Representatives of the European Commission and the institutions of Bosnia and Herzegovina (BiH) met on 13-14 May in Banja Luka for the 6th Sub-committee meeting on Economic and Financial issues and Statistics since the entering into force of the Interim Agreement in 2008. This was the first of the Sub-committee meetings of the 6th cycle after the previous five Sub-committees could not take place due to internal disagreements in BiH. It was chaired on the BiH side by Ms Vera Letica, Assistant Minister from the BiH Ministry of Finance and Treasury and on the Commission side by Peter Bekx, Director in the Directorate General for Economic and Financial Affairs. BiH authorities reported on the economic and fiscal situation of the country, to which the Commission responded inter alia as follows:
The Commission welcomed the improved budget planning and fiscal coordination over the past year, namely the adoption of the Global Framework for Fiscal Policies 2014-2016 and the timely preparation and adoption of the 2014 state and entity budgets. It encouraged the authorities in BiH to develop further the medium-term fiscal strategy in order to strengthen its role as a fiscal coordination tool.
The Commission expressed strong concerns regarding the current stalemate of the Stand-by Arrangement with the IMF, i.e. the non-completion of the sixth review and subsequently the non-disbursement of the financial assistance tranche that follows. It pointed at sharply higher public debt servicing needs in 2014 leading to refinancing risks, given the tight fiscal space of the country. It urged BiH to take the necessary steps allowing for a smooth implementation of the IMF programme, requiring in particular the urgent adoption of the amendment of the excise law on tobacco.
The Commission warned that political difficulties threaten to adversely affect BiH’s economy, especially in the context of a still challenging external environment, while there is an urgent need for decisive actions and structural reform efforts. This requires sustainability and quality of public finances, which notably implies the need for restructuring and streamlining of the public sector and a better targeting of social benefits.
The Commission positively noted some progress in recent months, for instance with the adoption of the Public Procurement Law, the advancing of the pension reform in the Federation and some improvements in the business environment in Republika Srpska. However it urged BiH to enhance its efforts to improve the business environment, to address the deficiencies in the functioning of the labour market, and raise the quality of the human capital, thus laying ground for the self-sustained strengthening of the economy’s competitiveness.
The Commission noted the good cooperation of the two banking supervision agencies at the entity level and asked for more coordination and cooperation between entity and state level authorities in many other areas, e.g. between the internal and external audit institutions in the country.
As regards statistics, the Commission underlined the importance of the Household and Population Census and invited the three statistical institutes to finalise the remaining stages of data processing in line with the recommendations of the International Monitoring Operation. It also urged the BiH authorities to progress on the preparations of an agricultural census, preferably by agreeing on a state level law, which would ensure a single country-wide methodology and the necessary financing.
In line with the conclusions of the Foreign Affairs Council of 14 April the Commission expressed its expectation that the BiH Council of Ministers will overcome internal disagreements to allow other sub-committees of the 6th cycle to be held in the near future.
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