Bosnia & Herzegovina’s economy is expected to accelerate growth this year but the rising internal political tensions put that forecast at risk, the International Monetary Fund (IMF) said in a statement upon completion of Article IV consultations with the country.

The IMF has projected Bosnia’s 2024 economic growth at 2.5%, up from 1.7% in 2023.

“Risks remain elevated, including from an intensification of regional conflicts and an abrupt slowdown in Europe, and domestically, from rising political tensions and more expansionary macroeconomic policies,” the IMF noted.

On the other hand, opening of EU accession talks could speed up reforms in the country.

Bosnia’s fiscal policy should focus on curbing current spending while preserving growth-enhancing investment expenditures, the IMF noted.

“The authorities should move to contain deficits by containing the public sector wage bill, avoiding discretionary increases in social benefits and new support measures, and revisiting other current spending. They should preserve growth-enhancing public investment outlays. Fiscal risks from minimum wage increases and capped electricity prices should be mitigated,” the statement noted.

At the same time, Bosnia should reduce financing needs and prepare contingency plans in case financing cannot be secured. The country’s fiscal buffers have been eroded due to increased budget deficits, large debt repayments, and drawdown of government deposits.

Bosnia’s two entities – the Muslim-Croat Federation and Republika Srpska - face large financing needs this year that are unlikely to be met solely in the domestic market and have planned large debt issuances to meet these needs.

“The authorities should reduce deficits to contain financing needs, firm up borrowing plans, and identify additional cuts to current spending to prepare for potential financing shortfalls,” the IMF noted.

Bosnia should also implement reforms to rebuild fiscal buffers while improving spending quality.