IMF Executive Board Concludes 2025 Article IV Consultation with Bosnia and Herzegovina

The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Bosnia and Herzegovina on August 27, 2025.[1] The authorities have consented to the publication of the Staff Report prepared for this consultation.

Growth has remained resilient despite domestic and global challenges. It accelerated to 2.5 percent in 2024 (2023: 2.0 percent). While political uncertainty dampened Q1 consumption, high-frequency indicators point to a recovery from Q2, with growth expected to ease slightly to 2.4 percent in 2025 before returning to its potential of 3 percent by 2027, driven by consumption and exports. After rapidly receding to 1.7 percent in 2024 (2023: 6.1 percent), average headline inflation picked up to 2.3 percent in May 2025, while core inflation remained broadly stable at about 4 percent. Inflation is forecast to rise to 3.8 percent in 2025 due to higher imported food prices, before stabilizing at 2 percent over the medium term.

The external position is expected to remain broadly unchanged in 2025, while credit growth is projected to moderate somewhat. The current account deficit is expected to widen to 4.1 percent of GDP, from 4.0 percent of GDP in 2024, with a recovery in electricity exports after last year’s droughts, and lower oil prices offsetting adverse effects of U.S. tariffs on exports. Gross international reserves reached €9 billion, 6.9 months of imports, providing adequate coverage for the currency board arrangement. Private credit growth is projected to slow to 7.7 percent in 2025, slightly outpacing nominal GDP growth.

The outlook is subject to downside risks. Trade uncertainty, a slowdown in Europe, volatile commodity prices, tighter global financial conditions, and further escalation of political tensions pose significant downside risks to growth. Strong growth in real wages and private sector credit could put upward pressure on inflation. Policy slippages ahead of the 2026 elections could worsen the fiscal position and the current account deficit. On the upside, progress on EU accession would boost investor confidence and growth.

Executive Board Assessment[2]

Executive Directors agreed with the thrust of the staff appraisal. They noted that, while growth has remained resilient amid a challenging domestic and external environment, it continues to fall short of potential, hindering Bosnia and Herzegovina’s swift convergence with the EU. Given elevated downside risks, Directors underscored the importance of maintaining political stability, avoiding policy slippages, and leveraging the EU accession process to accelerate reforms. Continued strong engagement with capacity development partners will be critical to support this process.

Directors concurred that fiscal policy should prioritize medium-term consolidation while rebuilding fiscal buffers, broadening the revenue base, and enhancing the efficiency of public spending. In the near term, it is essential to avoid further deficit-widening actions and to strengthen contingency planning. To bolster policy credibility, Directors called for upgraded fiscal frameworks, with greater harmonization and stronger monitoring and enforcement of fiscal rules. Reforms are also needed in public sector employment, wages, and social benefits, as well as in public investment management, procurement processes, fiscal risk oversight, and the governance of public enterprises.

Directors underscored the importance of safeguarding central bank independence and further strengthening the central bank’s policy toolkit to preserve the credibility of the currency board arrangement, which remains an anchor of stability. They called for close monitoring of financial stability risks associated with rapid credit expansion, as well as for enhancements in the macroprudential framework. Directors stressed the need to enhance crisis preparedness, including through the establishment of a country-wide financial stability fund to support bank restructuring. They also supported the phasing out of temporary distortive regulatory measures and urged a joint commitment to undertake a Financial Stability Assessment Program (FSAP).

Directors emphasized the importance of advancing structural reforms under the EU Growth Plan to support EU accession and unlock faster, more sustainable economic growth. They highlighted that energy sector reforms—including phasing out electricity subsidies, improving the operational efficiency of state-owned energy enterprises, and introducing a carbon pricing system—are essential to attract private investment and position the sector as a long-term growth driver. Directors also stressed the need for reforms to boost labor force participation, reduce informality, advance digitalization, and strengthen governance and anti-corruption efforts. They underscored the urgency of effectively implementing MONEYVAL priority actions to avoid grey-listing and to secure further growth dividends.