The Extended Fund Facility program between BiH and IMF: No implementation of new measures since July 2017

Since July 2017, the institutions of Bosnia and Herzegovina have not fulfilled any measures from the Extended Arrangement with the IMF. Out of seven measures that are required for the second tranche of the loan, BiH institutions have implemented or they have adhered to three of them, while the other four have remained unfulfilled.

By the end of June 2017, when the Centre for Policy and Governance published the latest report on the implementation of the measures, the BiH institutions have implemented the measure of budget adoption at the state and entity levels in accordance with recommendations from the International Monetary Fund, and adopted amendments to the entity laws on banks and banking agencies, and have also adopted amendments to the Law on Income Tax of Republika Srpska in accordance with the recommendations of the IMF staff. There has been no greater progress since then.

Excise taxes and due diligence for the second tranche of the loan

What is left for BiH institutions to fulfill are four more measures to obtain the second tranche of the loans from IMF – adoption of amendments to the Law on Deposit Insurance in BiH, increasing excise taxes on fuel for 15 cents per liter, including liquefied petroleum gas (LPG) and biofuels, conducting a due diligence analysis, i.e. financial and operational assessment of the value of "BH Telecom" and "HT Mostar" companies, and adherence to the adopted strategic plans for salary restrictions and reduction of total employment in the public sector, both at the state and entity level. None of these measures have been implemented.

The BH institutions, signatories of the Letter of Intent to the IMF, which were obliged to work on the implementation of the remaining four measures for the second tranche of the loan are the Council of Ministers of BiH (amendments to the Law on Deposit Insurance in BiH and increasing excise taxes), the Government of Federation of BiH (due diligence), and all three governments at the state and entity level together (restraining salaries and reduction of total employment in the public sector). Since July 2017, the Council of Ministers of BiH has held 14, and the Government of FBiH 31 regular session. Of course, the responsibility for the implementation of the reforms lies also in legislative authorities, namely the Parliamentary Assembly of BiH and the Parliament of the FBiH.

The Council of Ministers of BiH has made some progress when it comes to amending the Law on Deposit Insurance in BiH. At the 120th session of the Council of Ministers, held on November 9, a new Draft Law on Deposit Insurance was set up and sent to the Parliamentary Assembly of BiH on a summary procedure. Until today, the Proposal has not yet been on the agenda of the sessions of the Houses of the Parliament of BiH, nor of its commissions.

Increasing the excise tax on fuel is a measure that has probably been followed the most by the public eye. The Proposal Law on excise taxes has been sent for the parliamentary procedure for the second time, this time by state members Salko Sokolović, Senad Šepić and Sadik Ahmetović. The Proposal was on the agenda of the 54th session of the House of Representatives of the Parliamentary Assembly of BiH, which was scheduled for November 15. However, the session was postponed because the members of the Alliance for Change did not appear in the assembly hall, leaving the Parliamentary Assembly without the decision-making quorum.

When it comes to the due diligence analysis, or in other words, the financial and operational assessment of the value of "BH Telecom" and "HT Eronet" companies, there was no progress. In October, the Centre for Policy and Governance has published an analysis "BH Telecom Development Perspectives", where, based on the poor financial indicators for "BH Telecom" in the last few years, and the lagging behind the region in terms of price accessibility and technology development, the need for the most recent implementation of this analysis has been pointed out.

The institutions did not take measures on restraining salaries, nor the reduction of total employment in the public sector. According to the Centre for Civic Initiatives, the average salary in the public administration, in comparison to the private sector, remains the highest in Europe, with an insignificant decrease of employment in the public sector.

Considering the fact that the Supplementary Letter of Intent has been drafted because of the exceeding of the original deadlines and the fact that there were no significant changes in the fulfillment of the remaining four out of total seven measures from the supplementary letter, it can be reasonably concluded that the arrangement with the IMF has no future. Based on the previous experience of BiH, it is clear that the acceleration of the implementation of the reform measures can be even less anticipated in the election year ahead of us. More importantly, regardless of the lost financial injection from the IMF, BiH continues to lag behind with the key reforms, which were supposed to accelerate its economic development.