to the VAT rate for two reasons.

"The first reason is that VAT is the main source of revenue in BiH. The second reason is that if the rate were differentiated, revenue collection would be lower, and such a system would also open up possibilities for tax evasion. We believe that revenue collection needs to be strengthened, and in that regard, we are providing technical assistance and advice on how to improve revenue collection," said Iancu.

She added that they are assisting tax administrations and that tax reforms are the first priority, but not necessarily changes in tax rates.

Iancu also emphasized that interest rates in BiH must rise.

"We see a need for interest rates to rise. We believe that the Central Bank of Bosnia and Herzegovina should take the first step in terms of increasing the reserve requirement rate to further align interest rates with those in the Eurozone," she said.

She recalled that interest rates in the Eurozone have risen by 400 basis points or four percent, while in Bosnia and Herzegovina they have risen by 75 basis points or 0.75 percent. She pointed out that this increase in Bosnia and Herzegovina is not expected to be equal to the increase in the Eurozone, but it certainly needs to be higher.

A few days ago, Iancu held a meeting with the Federal Prime Minister Nermin Nikšić, after which he stated that they cannot agree to wage and pension cuts.

Iancu stated today that the IMF's position is that BiH must reduce current spending, as part of this current spending relates to public sector wages.

The IMF representative in the organization's office in Sarajevo, Andrew Jewell, explained that consultations are currently underway with BiH authorities, which do not constitute negotiations for a potential new stand-by arrangement. BiH has not yet submitted such a request, and the IMF remains ready for such negotiations, which also include reforms.