Bosnia fiscal surplus at risk by prevote moves

Bosnian growth has been satisfactory and inflation remains relatively low but upcoming elections are causing policy paralysis and in some cases reversals that threatens its fiscal surplus, the International Monetary Fund said on Thursday.

General elections are slated for Oct. 1.

Budget coordination and discipline are breaking down from plans for widespread wage hikes and increased payments for civilian victims of its 1992-95 war to calls for cuts to the new value-added tax, the IMF said.

Privatization efforts have stalled and laws on wages and obligations have been delayed, it added.

"Our preliminary estimates suggest that, if current policies continue, the consolidated general government balance will decline from a surplus of 1 percent of GDP in 2005 to a deficit of a quarter percentage point this year and to a deficit of about 1 percent of GDP in 2007," the IMF said.

If that forecast bears out it would represent a cumulative deterioration of 2 percentage points of gross domestic product over two years, the IMF said in its annual review of the Bosnian economy.

Growth was estimated at 5 to 5.5 percent in 2005 and 2006 while underlying inflation remained relatively low despite higher oil prices and the effect of the new consumption tax.

Consumer prices in May were 8.6 percent higher than the same month in 2005, with the value-added tax estimated to account for 3 to 3.5 percentage points, the IMF said.

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