Bosnia and Herzegovina: Sixth and Seventh Reviews Under the Stand-By Arrangement and Requests for Augmentation of Access and Modification of Performance Criteria-Staff Report; Press Release; and Statement by the Executive Director for Bosnia and Herzegovi

KEY ISSUESStand-By Arrangement (SBA): The Board approved Bosnia and Herzegovina's (BiH)request for a two-year SBA with access of SDR 338.2 million (200 percent of quota) in September 2012. The fifth review was completed on January 31, 2014 when the Board also approved a nine-month extension of the arrangement through end-June 2015 and an augmentation of access by SDR 135.28 million (80 percent of quota). So far,SDR 253.65 million (150 percent of quota) has been disbursed and SDR 84.55 million (50 percent of quota) would become available upon completion of these reviews.Outlook: BiH was on a good track in 2013: the economy returned to growth, expanding by nearly 2 percent despite some domestic demand weakness, while external imbalances narrowed. However, following torrential rains in May this year that caused substantial damage and hardship, growth is now projected to slow. The damage is estimated at 5–10 percent of GDP. Unemployment remains high, especially among the youth.Risks: The outlook is subject to a high degree of uncertainty as the impact of the natural disaster is unclear and the recovery will depend on the speed at which donor support can be mobilized and absorbed. The elections scheduled for October 2014 pose considerable risks to the timely and sustained implementation of policies envisaged under the program and, together with an uncertain external environment, also cloud the outlook.Program performance became more uneven in late 2013 and early 2014, reflecting both economic factors and delays in policy implementation. Fiscal policies were broadly on track, but two end-December 2013 fiscal performance criteria (PCs) were missed as the compression of government spending in the last months of the year was not enough to offset shortfalls in revenues, due to weak domestic demand but also delays in the implementation of measures to improve revenue collection. Securing parliamentary approval of economic measures has become more difficult in the run-up to the elections, while measures to enhance internal cooperation have also met with growing resistance, creating delays in the implementation of structural benchmarks. Thus, the sixth and seventh reviews had to be combined to allow time for the completion of four prior actions to demonstrate progress in reform implementation and improving revenuecollection. As revenue collection steadily improved, all end-March 2014 PCs were met.