From the Executive Board

• Pages: 185-186

Page 185

Bosnia and Herzegovina: Stand-By Arrangement

The IMF on May 29 approved a 12-month stand-by credit for Bosnia and Herzegovina in an amount equivalent to SDR 60.6 million (about $81 million), in support of the government's 1998-99 economic program. Of the total, an amount equivalent to SDR 24.2 million (about $32 million) is available immediately. 1998-99 Program

The economic strategy under the 1998-99 program is based on four elements: a fixed exchange rate under a currency board arrangement; budgets that are as supportive as possible of reconstruction and social needs, while avoiding any domestic borrowing; external financial assistance to help supplement the still-limited domestic resources and promote economic recovery; and acceleration of the transition to a market economy through structural reforms. Under the program, economic growth in 1998 is projected at 30 percent, inflation at 10 percent, and gross international reserves to reach the equivalent of V-A months of merchandise imports.

The fiscal strategy is tied closely to the currency board arrangement, under which the monetary authorities are precluded from extending credit to the public sector. In addition, the banking system has little capacity for financial intermediation and domestic capital markets are nonexistent. Therefore, budget plans are based on avoiding domestic borrowing at all levels of government, and cash-basis expenditures will not be able to exceed the total of revenues and external financing. Reflecting this cautious approach, total fiscal expenditures are expected to rise from an estimated 33 percent of GDP in 1997 to about 35 percent in 1998. Structural Reform

The key structural elements of the program for 1998-99 include banking reform, the initiation of enterprise privatization, pension and health system reform, implementation of a simplified customs tariff system, exchange and trade liberalization, and steps to improve economic statistics. Addressing Social Needs

During the coming year the authorities will continue their efforts to design a more efficient social safety net, targeted on the most vulnerable groups, and to complete a poverty assessment with the assistance of the World Bank. Special programs are being devised with the assistance of international donors to provide housing, infrastructure, and employment opportunities in conjunction with the return...