The International Monetary Fund (IMF) has issued a concluding statement following a staff visit to Bosnia and Herzegovina for consultations under Article IV of the IMF’s articles of agreement.

Although Bosnia’s economic recovery was interrupted by a natural disaster in 2014 growth resumed and reached more than 1% for the whole of 2014. The economy is expected to grow by more than 2% in 2015, and could increase to 4% in the medium term if progress is made with structural reforms. Stagnation in Europe or geopolitical tensions could hold back growth but the resolution of trade issues with the EU could help the economy by spurring exports.

The IMF considers that Bosnia must intensify reforms to improve the business environment and attract investment; continue fiscal consolidation; and safeguard the stability of the financial sector. The environment for business could be improved by reducing the administrative burden for businesses; going ahead with more privatization of state-owned companies; improving the Court system; completing the accession process to the World Trade Organization and settling the trade issues with the European Union.

Tax revenue collection and administration could be strengthened by more cooperation between the different tax authorities within Bosnia and by increasing the powers of the tax administration to improve compliance. The tax administration could also implement risk-based tax audits and tax inspections and make further efforts to collect arrears of tax and social security contributions.

The tax burden for labor could be lowered by a decrease in the rates of social security contributions and this could be offset by a wider tax base for income tax and social security contributions as well as expenditure reductions. The IMF considers that the single rate value added tax currently applied to a broad tax base is effective and should be maintained.