SARAJEVO (Reuters) - The International Monetary Fund said on Thursday it had delayed approval of a three-year, 550 million euro ($608 million) loan agreement for Bosnia after authorities there failed to sign the deal in what appeared to be an internal political spat.

The country's two autonomous regions, the Bosniak-Croat Federation and the Serb Republic, whose total budget deficit amounts to about 1 billion Bosnian marka ($570 million), badly need IMF cash to help cover their financing needs, and the IMF Executive Board had been expected to approve the deal in mid-July.

"Due to a delay in the signing of the Letter of Intent (LOI), the IMF Executive Board meeting to consider the authorities' request for an arrangement under the Extended Fund Facility had to be delayed until further notice," the IMF's Resident Representative in Bosnia, Francisco Parodi, said in a statement.

Goran Mirascic, an adviser to Federation Prime Minister Fadil Novalic, said that Novalic and Bosnian Prime Minister Denis Zvizdic, both Bosniaks, had not signed the letter of intent, but declined to elaborate.


"This means that the IMF Executive Board will not consider the approval of the arrangement on July 15, and that the arrangement has been delayed," Mirascic told Reuters. "We cannot speculate for how long and what will happen next."

Sources close to the deal said the Bosniak politicians had refused to sign after Serbs blocked the signing of a trade agreement with the European Commission, effectively halting Bosnia's path toward joining the European Union. The Serbs also disputed the results of a population census in 2013 that the EU had been urging Bosnia to publish.

"It's a completely political decision," said a Western diplomat who asked not to be named. "We were caught by surprise."

A previous, 33-month program worth around $720 million, frozen by the IMF because of delays to reforms, expired in June 2015.

The reforms sought by the IMF are part of a wider program of measures in social welfare, pensions and health funding that the EU wants Bosnia to implement to further its bid to join the bloc.

Implementing the program would also help Bosnia to unlock financial aid from other institutions such as the World Bank and the EU.

(Reporting by Maja Zuvela and Daria Sito-Sucic; Editing by Kevin Liffey)

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