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International Monetary Fund. European Dept.
Kosovo has been hit hard by the COVID-19 pandemic. Despite policy support, economic activity is estimated to have fallen 6 percent in 2020 on account of the combined effect of strict domestic containment measures and international travel restrictions. The fiscal deficit increased to 7.7 percent of GDP, given the large fall in tax revenues and the implementation of mitigation and recovery measures of 4.2 percent of GDP. The current account deficit is estimated to have increased to 7.5 percent of GDP mainly due to a large decline in diaspora-related inflows, most notably in tourism. Gross international reserves declined but remain adequate in part due to the purchase under the IMF’s Rapid Financing Instrument (RFI) in April 2020 and the use of other external financing. Banks have weathered the recession well to date, and the high pre-COVID19 liquidity levels and ample capital buffers bode well for the system’s stability.
International Monetary Fund. Statistics Dept.
This paper on Bosnia and Herzegovina presents the report on the government finance statistics technical assistance mission in Bosnia and Herzegovina. Further on developing reconciliation processes, the mission provisionally finalized research to establish reconciliation procedures, without fully eliminating statistical discrepancies. On the compiling of nonbudgetary public sector units, the mission continued the development of compilation processes as started during the May 2018 mission. Considering the differences in outcomes on balance sheet transactions between the ‘old’ and the ‘new’ compilation process, further research is required to test the plausibility of these compilation processes and outcomes. The mission will liaise with IMF’s European Department on an appropriate implementation procedure in coordination with other reporting units in Bosnia and Herzegovina that are also revising fiscal surveillance to the Government Finance Statistics Manual 2014 framework. The mission succeeded in resolving statistical discrepancies—at least from accounting technical point of view.
International Monetary Fund. Monetary and Capital Markets Department
Since 2014, the CBBH has been exposed to a negative spread on the reinvestment of the reserve requirements. Until 2014, the CBBH remunerated reserve requirements on the basis of the returns achieved on their reinvestment in the euro area money market. In 2014, when the European Central Bank (ECB) cut the deposit facility rate below zero, the CBBH decided not to follow the ECB in the remuneration of reserve requirements and to floor such remuneration to zero. Subsequently, in 2016, the CBBH decided to remunerate excess reserves at 50 percent of the ECB deposit facility rate and to continue remunerating reserve requirements at 0 percent. This exposes the CBBH to a negative spread of about 0.25 percent and 0.45 percent between the reinvestment yield and the remuneration of excess reserves and reserve requirements, respectively.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Assistance (TA) report on Bosnia and Herzegovina highlights that the negative spread in a context of structural lower returns on foreign exchange reserves and sizable capital inflows has led to a gradual and steady erosion of the currency board coverage ratio. The Central Bank of Bosnia and Herzegovina (CBBH) requested Technical Assistance to review its reserve requirement framework. The mission recommends aligning the remuneration of reserve requirements on foreign exchange liabilities to the CBBH’s opportunity cost. The mission also recommends prescribing the fulfilment in foreign currency of the reserve requirements for foreign currency liabilities. It also suggested altering the remuneration scheme of domestic reserve requirements. In order to be neutral from an intermediation perspective, the reserve requirement remuneration should be aligned to the market-neutral uncovered interest rate parity rate, whereas the remuneration of excess reserves may take place significantly below the market-neutral rate but at or above the foreign currency remuneration rate. The CBBH may benefit from a constructive dialogue with the Area Department or TA to set the new rates of remuneration of domestic reserve requirement and excess reserves.
Bobana Cegar and Mr. Francisco J Parodi
Based on a new database of State-Owned Enterprise (SOE) financial statements, we find that SOEs in Bosnia and Herzegovina are mostly in poor financial shape. We estimate the overall size and composition of the SOE sector, and identify individual companies that affect fiscal and macroeconomic performance. Financial analysis suggests that SOEs are not contributing enough to the economy. We also review the SOE governance framework and find that governments do not exercise their ownership function in line with WB/OECD guidelines. Reforms to the governance frameworks are necessary to foster transparency and improve accountability. More fundamental reform of the SOE sector might increase overall GDP by 3 percent per year.
Bobana Cegar and Mr. Francisco J Parodi
Based on a new database of State-Owned Enterprise (SOE) financial statements, we find that SOEs in Bosnia and Herzegovina are mostly in poor financial shape. We estimate the overall size and composition of the SOE sector, and identify individual companies that affect fiscal and macroeconomic performance. Financial analysis suggests that SOEs are not contributing enough to the economy. We also review the SOE governance framework and find that governments do not exercise their ownership function in line with WB/OECD guidelines. Reforms to the governance frameworks are necessary to foster transparency and improve accountability. More fundamental reform of the SOE sector might increase overall GDP by 3 percent per year.
Christine J. Richmond, Ms. Dora Benedek, Ezequiel Cabezon, Bobana Cegar, Mr. Peter Dohlman, Michelle Hassine, Beata Jajko, Piotr Kopyrski, Maksym Markevych, Mr. Jacques A Miniane, Mr. Francisco J Parodi, Gabor Pula, Mr. James Roaf, Min Kyu Song, Mariya Sviderskaya, Rima Turk, and Mr. Sebastian Weber
The Central, Eastern, and South Eastern European (CESEE) region is ripe for a reassessment of the role of the state in economic activity. The rapid income convergence with Western Europe of the early 2000s was not always equally shared across society, and it has now slowed dramatically in many countries of the region.
International Monetary Fund. Statistics Dept.
This Technical Assistance Report discusses details of the mission conducted to support the Bosnia and Herzegovina authorities, with a specific focus on the Republic of Srpska (RS), in improving government finance statistics (GFS) for decision making. The mission rounded off research to establish appropriate reconciliation procedures, although some statistical discrepancies remain. The goal is to use the compilation and reconciliation procedures for quarterly and annual GFS reporting to Eurostat and the IMF’s Statistics Department. The May 2018 mission initiated the development of a standardized compilation procedure for nonbudgetary public sector units, and more specifically extrabudgetary units. The report recommends focussing on investigating possibilities into incorporating these compilation files into the wider GFS and macroeconomic statistics compilation. On analysis of the financial statements, the mission assessed that Accrued revenues and received donations also require and adjustment to following the European System of National and Regional Accounts 2010 and Government Finance Statistics Manua 2014 recording.