World Bank – Bosnia and Herzegovina Partnership Country Program Snapshot April 2011 Bosnia and Herzegovina Country Program Snapshot RECENT ECONOMIC AND SECTORAL (SBA) and the World Bank‟s first Development DEVELOPMENTS Policy Loan (DPL) funds. At the end of 2010, the foreign reserves stood at KM6.4 billion or 5.3 Growth and External Performance months of import cover. In 2010 the Bosnia and Herzegovina (BH) Figure 1: CAD and financing economy (GDP) is estimated to have returned to growth of 0.9 percent in 2010. This follows a deep recession in 2009 when GDP contracted by 2.9 percent, almost 9 percentage points lower than in 2008. The 2010 recovery seems to be gaining momentum but the rebound is modest: growth in private consumption is constrained by the legacy of the recession in 2009, including increased unemployment, and by the measures taken to rein in the budget deficit, such as cuts in public-sector wages and social welfare benefits. The positive contribution to growth is due, in part, to the recovery in external demand. The current account deficit (CAD) adjusted The country faces the challenge of dealing quickly and was cut in half to 7 percent of with the legacies of the global crisis and its GDP in 2009 and continues to edge lower in own past unsustainable policies, while not 2010 (estimated 6 percent of GDP). For 2010, hurting the fragile recovery. The improved BH recorded a marked improvement in the trade external environment is helping the economic balance as the trade deficit contracted by 4.5 recovery, but the situation remains fragile. Growth percent year-on-year in local currency terms. is forecasted to be positive in 2011 (albeit below- Exports soared by 28.3 percent year on year, albeit potential) at 2.8 percent. Exports have recovered from a low base, with the rise reflecting both a in part from favorable trends in international growth in the volume of foreign sales and the commodity prices, especially metals and impact of higher international prices for some of aluminum. Exports are also up in volume terms BH‟s main exports, such as base metals and (about 12 percent). However, growth is unlikely to electricity. Imports rebounded more modestly, by become broad-based in the near term. Domestic 10.2 percent year-on-year, as a result of depressed demand will remain subdued amid stagnant wages, import demand, because of weak economic unfavorable short-term employment prospects, growth and stagnating levels of domestic stalled credit growth, and continued need for fiscal consumption. Rising international oil and other consolidation. commodity prices accounted, in part, for the growth in imports. The full-year trade deficit Fiscal Sector Performance shrank to KM6.5 billion from KM6.8 billion in 2009. To secure an orderly fiscal adjustment the authorities designed a program of measures However, financing the CAD from the onset and entered an SBA with the IMF in 2009. The of the recession has been a challenge. The bulk of the measures in this program pertain to foreign exchange reserves held by the Central the reduction of the fiscal deficit through both Bank dropped from a peak of KM6.8 billion in short-term cuts and structural reforms. The 2008 to about 5.8 billion in early 2009 (from 5.5 to authorities also committed to strengthening the 4.7 months of imports). The level of foreign financial sector oversight and reconfirmed their reserves continued to decline in the first half of commitment to maintain the Currency Board. In 2010 partly because of the delayed disbursement addition, the authorities sought assistance of the of several tranches of an IMF stand-by loan. They World Bank and the European Commission for began to recover in the second half caused in part these reforms. by the inflow of IMF‟s Stand-by Arrangement 2 Bosnia and Herzegovina Country Program Snapshot The 2010 fiscal adjustment focused on flowing back into the system, reaching in expenditure restraint. Although the lack of December 2010 a level 24 percent above the low agreement between Entities and State on the 2011 point of 2 years earlier. The central bank foreign fiscal framework is delaying the IMF review reserves have been strengthened by IMF process, the SBA is broadly on track, and the IMF disbursements and the SDR allocations. expects the Government to have attained the general government deficit target for 2010. By However, banks have seen their adopting the necessary legislation as part of the nonperforming loans rise to 9.2 percent at end- prior actions for DPL, the Entities have also taken September 2010, up from 3.1 percent at end- the first step toward a fundamental reform of the 2008). The banks‟ profitability has dropped as system of veteran and civilian benefits. they continue to absorb losses through increased provisioning for bad loans. Elevated lending risks Figure 2: Growth and General Government Fiscal in an uncertain economic environment and the Balance need to rebuild capital cushions will continue to 8 hold back credit growth. In 2010, credit to the private sector grew by 1.9 percent. 6 4 Figure 3: Banking Sector Performance (unit of account on y axis?) 2 16 0 14 2005 2006 2007 2008 2009 2010 2011 12 -2 10 8 -4 Overall fiscal balance 6 (in percent of GDP) 4 -6 Real GDP growth 2 (in percent) -8 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 -2 The fiscal deficit target for 2011 is agreed -4 2007 2008 2009 2010 between the Government and the IMF at 3 -6 Capital NPLs ROAE percent of GDP. Revenues are projected to remain broadly the same as a share of GDP, while implementation of reforms is expected to generate Poverty and Social Protection savings on the expenditure side. However, the progress on implementation of these reforms has Despite progress in terms of poverty reduction been slow given that the new governments have earlier in the decade, poverty was estimated at not been formed following the October 2010 14 percent in 2007. While more recent poverty General Elections. estimates are not available, other indicators, such as unemployment, which grew by 3.1 percentage Financial Sector points between 2009 and 2010, suggest that the last year saw a deterioration of living standards The global crisis and the economic downturn due to the crisis, and, as expected, a reversal in have tested the resilience of BH‟s banks. In poverty reduction. October 2008, they weathered a small deposit run which was offset with the help of liquidity Spending on social protection schemes in BH injections from their parent banks and the is large by international standards. BH spends lowering of reserve requirements by the Central 4 percent of its GDP on non-insurance social Bank. Subsequent steps, including negotiation of protection cash transfers, which makes the the IMF‟s Stand-By Arrangement, participation in country one of the highest spenders in the Europe the European Bank Coordination Initiative, and and Central Asia (ECA) region. the increase in the deposit insurance limit in 2010 all helped in restoring public confidence in the For historical reasons, social benefits in BH banking sector. Household deposits have been have been heavily dominated by “rights- 3 Bosnia and Herzegovina Country Program Snapshot based” programs designed to protect war legal framework should result in more affordable veterans or their surviving dependents (“veteran- social programs that better target the most related benefits”). Veteran-related benefits absorb vulnerable in BH. A US$15 million Social Safety about three-quarters of total spending on non- Net and Employment Support Project under insurance social protection cash transfers. Both implementation will support the ongoing reforms Entities also operate a number of civilian benefits of the social protection sector in the country. The that account for about one-quarter of total Project will strengthen institutional capacity spending on non-insurance social protection cash necessary for implementation of the social transfers, such as social assistance benefits, child protection reforms. A substantial portion of the protection allowance, civilian victims of war credit (US$8 million) will be used to provide benefits, and non-war invalid benefits. employment services to active job-seekers among vulnerable groups, such as people with disabilities Figure 4: Public Spending on Social Assistance and demobilized soldiers. The project is expected (% of GDP) to cover about 10,000 such beneficiaries over the next four years. Public Spending on Social Assistance, % of GDP Croatia Bosnia-Herzegovina Hungary Ukraine Health Development OECD Uzbekistan Macedonia Russia Moldova Armenia Latvia Estonia Belarus Lithuania Bulgaria Kyrgyzstan Kosovo Serbia Romania Kazakhstan Albania Poland Georgia Turkey Azerbaijan Tajikistan - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 The poverty-reduction impact of non- insurance social protection cash transfers is limited. Only a small proportion of the poor receive social benefits. Indeed, if these transfers Picture 1: The introduction of the „family were to be eliminated, the poverty headcount medicine‟ model, supports the development of would increase by only 1.2 percent. In contrast, sustainable primary health care network the poverty impact of social insurance benefits (pensions) is much higher: without these transfers, The Reform of primary health care through poverty would increase to 25.8 percent of the the introduction of the family medicine model population. has been pursued under the ongoing Health Sector Enhancement Project. With support of The opportunity cost of public spending on this project, co-financed by the Council of Europe generally regressive transfers is also high. Development Bank, at the end of 2010, the Public expenditures on non-insurance social percentage of population registered with family protection cash transfers absorb a huge share of medicine teams increased from 5 percent (2006) the Entities‟ respective budgets (ca. 40 percent in to about 58 percent of the population. Additional the Federation of BH [FBH] and 14 percent in the Financing for this project in the amount of US$10 Republika Srpska [RS]). This level of spending has million was negotiated in late February 2011 and the effect of crowding out resources that could be will be presented to the World Bank Board for devoted to public investments. approval on March 22, 2011. Additional financing will allow scaling up of the family medicine model The World Bank recently supported the of primary health care. By the end of 2014, legislative reforms of cash benefits system that activities under this project will ensure that 70 has been in place since the war through the percent of the population is covered through US$111 million Public Expenditure Development Policy family medicine. Operation (2010). The implementation of the new 4 Bosnia and Herzegovina Country Program Snapshot Education key issue, although efforts are being made to align the system with the EU, especially in vocational The amount of public spending on education education. Additionally, BH is experiencing (as a percentage of GDP) in BH is in line with worrisome cases of ethnic segregation in the comparable countries. The Republika Srpska delivery of the curriculum. For example, Croat and Brčko District spend approximately 4 percent and Bosniak children, in some areas of the of GDP on education. The Federation of BH country, attend classes in the same building, but spends 6 percent; however, the extent of are physically separated from each other. decentralization of the education administration and finance in FBH leads to some cost duplication and inefficiencies in the system. Overall, all levels of government in BH spent 5.2 percent of GDP on education in 2007. Figure 5: Public Spending on Education in Select Countries (% of GDP) 7 6 5 4 3 2 1 Picture 2: Primary school enrollment and 0 completion rates are satisfactory in BH The tertiary education system has also undergone very little reform thus far. The most significant step towards reform was the Primary school enrollment and completion adoption of the Framework Law on Higher rates are satisfactory in BH. However, Education in 2007, which followed four years of enrollment in secondary education in BH is debate and re-drafting. The main elements of the well below European standards and shows biases law are that it provides a legal background for the towards enrolling the wealthier, urban residents, establishment of two new state level institutions and females, and against the poor, rural residents, for coordination and support to higher education and males. Estimates (2005) of the upper development and a legal basis for integrating the secondary gross enrollment rate are 77 percent (76 autonomous faculties. The Law also confirms percent for males and 78 percent for females), BH‟s commitment to the Bologna objectives, which is above the rate of lower middle- income which include moving towards EU standards countries globally (62 percent), but well below the through the standardization of degrees, average rate of countries in Europe (93 percent), establishment of quality assurance mechanisms, where secondary education is often compulsory. maintenance of addenda to diplomas in order to In addition to low enrollment in BH, there are a promote employment, improvement of freedom significant number of drop-outs. The completion of mobility of students and teachers, recognition rate in secondary schools is estimated at 61 of study periods spent at other universities or in percent overall, and is lower for the poorest 40 other countries, and promotion of European percent of the population (39 percent), for males cooperation in quality assurance and curricula (55.6 percent), and for rural residents (49.8 development. percent). Even while reform legislation has been International comparison of BH primary adopted, implementation of reforms in tertiary education suggests that the quality of primary education has been very slow. The Framework education in BH may be below average. The Law left critical aspects of higher education quality of secondary education also remains a development unresolved, particularly the public financing of higher education. 5 Bosnia and Herzegovina Country Program Snapshot Accelerating the tertiary level reform is critical Changing consumer preferences have if BH is to address the problem of skills erosion to contributed to the development of new market face the competitive challenges of the globalized segments that BH‟s domestic producers have economy. been unable to capture. The agro-food sector in BH represented 15.1 percent of GDP in 1999, Agriculture Development dropping to 9.8 percent in 2007. Instead, foreign products are taking an increasing share of the The agriculture sector is a small but domestic market. Both exports and imports of important part of the BH economy. agroi-food products have risen, with imports Agriculture‟s share in BH‟s economy decreased growing faster than exports. As a result, the agro- from 15.1 percent in 1999 to 9.8 percent in 2007, food trade deficit has increased by over 10 percent while the services and industry sectors now take between 2003 and 2007. up 63.9 percent and 26.2 percent of the economy, respectively. Although the agro-food sector Figure 6: BH Agro-food Imports growth has been positive, it has lagged in Processed fruit and vegetables comparison to overall economic growth. Vegetables Agricultural GDP grew by 0.8 percent per year, on Processed meat average, between 2000 and 2007, compared to Fruit 2008 overall GDP growth of 5.4 percent. Dairy 2007 Sugar based products 2006 Favorable climate conditions and relatively Tobacco 2005 Wheat based products low factor prices give the agriculture sector in Animals and animal products… 2004 BH a clear comparative advantage over other Beverage and alch. drinks countries. The agricultural season in BH begins earlier than in most European countries, shipping 0 50 100 150 200 mil € costs are relatively low, and land and labor prices are more favorable than in other southern European countries. BH‟s agriculture sector faces a broad range of constraints in input and output markets. Farmers in BH pay more for their inputs and receive less for their outputs relative to their equivalents in neighboring markets. Low output prices are a result of market failures such as low bargaining power, the lack of post-harvest facilities for storage and packaging, fragmented supply chains, costly logistics, and limited access to affordable finance. High input prices result largely from reliance on a few dominant input traders in combination with highly regulated import markets. This situation dampens productivity as well as competitiveness, as limited access to modern inputs makes it more difficult for farmers to export their produce and to Picture 3: The agro-food sector has good growth participate in modern supply chains. potential due to growing demand and a number of comparative advantages Institutional constraints prevent BH‟s agro- food sector from reaching its full potential. With about 20 percent of all employed in BH Despite access to the EU market through working in agriculture, the sector remains preferential trade agreements, BH is not reaping important for employment, despite a decline in the full benefits of this favorable treatment due to the working-age population in rural areas. Yet the the absence of EU-compliant food safety agro-food sector is shrinking as a share of GDP, institutions and an EU-compliant regulatory and BH‟s agroi-food trade deficit was growing in framework. Consequently, a broad range of recent years. 6 Bosnia and Herzegovina Country Program Snapshot products is still banned from EU markets until The project builds on the results of the Road these institutions are in place. Management and Safety Project (RMSP), which closed in June 2007. The implementation of the RMSP Public spending in BH‟s agriculture sector is directly led EIB and EBRD to contribute relatively low, and funds are not targeted significant parallel financing to the current toward areas that generate the most growth. US$220 million program to clear the maintenance On average, agricultural spending is around 6-8 backlog on the road network (excluding percent of total public spending in developed structures), out of which the Bank project countries, and 3-5 percent in developing countries; provides US$25 million. in BH, agricultural spending amounted to only about 2 percent of total public spending in 2007. Experience from other countries shows that investment in public goods – such as research and extension services, market infrastructure, and natural resource management – yield much higher returns than do subsidies, especially direct production subsidies. Currently, however, 60 percent of BH‟s agricultural expenditures go to production subsidies, while only a small share of the already limited budget is allocated to services. Climate change is expected to have an increasingly intense impact on agriculture in Picture 4: About half of the road network in BH is in good condition, with the remaining half either BH, and the current institutional set-up is not fair or poor condition prepared to support the sector in adapting to these changes. The railway network in BH extends for some 1,017 km, of which 92 percent is single track. The World Bank supports the Agriculture Despite the rehabilitation efforts, the overall Sector in BH through the Agriculture and Rural condition of the railway network in BH remains Development and the Avian Influenza Preparedness poor and operational speeds remain low due to projects. the existence of temporary speed restrictions, the condition of some tunnels, poor track alignment Transport and condition, and the number and functioning of crossings. Train operating speeds are limited to a The BH road network totals approximately range between 30-70 km per hour on around 80 22,615 kilometers. The density of the entire BH of the railway lines along the future European road network is broadly comparable with its transport corridor (Vc). In addition, there are immediate neighbors. About half of the road limitations in ballast on curves, weak sleepers, and network in BH is in good condition, with the inadequate fastenings. Another significant remaining half in either fair or poor condition. problem is the length of the crossing sidings in The condition of structures (bridges and tunnels) stations leading to restrictions on train length (550 on the network is overwhelmingly poor. The meters) and train weight (1,500 tons). poor condition has been attributed to the extended period of neglect after the hostilities, In the pre-war period, navigation on the Sava insufficient funds for routine and scheduled River, BH‟s most important river, was periodic maintenance, a continued lack of possible during most periods of the year, enforcement of axle-load limits, and a significant except during the summer period. Navigation increase in traffic volumes. on the river was possible almost 250 days a year. Current navigation conditions along the Sava The Bank has been supporting the River are difficult; it has a strongly fluctuating rehabilitation of magisterial and regional discharge resulting in wide variations in water roads through the Road Infrastructure and levels and depths during the year. Heavy Safety Project, under implementation since 2008. sedimentation in certain areas, together with a lack 7 Bosnia and Herzegovina Country Program Snapshot of maintenance of the river bed, has led to a corporate governance, an enterprise-wide network reduction in the width and depth of the fairway based financial management information system (navigable channel). The result is a large drop in has been installed by the power company in traffic volumes carried via the river. Herzegovina (EPHZHB) through a Bank project. Similar systems are being piloted in the other two The Bank is currently preparing the Sava public power utilities (EPBH and EPRS). Waterways Rehabilitation Project, which aims to improve the operational performance and safety of commercial and leisure vessels on the Sava River, thereby contributing to improved utilization of the river ports and broader economic development in the hinterland. The Project proposes to achieve this objective through the following three components: (i) the rehabilitation of the Sava River within BH; (ii) targeted investments to improve the operational performance of, and access to, the river ports on the Sava River in BH; and (iii) necessary implementation assistance and institutional support. The project is an important one from a Picture 5: The basic sources of primary energy in BH are coal and hydro-power, which cover over 62 regional perspective, and will occur in parallel with percent of the total consumption of primary energy rehabilitation works in Croatia and Serbia. Municipal Services Energy In BH, local service delivery outcomes are The destruction of BH‟s power grid had not extremely uneven across municipalities and only left BH citizens without a power supply, sectors, access to services is poor, and overall but had also disconnected the Southeastern user satisfaction is low. Fifteen years after the Europe power grid from the rest of Western Dayton Peace Agreement, it is evident that among Europe. Hundreds of kilometers of power lines, the services provided at the municipal level, water transmission stations, and thermo and hydro and waste collection have the most room for power plants were rehabilitated since 1996 improvement. Almost 1.4 million BH citizens through four power projects financed by the have no running water nor waste removal. Water World Bank, in cooperation with the EU, EBRD, coverage and quality is a problem for many EIB, and KfW. All three power supply companies households. Waste collection coverage is (Elektroprivredas) have achieved significant inadequate and its quality and reliability decline efficiency improvements, a reduction of technical with lower per capita municipal revenue. losses, and improvement in billing and collection. These improvements have helped the companies Municipalities lack resources and need to become profitable even while keeping the increase fiscal space to expand access to basic consumer tariffs relatively low. Today, BH is one services. This is especially true for rural areas and of the few countries in the region with excess among municipalities with low per capita generation and export potential. revenues. Furthermore, road and water sectors both have capital-intensive network Environmental performance of the coal-fired infrastructures, and service outcome power plants is being improved through improvements depend heavily on the financial investments supported by the World Bank and arrangements in both sectors. Expanding and development partners. An air emission control rehabilitating roads and water pipelines requires system installed at Kakanj thermal power plant is funding that municipalities alone cannot provide. the first of its kind in the Western Balkans. The Bank is also financing improvements in safety of The World Bank is providing support to BH water storage dams in partnership with EIB. To in improving the availability, quality and improve financial and management controls, and reliability of basic municipal services, and in 8 Bosnia and Herzegovina Country Program Snapshot particular, water supply and sanitation and solid forests are in much better condition than is waste management through the following projects: generally recognized. (i) Urban Infrastructure and Service Delivery; (ii) Second Solid Waste Management; (iii) Sarajevo Waste Water; Public Financial Management and (iv) Water Quality Protection. Bosnia and Herzegovina has made good Forestry progress in establishing modern public financial management institutions and Forest resources in BH are amongst richest in systems. Further progress is needed to ensure Europe in terms of their extent and variety that budget discipline is uniform and consistent relative to the size of the country, covering across the entire system of public resource almost 50 percent of land area. The war management and to counter weak compliance between 1992 and 1995 caused heavy damage to with procurement laws and internal controls, weak natural resources – the direct damage to forests capacity of internal audit, weak governance in and associated sectors is estimated at US$2 billion. SOEs, and widespread corruption. A minimum of 200,000 hectares became contaminated by landmines, resulting in Bosnia and Herzegovina has made some overexploitation of some rural areas and progress in government budget transparency. abandonment of others. Subsequent to the The budget execution process has been steadily conflict, poverty, inadequate land-use planning, as strengthened. Ministry of Finance and Treasury well as limited capacity of local institutions and (MoFT) has introduced a Treasury Single Account lack of awareness of conservation issues, have (TSA). Although the system is in place, there is contributed to unsustainable land use practices still room to further benefit from the existence of and habitat change. the TSA. For example, currently there is no functioning cash management covering both the About two million people (54 percent of BH‟s State level and Entities, and furthermore, population) live in rural areas, and for them according to the „Law on Financing the forest and mountain ecosystems serve as an Institutions of Bosnia and Herzegovina‟, all important source of subsistence, employment, budget-users may request the MoFT to open a energy, and recreation. Furthermore, since BH supplementary account for the collection and use has a rural population density (43 persons per of donations as well as own revenues. According square km), which is lower than any of the other to the same Law, the MoFT is required to record Balkan countries, sound management of its budget revenues and expenditures by using the “production landscape” values (forest and modified accrual basis of accounting and to grassland management) can provide income for promulgate a rulebook on accounting and local people while also maximizing environmental financial reporting, which is to include a chart of services. accounts and a budget classification framework in accordance with internationally-recognized The World Bank has been continuously standards. involved in the natural resources/environment sector since 1998. From 1998 to 2003, a Forestry Supreme Audit Institutions are independent Project, financed by IDA, the EU, and Italian and from the legislature and the executive. The Norwegian governments, focused on recovery of three Supreme Audit Institutions of Bosnia and the forest sector, but also helped to improve the Herzegovina have achieved significant results in a protection of forest ecosystems. A follow-up complicated environment and with very limited project, the Forest Development and Conservation resources. Public procurement remains weak Project (FDCP), supported implementation of despite a common Public Procurement Law based reforms in forest organization and management. on international best practice. Several The State Forest Inventory (SFI), the single largest discrepancies and deviations remain in the project activity, is fully completed with 100 legislation mainly due to the fact the Public percent of the country‟s forests surveyed. Initial Procurement Law had been drafted on the basis findings are that the area under forest has of the EC Public Procurement Directives in force increased as well as the growing stock, and the prior to 2004. 9 Bosnia and Herzegovina Country Program Snapshot THE WORLD BANK PROGRAM IN quality as the current portfolio remains healthy. BOSNIA AND HERZEGOVINA Only one out of 14 projects is considered to be at risk - the Agriculture and Rural Development Bosnia and Herzegovina joined the World Project. However, restructuring of this project is Bank and the International Development currently being pursued to address identified Association (IDA) in 1996, with membership weaknesses. Implementation progress of all other retroactive to 1993. Overall, over the last 15 years projects is satisfactory. since the end of the conflict, the World Bank approved 66 projects in the total amount of about Bosnia and Herzegovina is a participant in US$1.55 billion (interest-free: IDA Credits – the Road to Europe – Program of Accounting US$1.34 billion; IDA grants – US$25 million; Reform and Institutional Strengthening GEF grants – US$18.3 million; and IBRD loans – (REPARIS), a World Bank and recipient US$175 million). executed (hybrid) Multi-Donor Trust Fund (MDTF) currently funded by the governments of The World Bank engaged early and Austria, Switzerland and Luxembourg. REPARIS extensively in the postwar reconstruction in is managed by the World Bank Centre for BH. The period of intensive post-conflict Financial Reporting Reform (CFRR) and assists reconstruction in BH (1996 – 2002) is the period participants to bring their frameworks for financial of which we in the World Bank are particularly reporting into line with EU requirements. It helps proud of. With our support, over 20,000 public countries to adapt the laws and regulations apartment units and about 2,000 private houses governing financial reporting and also to develop were repaired. Hundreds of kilometers of power the institutions to support the effective operation and water lines, transmission stations, and thermo of the new reporting frameworks. and hydro power plants were rehabilitated. About 2,300 kilometers of roads, 41 bridges, 3 tunnels, Analytical And Advisory (AAA) Program: The and Sarajevo‟s International Airport were rebuilt. World Bank‟s analytical work contributed 82 primary schools were reconstructed, and 24 significantly to the policy dialogue in Bosnia and medical facilities equipped. 550 hectares of new Herzegovina in several key sectors, with a focus trees were planted, and 210 kilometers of forest on social inclusion and competitiveness of the roads were reconstructed. About 200,000 jobs economy. For example, a World Bank study on were created or supported under two the social safety nets, provided the analytical microfinance projects. A review carried out by the underpinning for the important reforms of the Independent Operations Evaluation Department social protection system initiated in 2010. The (OED) in 2004 found that the role of the World 2009 Poverty Report again put emphasis on the Bank in reconstruction program in BH was an urgency of these reforms. It warned that recent example of “the Bank at its best”. gains in poverty reduction were threatened by the With BH now set on joining the EU, economic downturn and that the reform of the safety nets had become urgent and unavoidable to supporting the EU integration process has protect the vulnerable and ensure fiscal stability. become the overarching theme of the World The Country Economic Memorandum was Bank‟s Country Partnership Strategy, along with delivered as a series of policy notes on job creation and the improvement of public competitiveness in tradable sectors. In particular, services, particularly those for the poor and the policy note "Are Skills Constraining Growth in vulnerable. The World Bank currently BH" triggered a lively public debate and stressed supports 14 operations. The total value of these projects, which are in various stages of the need to improve the quality of education (both formal and informal) and link it better with the implementation, is US$322.3 million. About 33 labor market demand. The recent agriculture percent has already been disbursed to date. competitiveness study is underpinning the debate about new investments in the sector and reforms Portfolio quality: Implementation of projects has needed to reduce the agri-food trade deficit. accelerated over the last 18 months as evidenced by strong disbursement performance which is among the best in the Europe and Central Asia region. This was not achieved at the expense of 10 Bosnia and Herzegovina Country Program Snapshot MAP OF BOSNIA AND HERZEGOVINA 11 Bosnia and Herzegovina Country Program Snapshot PROJECT BRIEFS 12 AVIAN INFLUENZA PREPAREDNESS PROJECT Key Dates: Approved : June 20, 2007 Effective: March 28, 2008 Closing: June 30, 2011 Financing in million US Dollars*: Financier Financing Disbursed Undisbursed IDA Credit 5.0 2.33 2.67 Government of Bosnia 1.4 and Herzegovina Total Project Cost 6.4 *Source Client Connection as of September 8, 2010. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Until recently, avian flu outbreaks were limited to Southeast Asia. In July 2005, outbreaks were registered in domestic poultry and fowl in seven regions of Russia. Four months later, outbreaks in poultry of HPAI H5N1 were reported in four regions of Kazakhstan. Since 2005, outbreaks of avian flu have occurred in many countries outside East Asia. After crossing from China into Russia and Kazakhstan, outbreaks were reported in Albania, Azerbaijan, Austria, Bosnia and Herzegovina, Bulgaria, Cyprus, Croatia, France, Greece, Germany, Italy, India, Iran, Romania, Serbia, Slovenia, Switzerland, Turkey, and Ukraine. Seasonal migration of birds contributes to transmission of new strain variations to different geographical regions. In October 2005, H5Nl was reported among migrating swans in Croatia, which lies on the northern border of Bosnia and Herzegovina. The Project Development Objective of Avian Influenza Preparedness Project is to minimize the threat posed to humans and the poultry industry by Highly Pathogenic Avian Influenza (HPAI) infection and other such viruses. The project will help introduce effective control, and response to an influenza pandemic and other infectious disease emergencies in humans. The Project supports three areas: (i) prevention, (ii) preparedness and planning, and (iii) response and containment. Achieving these goals will contribute to diminishing the burden of disease and loss of productivity, limiting the regional spread of HPAI, and enhancing economic and social prospects at the national, regional, and global levels. Results achieved:  Active monitoring of avian influenza for backyard poultry (576 samples) – Y2008  Testing for brucellosis, tuberculosis, and leucosis (30,198 samples of sera of milk cows), and 300,156 sera samples of sheep and goats for testing of brucellosis within annual statement and control – Y2009  Active monitoring of avian influenza for wild birds (256 samples) and backyard poultry (sample from 312 households near big poultry farms)  Laboratory equipment (RT PCR and others) procured, distributed, and installed at veterinary facilities – tested around 1,000 samples with new equipment - Y2009  Introduction to VetLab software for Veterinary Faculty – Y2010  Vaccination against non-communicable disease (NCD) at the big poultry farms performed and the immunity control sera are tested for NDC and for presence of antibodies against Avian Influenza – Y2010 Key Partners: Implementation of the Project is undertaken by a Technical Support Group (TSG) consisting of technical advisors who are representatives of the State Veterinary Office (SVO) in the Ministry of Foreign Trade and Economic Relations, Ministry of Civil Affairs, FBH and RS Ministries o f Agriculture (Veterinarian Services), FBH and RS Ministries of Health, and consultants for communications and monitoring and evaluation. Key Development Partners: In addition to the Bank and government co-financing, various other international organizations – including the European Commission (EC), World Health Organization (WHO), United States Agency for International Development (USAID), United Nations Children‟s Fund (UNICEF) – are active in assisting the Government of Bosnia and Herzegovina to address the threat of Avian Influenza. The Project has been designed in close cooperation with these organizations to leverage the maximum financing possible and to avoid duplication of efforts. 13 ENERGY COMMUNITY OF SOUTH EAST EUROPE – ECSEE APL3-BIH Key Dates: Approved : June 16, 2006 Effective: April 13, 2007; October 2008 (delay of 27 months) Closing: December 31, 2010 (request received for extension by 18 months until June 2012) Financing in million US Dollars*: Financier Financing Disbursed Undisbursed IDA Credit 36.0 9.30 28.64 Government of BiH Co-financers (EBRD, EIB, KfW) 250.0 Total Project Cost 286.0 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The countries of South East Europe, including BH, the European Commission, bilaterals such as USAID and CIDA, and IFIs are cooperating to develop a regional energy market – the Energy Community of South East Europe (ECSEE, now called the „Energy Community‟) – and integrate it into the internal energy market of the European Union. Project Objective: This project facilitates BH‟s participation in the regional energy market through investments to improve dam safety; reduce adverse environmental impacts at thermal power stations; replace ageing existing facilities and equipment at hydro-power and thermal power stations; and rehabilitate distribution systems. The Project has maintained electricity generation in BH at or above base levels in corresponding hydrological conditions and assuming the avoidance of significant shutdowns of equipment not covered by the project. Environmental compliance has improved at Kakanj, and works are underway in Tuzla, Ugljevik, and Gacko Thermal Power Plants. Work is underway to improve dam safety at Grabovica, Salakovac, Jablanica, Rama, Trebinje II, Visegrad, and Bocac hydropower plants. A previous project (Power III) started a pilot project for implementation of Financial Management Information System, which has since been scaled up throughout the enterprise by EPHZHB, and the other two power utilities (EPBH and EPRS) are also scaling it up. This system would help improve management control, governance improvement, transparency in power trade and accounting, and help better commercial integration of BH power system with the regional energy market. Results achieved: After initial delays in implementation, the project is beginning to make progress. Some of the achieved results are:  Generation and export of power in 2009 has reached record levels and EPRS and EPBiH have earned record profits in spite of lower prices in the regional electricity market. However, due to the financial crisis the demand and prices of traded electricity in the region have further declined in 2010, and it would be difficult for the EPs to maintain such high levels of profitability.  Environmental compliance in TPP Kakanj improved. A new filter to control emissions from TPP Kakanj has been installed. Key Partners: BH Ministry of Foreign Trade and Economic Relations; Ministries of Energy of Federation BH and Republika Srpska; EPBiH (Elektroprivreda of Bosnia and Herzegovina), EPHZHB (Elektroprivreda of the Croatian Community of Herzeg- Bosnia) and EPRS (Elektroprivreda of Republika Srpska). Key Development Partners: The European Union supports power sector reform and restructuring under its technical assistance operations in the region, through its Phase program, in large part co-financed with EIB, EBRD, and KfW. 14 FOREST AND MOUNTAIN PROTECTED AREAS PROJECT Key Dates: Approved: May 29, 2008, Effective: April 16, 2009 Closing: April 30, 2013 Financing in million US Dollars:* Financier Financing Global Environment 3.40 Facility Total Project Cost 3.40 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed Global Environment 3.40 0.85 2.55 Facility * as of August 17, 2010. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Bosnia and Herzegovina (BH) covers three globally significant ecosystems and several smaller-scale globally important sites. It is estimated that BH has the highest proportion of threatened plant species of any European country, and yet by the mid- 2000s, it had only 0.55 percent of land set aside as protected areas, the lowest level in Europe. Protected areas were generally under-funded, relying heavily on resource extraction for revenues. Additionally, staff working in protected areas had little or no experience with applied management approaches for ecosystems-based management and new management fields, such as sustainable tourism and participatory conservation. Broad consensus to expand the protected area network existed in both Entities, to protect key biodiversity and cultural assets, as well as to provide new income opportunities for local residents. The Project Development Objective is to strengthen the institutional and technical capacity for sustainable protected area management, and expand the BH network of forest and mountain protected areas. The Project addresses key issues through support to: i) protected area development including planning, monitoring, and facilities; ii) build capacity and support for biodiversity conservation; and iii) local initiatives in biodiversity conservation. Results achieved: As of July 2010, there were several achievements, including:  Both Entities have allocated government budget for protected area management, which is a key results target and a significant accomplishment in the context of tight fiscal constraints;  Protected areas now make up about 2.1 percent of the land area, i.e., about 112,000 ha, compared with only 0.55 percent two years earlier at the time of Board approval;  Activities have commenced on the preparation of a management plan for one National Park and a Feasibility Study for a possible new National Park; and  Contracting is underway for the preparation of management plans for two more National Parks and two Forest Reserves, and a baseline ecological assessment. Key Partners: The Bank team is working closely with the Ministry of Tourism and Environment in the Federation of BH; with the Ministry of Spatial Planning, Civil Engineering and Ecology in the Republika Srpska; the BH Ministry of Foreign Trade and Economic Relations; as well as collaborating with the Ministries of Agriculture, Water Management, and Forestry in both Entities along with cantonal and municipal institutions. Key Development Partners: Discussions are on-going with USAID regarding collaboration on protected area management planning for the National Parks. 15 FOREST DEVELOPMENT AND CONSERVATION PROJECT Key Dates: Approved: June 10, 2003 Effective: October 3, 2003 Closing: November 30, 2010 Financing in million US Dollars:* Financier Financing IDA Credit 8.83 Entity Governments 2.18 Government of Italy 0.96 Total Project Cost 11.94 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IDA Credit 8.83 6.68 1.04 *Source Client Connection as of August 17, 2010. Note: Disbursements may differ from financing due to exchange rate fluctuations. Forest resources in BH are amongst the richest in Europe in terms of their extent and variety relative to the size of the country, covering almost 50 percent of land area. Forests are an important source of employment, energy, and recreation. The war between 1992 and 1995, as well as subsequent unregulated development, resulted in heavy damage to the forest sector. Through the first BH Forestry Project (approved in 1998), the Bank provided support for forest protection, rehabilitation and management, plus rehabilitation of the forestry service‟s operational capacity. Legal and policy reforms were also initiated during this period, giving the forest sector a new direction in line with the Dayton Peace Accords and the Convention on Biological Diversity to which BH was a signatory, and provided the context for the Forest Conservation and Development Project (approved in 2003, with Additional Financing in 2007). The Project Development Objective is to assist with the implementation of legislated reforms in forest organization and management, which are expected to increase revenues from forest resources, improve forest management, and enhance biodiversity conservation through participatory approaches in forest land use planning. The Project supports: i) accelerating the implementation of new legal, institutional, and economic frameworks; ii) strengthening technical capacity for sustainable forest management; and iii) promoting biodiversity and forest conservation. Results achieved: Many of the planned project results are already achieved. Functional separation of the administrative and enterprise duties are operational and legal reforms are further clarifying roles. Both Entities have initiated work on the development of Entity-level forest development strategies, and continue to upgrade their forest management information systems.  The State Forest Inventory (SFI), the single largest project activity, is fully completed with 100 percent of the country‟s forests surveyed. Initial findings are that the area under forest has increased as well as the growing stock, and the forests are in much better condition than is generally recognized.  The Republika Srpska (RS) Public Forest Enterprise “Sume” corporate governance action plan is fully implemented. The International Finance Corporation is using this plan as good practice for similar exercises in other RS corporations.  The RS Sume has received international Forest Stewardship Council certification for their forests, and four Federation cantons (of Bosnia and Herzegovina) are in the process of obtaining such certification for their forests.  The completed Biodiversity and Forest Conservation component contributed significantly to the preparation of the Forest and Mountain Protected Areas Project. Key Partners: The Bank team is working closely with the Ministry of Agriculture, Water Management and Forestry in the Federation, and the Ministry of Agriculture, Forestry and Water Resources in Republika Srspka. Key Development Partners included the Government of Italy which supported the Biodiversity and Forest Conservation component and USAID with whom the project collaborated on communication strategies for the forest sector. 16 HEALTH SECTOR ENHANCEMENT PROJECT Key Dates: Approved : March 31, 2005 Effective: April 3, 2006 Closing: December 15, 2010 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 17.0 Government of Bosnia and Herzegovina 8.9 Council of Europe 14.0 Total Project Cost 39.9 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 17.0 15.07 1.87 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The burden of disease in BH is high. While there are communicable disease challenges (such as the need to increase the rates of vaccinations for measles and DPT), the BH epidemiological profile is largely dominated by non-communicable diseases (NCD) such as heart disease, diabetes, and cancer, with some indicators (i.e. ischemic heart disease) estimated to be the highest in the southeastern European region. Road accidents, injuries, and suicides are also at high levels. With a rapidly ageing population, the burden of disease due to NCDs will continue to increase. The historic organization and financing of the health system in BH – which was based on a fragmented primary health care system and an increasing bias towards curative services – is not oriented to meet the challenge of the on-going and increasing NCD epidemic. The Project Development Objective of the Project is to (i) expand and enhance the family medicine model of primary health care; (ii) build management capacity in the sector; and (iii) strengthen the policy making process through the development and implementation of a system for monitoring and evaluating sector performance. Results achieved:  The model Family Medicine is firmly established in the country – including in the medical education system and the organization of services – according to a similar strategy and standards. Nationally, more than 1100 practicing physicians and more than 1580 nurses have gone through a rigorous retraining program to provide Family Medicine care; and nearly 600 physicians have earned a Family Medicine Specialization.  Almost 800 Family Medicine offices (in municipal Health Centers or more rural ambulantas) have been rehabilitated or reconstructed, equipped, and furnished. In the RS, more than 30 clinical guidelines have been developed based on the principles of evidence based medicine and disseminated. About 100 Family Teams are accredited as having high standards of quality.  To support the reform process, close to 500 managers have been trained in change management. The RS has developed a cadre of highly qualified individuals trained in health management.  Both entities of BH have increased their information about the status of the health system. The Federation has developed a database for monitoring and evaluating the health system – following a series of consultations on the performance indicators; staff of the entire stakeholder institutions have been trained in use of the database. Key Partners: The Ministry of Health in the Federation in the RS is leading efforts, supported by various donors and agencies – notably the EU, World Health Organization (WHO), and the Bank. Considerable support has been provided by the Canadian International Development Agency (CIDA) and the Swiss Development Agency to name just a couple. The Project is co-financed by the Council of Europe Development Bank, which contributes a significant percentage of total project costs (32 percent) towards the financing of civil works and equipment. In addition, the EU is financing a number of complementary activities designed in close collaboration with the Bank in the areas of: (i) public health; (ii) accreditation and quality assurance; (iii) pharmaceuticals; (iv) hospital provider payment mechanisms; (v) hospital modernization; and (iv) functional review of health institutions. 17 LAND REGISTRATION PROJECT Key Dates: Approved : April 27, 2006 Effective: April 13, 2007 Closing: March 31, 2011 Financing in million US Dollars:* Financier Financing IDA Credit 15.84 Government of Bosnia and Herzegovina 2.96 Total Project Cost 18.80 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IDA Credit 15.84 8.07 7.86 * as of August 4, 2010. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Systems for the registration of property rights in BH have been in disarray since World War II when many of the records and documents relating to property were destroyed. The situation was made worse during 1992-1995 war when more records were lost and people were displaced, sometimes permanently, and the legal records often no longer matched the occupation. Informal development of large areas occurred because of the difficulty in getting permission to build or occupy property. The breakdown in institutional capacity and deterioration of land and property records make it very difficult to complete basic real estate transactions, develop property or to borrow money based on property as collateral. Property development in urban areas is also restricted because of inadequate urban planning documentation and the uncertainty caused by a real property restitution initiative. The Project Development Objective is to facilitate the orderly development of transparent land markets through registration of real estate rights and complimentary policies that enable transactions to be made with security and efficiency. The Project has addressed the issue of building effective registration and cadastre systems by (1) improving the transparency, speed, and accuracy of registering property transactions; (2) improving the efficiency and speed of providing data on property units for clients wishing to register their property rights; and (3) developing strategies and draft legislation required for removing the impediments to business development and economic growth that exist in the land administration sector. Results achieved:  New service standards developed and adopted – registration took many months prior to commencement of the project in 2007, but now in 16 courts, including Sarajevo, 80 percent of all transactions are resolved in five days or less and mortgages are registered within a day;  92 percent of property folios digitized in RS and 89 percent in the Federation. 1.9 million hectares of cadastre maps have been digitized, exceeding the project target of 1.4 million hectares;  Over 18,000 cases from the backlog have been resolved since 2007, at a time when new registration requests have increased by almost 100 percent. Improvements in service delivery and to the physical infrastructure of 37 offices, and corruption opportunities have been largely eliminated. Requests can be processed in a matter of minutes.  New legislation covering land registration, spatial planning, cadastre, property taxation, and regularization of informal developments have been drafted and some enacted during the period of the project. Key Partners: i) At the state level (BH), the Project works with the Advisory Board with participation of each entity and the State Government; (ii) the Ministry of Justice at the Entity level; iii) Geodetic Administration (GA) in RS and Municipal and Cantonal governments in FBH; (iv) Ministry of Finance at the state, entity and cantonal level; and (v) Ministry of Spatial Planning (at various levels). Key Development Partners: SIDA, and Austria‟s ADA, GTZ, USAID, EU. 18 NERETVA AND TREBISNJICA MANAGEMENT PROJECT Key Dates: Approved : May 29, 2008 Effective: March 6, 2009 Closing: December 31, 2013 Financing from all co-financiers, million US Dollars: Financier Financing Global Env. Facility 8.00 Recipients (Bosnia and Herzegovina and Croatia) 8.45 Bilateral Agencies 3.92 Total Project Cost 21.37 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed Global Env. Facility 8.00 2.23 5.77 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Improved water resources management and biodiversity conservation have been identified by BH and Croatia as key environmental issues in the National Environmental Action Plans of both countries. The Neretva and Trebisnjica River Basins (NTRB) water resources, and the ecosystems dependent upon them, play an important part in the economies of both countries and the livelihoods of over 430,000 people living in the area. Taken together, these two rivers comprise most of the Adriatic watershed of BH and Croatia, and both are crucial for energy production, recreation, fisheries, drinking water, and irrigation. They carry the (generally untreated) wastewater of the municipalities and many industries in the basins. The approach to improve the water resources management and biodiversity of the Neretva and Trebisnjica River Basins called for a joint effort of the two countries, resulting in the regional, transboundary project the Neretva and Trebisnjica Management Project (NTMP), supported by the GEF through a US$8 million grant, out of which US$6 million has been granted to BH and US$2 million to Croatia. The project aims to provide a mechanism for the efficient and equitable water allocation among the users of the Neretva and Trebisnjica River Basin at the transboundary level, and for enhancing the basin ecosystem and biodiversity through improved water resources management, through; i) Improved transboundary water resource management; ii) Improved management and use of wetlands ecosystems and biodiversity; iii) High-priority investments for water pollution and two industrial sector investments; and iv) Public Participation and Management of Project Implementation. Expected results are:  Increased interstate cooperation and capacity for transboundary water resources management, and application of Integrated Water Resources Management (IWRM) principles;  Reduction of nutrients and other pollution from municipal and industrial sources in the selected municipalities in the basin;  Improved maintenance of environmental flows and improved ecosystem health and biodiversity in the basin; and  Reduction of saltwater intrusion as a result of implementation of pilot program in the Neretva Delta. Key Partners: In BH, the Ministry of Agriculture, Water Management and Forestry in the Federation of BH, and the Ministry of Agriculture, Forestry and Water Management in Republika Srpska, under the coordination of the Ministry of Foreign Trade and Economic Relations of BH; the five participating municipalities in BH; and in Croatia, the Ministry of Regional Development, Forestry and Water Management through Croatian Waters (HV). Key donors: the EC, and the Governments of Spain and the Netherlands. 19 ROAD INFRASTRUCTURE AND SAFETY PROJECT Key Dates: Approved : December 13, 2007 Effective: September 19, 2008 Closing: December 31, 2011 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 25.0 Government of Bosnia and Herzegovina 5.0 Total Project Cost 30.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 25.0 20.69 4.91 * as of April, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Road traffic in and around major urban areas in BH is growing five percent each year. For roads, the current network appears adequate but traffic growth is accelerating, calling for medium-term upgrading and capacity enhancements. The quality of the road network remains inadequate despite a decade of substantial expenditures. Large expenditure needs that reflect a legacy of conflict and neglect are currently not fully met. Road safety remains a serious social and public health issue in BH. The state of the road network, driver behavior and limited education, poor or nonexistent enforcement, and significant growth in vehicle ownership and use have increased traffic accidents – there were 436 fatalities and 8470 injuries in 2004. The 2008 rates declined slightly to 5.3 fatalities per 10,000 vehicles, but the rate is still nearly 3 times higher than the EU-27 average. Hence, road safety is a significant and growing concern that requires a comprehensive response. The Project Development Objectives are to reduce user costs on the priority sections of the trunk and regional roads, to improve road safety, and to modernize road maintenance practices. The Project addresses a range of interconnected sector issues by (1) financing of main and regional road and bridge rehabilitation; (2) financing of technical assistance to assist implement the recommendations of the 2007 Road Safety Management Capacity Review; (3) financing of technical assistance for the introduction of output and performance based road maintenance contracts on a pilot basis in each entity. Results achieved:  Out of 241 km of roads to be rehabilitated by the project and financed from the IDA credit, 61 km have been rehabilitated in the Federation of Bosnia and Herzegovina and 43 km in Republika Srpska, which has reduce road user costs.  There is significant progress with the development of the institutional framework for road safety, with the approval of entity level road safety strategies, and the establishment in the Republika Srpska of a road safety agency.  Modernization of road maintenance is progressing more slowly, with a pilot output and performance based maintenance contract signed in March 2010 in the Federation of Bosnia and Herzegovina. Key Partners: The (i) Federation Road Directorate and the Republika Srpska Road Directorate; (ii) RS Ministry of Transport and Communications; and (iii) State and Entity Ministries of Transport and Communications Key Development Partners include EBRD and EIB, who are providing parallel financing as part of a program of US$210 million of magistral and regional roads rehabilitation, with the former providing US$75 million and the latter Euro 80 million (US$105 million). The EBRD has contributed to the introduction of output and performance based maintenance contracts, while EIB has financed preparation and design for rehabilitation works. 20 SARAJEVO WASTE WATER PROJECT Key Dates: Approved: December 22, 2009 Effective: July 15, 2010 Closing: November 30, 2015 Financing in million US Dollars:* Financier Financing IBRD Loan 35.0 Government of Bosnia and Herzegovina 2.0 Total Project Cost 37.0 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IBRD Loan 35.0 1.19 33.73 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Service delivery problems in Bosnia and Herzegovina (BH) are compounded by the lingering after-effects of the conflict that left vast portions of basic infrastructure destroyed or severely damaged. A case that vividly illustrates the problem is waste water collection and treatment in the city of Sarajevo. A Waste Water Treatment Plant (WWTP) was built close to the confluence of the Miljacka and Bosna Rivers in the early 1980s on the occasion of the 1984 Winter Olympics. Construction of the plant was supported by the World Bank-financed Sarajevo Water Supply and Sewerage Project (Loan 1263-YU), which closed in December 1982. However, the plant was extensively damaged in the spring of 1992 at the outset of the conflict, during which the sewer network was also destroyed in various places. Since the end of the conflict in 1995, the WWTP has been largely out of commission with only minimal conservation works carried out to prevent further deterioration. As a result, virtually all of the city‟s waste water is discharged into the Miljacka and Bosna Rivers without any treatment, causing severe pollution of the rivers and impacting the communities downstream of the discharge point. The Project Development Objective is to improve the living conditions of populations in the areas covered by the Sarajevo Water and Waste Water Company and in downstream riverside communities by: (a) reducing the population's exposure to, and reliance on highly polluted water from the Miljacka and Bosna Rivers; and (b) improving the efficiency of the waste water collection network in the Sarajevo Canton. The expected results will be measured through the following indicators:  Reduction in river pollution measured by amount of BOD5 removed at the WWTP  Volume of waste water collected treated at the primary level (m3/day)  Number of sewer connections benefiting from rehabilitation works  Number of sewer blockages per year Key Partners: The Bank team is working closely with the BH Ministry of Foreign Trade and Economic Relations; Sarajevo Cantonal and Municipal Institutions; as well as with “VIK” the Sarajevo Water Utility. Key Development Partners: Close coordination has been established with the EBRD and the EC. 21 ENHANCING SMALL AND MEDIUM ENTERPRISES ACCESS TO FINANCE PROJECT Key Dates: Approved : February 25, 2010 Effective: October 7, 2010 Closing: October 31, 2014 Financing from all co-financiers, million US Dollars: Financier Financing IBRD Loan 70.0 Total Project Cost 70.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 70.0 4.77 64.77 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The global financial crisis has impacted BH significantly since late 2008. BH felt the impact of international financial and economic crises via three transmission mechanisms: slow-down of FDI and capital inflows; reduced demand for exports; and lower commodity prices. Although the financial system has fared well so far, financing for new loans to enterprises and households has greatly decreased. Much of the recent growth in capital flows had been driven by foreign banking groups supporting their local operations in BH. With the onset of the international financial crisis, these foreign banking groups have become more risk-averse, with parent banks decreasing support for their operations in BH, which caused credit growth to decline substantially. The slower credit growth is impacting investment across the economy, as enterprises face decreased access to credit and higher interest rates. While there are long term structural issues that need to be addressed to improve the business environment and competitiveness of the enterprise sector, the current global financial instability required a focus on dealing with access to term finance as the most critical short-term vulnerability for the SME sector. The Project Development Objective is to enhance access to finance for small and medium enterprises (SMEs) in BH in the context of the global financial crisis. Primary beneficiaries of the project are SMEs in the manufacturing and services‟ sectors with growth and export potential, which would benefit from improved access to finance. The project will also help the banking sector in BH to withstand the global economic downturn that has triggered financing difficulties for the enterprise sector. Expected results are:  Total loan disbursed – US$70 million  US$37.5 million in medium and long-term loans disbursed  35 firms financed Key Partners: The project was designed in close cooperation with the BH, FBH and RS Ministries of Finance and the BH Central Bank. The Central Bank provided statistical data and analysis on demand throughout the project preparation period; the data available through the Central Bank‟s Central Credit Registry will be used to improve and strengthen M&E process. The BH Employers‟ Association and the Foreign Trade Chamber were consulted in the project design and will remain involved both in the promotion of the project and in the monitoring of its effects. Key Development Partners: The Bank is coordinating its work on this project with other donors in BH such as EBRD, KfW and USAID. 22 SOCIAL SAFETY NETS AND EMPLOYMENT SUPPORT PROJECT Key Dates: Approved : February 25, 2010 Effective: October 7, 2010 Closing: October 31, 2014 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 15.0 Government of Bosnia and Herzegovina 7.0 Total Project Cost 22.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 15.0 .71 13.94 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. BH ranks among the highest spenders on social assistance with around 3.3 percent of GDP, which is more than two times higher than the average for Eastern and Central Europe. For historic reasons, this spending is heavily dominated by “rights - based” cash transfers for war veterans or their surviving dependents, which absorb three-quarters of the total benefit budget. At the same time the allocations for social benefits for those with very low incomes, for child benefits and for support to people with non-war related disability are very small or non-existent. Moreover, the cash transfers are not well targeted to the poor and most vulnerable. On the contrary, in both Entities of BH – the FBH and RS – over 27 percent of the budget allocations are „captured‟ by the richest 20 percent of the population. Many poor are excluded from the benefit system. In fact, only 5 percent of the poorest 20 percent of the BH population receive some kind of cash assistance provided by the Centers for Social Work, and this support is tiny even when compared to their own limited consumption. BH needs a reform to improve the efficiency of social spending, improve the quality of social services and the anti-poverty impact of cash transfers. The Project Development Objective are to: (i) support non-contributory cash transfers in reaching the eligible poor and disabled; (ii) improve the efficiency and transparency of benefit administration; and (iii) support job brokerage services for those active job seekers who become ineligible to receive cash transfers or who are vulnerable (e.g., poor, disabled but able to work, hard-to-serve, demobilized soldiers, etc.). Expected results are:  Improved targeting of all non-contributory benefits delivered by the Centers for Social Work to the most needy and expanded coverage of the poor and vulnerable with cash transfers, social and employment services  Improved access to benefits through improved outreach to the poor and reduced burden of application for the applicants and for those who process the applications and verify eligibility (the average application processing time is expected to decline from 7 to 2.5 months)  Improved transparency and reporting about the benefits and beneficiaries of the non-insurance cash transfers (annual reports detailing benefits, beneficiaries, duplications, fraud errors, and other relevant information, published and made available to the general public)  Improved user satisfaction regarding service delivery in relation to transfers and services provided by the Centers of Social Work (percentage of non-contributory cash transfer beneficiaries satisfied with services received at CSWs )  Percentage of job brokerage service beneficiaries (10,000 targeted) with improved employability (have found a job after being served) Key Partners: The (i) Ministry of Labor and Social Policy (MoLSP) in the Federation of BH; (ii) Ministry of Labor and Veterans‟ Affairs (MoLVA) and the Ministry of Health and Social Welfare (MoHSW) in Republika Srpska; cantonal ministries of social affairs and employment; entity-level Public Employment Services and Centers for Social Work. Key Development Partners: EC, UNICEF, and WHO. 23 SECOND SOLID WASTE MANAGEMENT PROJECT Key Dates: Approved : November 25, 2008 Effective: October 23, 2009 Closing: February 28, 2014 Financing from all co-financiers, million US Dollars: Financier Financing IBRD Loan 25.0 IDA Credit 15.0 Government of Bosnia and Herzegovina 3.5 Total Project Cost 43.5 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 25.0 1.04 23.74 IDA Credit 15.0 .81 14.07 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Since the end of the war, BH has made tremendous progress in improving its solid waste management system. Only a few years ago in BH there were no functioning regional sanitary landfills and almost all waste was discarded in unofficial sites such as wild dumps, roadsides, small village dumps, rivers, and mines, which posed a direct risk to public health. During implementation of the first Solid Waste Management Project (SWMP-1) which closed in 2010, several municipalities have set up and jointly operate regional sanitary landfills and an increasing amount of waste is being managed in compliance with high EU standards. Nevertheless, numerous illegal dump sites can still be found in many municipalities and their clean- up and closure remains a high priority that will require setting up functioning sanitary landfills to provide a viable alternative for disposal. At the same time, advanced regional landfills start moving to the next level of integrated solid waste management by introducing advanced separation and recycling facilities, and improving the financial viability of their services. The Second Solid Waste Management Project (SWMP-2) will support both – new regions that will establish additional six sanitary landfills by the end of 2014, and existing landfills to finalize rehabilitation. The Project will: (i) improve public health and quality of life by reducing exposure to pollutants and disease vectors from solid waste; (ii) improve municipal institutional capacity by establishing up-to-date technical and financial solutions for SWM; (iii) enhance environmental policy by improving the scope and depth of SWM strategies and facilitating recycling and waste-reduction programs nationwide; and (iv) improve local governance by enhancing cooperation among municipalities. Results achieved under (SWMP-1): Results to be achieved under (SWMP-2):  6 regional sanitary landfills operational;  12 regional sanitary landfills operational (now 6);  8 multi-municipal waste management districts established through  12 inter-municipal districts established (now 8); the cooperation of multiple municipalities;  60 percent reduction in share of waste not disposed in  collection rate in the project region increased from 40 percent to 70 sanitary landfills; percent;  25 percent of estimated 1,200 wild dumpsites closed;  over 50 percent of solid waste is now disposed in a sanitary landfill or  higher citizen satisfaction with waste management services; in another environmentally sound manner;  increased cost recovery rate of participating utilities.  15 percent reduction of wild dumpsites. Key Partners: The (i) Ministry for Environment and Tourism (FMET) in the FBH; and (ii) the Ministry of Physical Planning, Construction, and Ecology (MPPCE) in the RS; (iii) FBH and RS solid waste utilities. Key Development Partners: The Bank is working closely with other donors in this sector such as the EU and SIDA. 24 URBAN INFRASTRUCTURE AND SERVICE DELIVERY PROJECT Key Dates: Approved : July 8, 2004 Effective: February 23, 2005 Closing: June 30, 2011 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 25.0 Government of Bosnia and Herzegovina 2.5 Total Project Cost 27.5 World Bank Disbursements, million US Dollars *: Total Disbursed Undisburse d IDA Credit 25.0 14.0 11.0 * as of January 8, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Responsibility for the delivery of local public services – water supply and sanitation, solid waste and disposal, district heating – rests with municipalities in both the FBH and the RS. Typically, services are delivered by municipal companies that operate as autonomous entities separated administratively and financially from the municipal government. The actual service quality is generally unsatisfactory and unsustainable. The Project Development Objective are to: (i) improve the availability, quality and reliability of basic municipal services and in particular, water supply, and sanitation; (ii) strengthen the ability of cantonal and municipal governments to improve management and institutional capacity for infrastructure development through Urban Management Development Plans; and (iii) where possible, foster deeper social cohesion through improvements in overall living conditions. The Project has improved the quality of water supply and other services in participating areas and enhanced financial viability, sustainability, management, and institutional capacity of participating utility companies. Results achieved:  294,700 citizens – or 75,000 households – connected to piped water supply in the project region (Banja Luka, Cazin, Pale, and Posusje);  Business plans prepared by all utilities;  93.50 km of pipes rehabilitated;  23 staff from 6 utilities trained in municipal finance, tariff policy; procurement; and customer service program;  Urban Management Plans prepared and under implementation in four regions (Sarajevo, Tuzla, Banja Luka, Livno). Key Partners: The (i) BH Ministry of Foreign Trade and Economic Relations responsible for the overall implementation of the Project; (ii) Ministry of Urban Planning and Environment in the Federation; (iii) Ministry of Urbanism, Civil Works, Housing Communal Affairs and Environment in RS; (iv) Ministries of Agriculture, Water Management and Forestry in the Federation and RS as well as cantons in the Federation and municipalities in RS and utility companies. Key Development Partners: The Bank is working with other donors in Bosnia and Herzegovina such as EU, KfW, CIDA, and UNDP. 25 WATER QUALITY PROTECTION PROJECT Key Dates: Approved : June 7, 2005 Effective: November 18, 2005 Closing: August 28, 2012 Financing from all co-financiers, million US Dollars: Financier Financing Government of Bosnia and Herzegovina 6.19 Global Environment Facility 8.90 Global Environment-Associated IDA Fund 4.00 Government of Spain 1.18 Total Project Cost 20.27 World Bank Disbursements, million US Dollars *: Total Disbursed Undisburse d Global Environment Facility 8.90 5.03 3.87 * as of January, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The Project focuses on the Neretva and Bosna Rivers. The Neretva River originates in BH and flows through Croatia before entering into the Adriatic Sea, and has a strong impact on the water quality of the Bay of Mali Ston. It is an important source of hydropower, drinking water and irrigation but also a source of pollutants for the Adriatic and Mediterranean. The Neretva Delta is a Mediterranean wetland of international importance and designated as a Ramsar Wetlands site. The Bosna River Basin covers the largest and most developed area of BH. The Bosna River also originates in BH and is about 260 km long. BH‟s most developed and industrialized regions are found along this river. Wastewater from communities and industrial facilities – the concentrated polluters – discharges directly into the river, most of it without any treatment and is the major source of pollutants for the Danube. The Project Development Objective is to further strengthen the capacity of local utilities and reduce pollution from municipal sources into the Neretva and Bosna Rivers. The global objective is to reduce municipal pollution and nutrients in the Adriatic Sea and the Danube Basin. Results achieved:  Water Information System (WIS) installed in water agencies in both entities;  11 percent of municipal wastewater are treated and discharged according to new BH water-environment standards;  Country adoption of the affordable water/environment standards for municipal-based pollution;  Increased stakeholder awareness with completion of meetings and publications disseminated;  Improved cooperation of BH with institutions in Croatia, Montenegro, and Serbia leading to agreement on most aspects of Waste Water Improvement Plan requiring cross-border cooperation. Key Partners: The FBH Ministry of Agriculture, Water Management and Forestry. Key Development Partners: The EU, and the Governments of Spain and Sweden are co-financing this project. 26 The World Bank Country Office Bosnia and Herzegovina Fra Anđela Zvizdovića 1/B/17 71 000 Sarajevo, Bosnia and Herzegovina Tel: (387-33) 251 500 Fax: (387-33) 226 945 http://www.worldbank.ba