52757 THE WORLD BANK OFFICE IN BOSNIA AND HERZEGOVINA NEWSLETTER No. 3/2009 · DECEMBER 2009 ECONOMIC UPDATE: The BH economy is still in recession, with few DOING BUSINESS IN BOSNIA AND HERZEGOVINA signs of a possible recovery, but it has made an 2010: BOSNIA AND HERZEGOVINA RANKED 116TH AMONG 183 COUNTRIES orderly adjustment on both the fiscal and external accounts. The reversal of BH's economic growth There is some welcomed progress in doing business in Bosnia and Herzegovina started at the end of 2008 and the country is still in (BH), but countries in the region are moving faster. This raises a concern for the recession. During the first 9 months of 2009, ability of BH to compete in after the crisis. exports and imports dropped 21 and 26 percent respectively (yoy); thus, the trade deficit shrank 30 In the Doing Business 2010 report, BH ranked 116 on the list that shows the ease of percent during the same period. With the doing business in 183 economies in the world. BH ranking improved for the first reduction in the trade deficit, relatively stable remittances and other inflows on the current time since Doing Business started publishing overall country rankings back in 2006. account, the current account deficit (CAD) halved Although the improvement is slight relative to last year (3 places, from 119 to 116), during the first two quarters of 2009 (yoy). Despite this is an important break from a worsening trend. Overall, this year's Doing its sharp reduction, financing the CAD has become Business findings are encouraging: persistent reform efforts embraced and challenging, as the inflow of private credit were implemented by dedicated local institutions can pay off in BH (even if with some reversed (dropping about 9 percent between Dec 08 and Sep 09) and FDI halved, which led to a delay). reduction of foreign exchange reserves of the Central Bank from 6.9 billion in October 2008 to However, we have seen that other countries in Southeast Europe are doing better around 5.8 billion by July 2009. However, the (and faster), and that they are doing it in a systematic, concerted, coordinated reduction of reserves was reversed following the fashion. Reforms in these countries (i.e. FYR Macedonia, Albania) happen across a conclusion of the Stand By Agreement (SBA) with multi-year horizon, and are based on a sound, well-sequenced plan with realistic the IMF and the inflow of the related external priorities. Reforms in these countries also have their champions, both among high- financing. A significant degree of consolidation has also happened on the fiscal accounts level officials and in dedicated professional staff and teams. This year, BH following the conclusion of the SBA and what registered improvements in 5 out of 10 indicators measured in the study. Paying would have been an unsustainable deficit of taxes improved by 26 places, and Registering Property by 5 places. Finally, while around 8 percent of GDP for 2009 will be reduced Doing Business study did not record new official policies that were significantly to a level of around 5 percent, a level that is weakening business environment, other countries and jurisdictions were clearly sustainable and financeable in the context of the SBA. The prospects of recovery are still uncertain, making more concerted efforts to facilitate economic activities and attract although the resumption of growth of exports in investment ­ features that are important in the time of economic slowdown. September and improvements in industrial output could be a hint of the start of a recovery. MACROECONOMIC INDICATORS Annual Quarterly Monthly 2008 2009 2009 2007 2008 Q4 Q1 Q2 Q3 V VI VII VIII IX Industrial Production FBH (% change y-y) 9.1 8.0 15.0 -10.9 -5.8 -9.9 -13.2 -10.6 -11.6 -10.0 -16.2 RS (% change y-y) 1.4 16.8 39.4 29.2 29.6 29.4 17.3 18.5 19.3 11.8 21.5 Gross Monthly Wage FBH (% change y-y) 9.7 n/a 13.2 14.0 10.6 6.3 8.9 10.7 7.3 6.5 5.0 RS (% change y-y) 10.3 29.3 30.7 18.3 5.4 3.7 4.0 5.6 5.5 3.3 2.2 Cost of Living /CPI* FBH (% change y-y) 1.5 7.7 5.8 2.0 (0.6) (1.4) (0.6) (1.5) (1.3) (1.4) (1.6) RS (% change y-y) 1.8 7.2 5.1 1.2 (1.3) (1.3) (1.4) (2.2) (1.2) (1.5) (1.2) Current Account Balance -1,160 n/a (Millions of ) Trade Balance (Millions of ) -4,071 -4,303 -780 -792 -944 -849 -298 -312 -293 -260 -297 Exports of Goods (Millions of ) 3,035 3,432 801 633 669 758 219 233 260 233 264 % change y-y 15.0 13.1 2.6 -21.0 -26.6 -17.6 -28.8 -25.8 -19.7 -16.7 0.0 Imports of Goods (Millions of ) 7,106 7,736 1,581 1,424 1,614 1,607 517 545 553 493 560.9 % change y-y 22.0 8.9 -18.8 -24.2 -26.7 -22.6 -29.2 -25.3 -27.9 -30.3 0.0 Foreign Exchange Reserves 3,425 3,219 3,219 3,095 2,908 3,289 2,929 2,908 3,152 3,347 3,289 (Mil. of ) Broad Money (Millions of ) 6,263 6,532 6,532 6,383 6,330 6,464 6,346 6,330 6,377 6,455 6,464 % change y-y 21.6 4.3 4.3 0.7 -3.2 -5.8 -2.5 -3.2 -4.6 -4.9 0.0 Credit to Non-govt Borrowers 6,052 7,317 7,317 7,407 7,412 7,240 7,436 7,412 7,363 7,242 7,240 (Mil. of ) % change y-y 28.1 20.9 20.9 14.8 7.3 0.0 10.1 7.3 4.7 1.8 0.1 * As of January 2008 both entities report CPI ACTIVE WORLD BANK PROJECTS 2009 WORLD BANK ANNUAL MEETINGS held in Istanbul October 6-7, 2009 IN BOSNIA AND HERZEGOVINA Available for Project Status Commitment disbursement (US$ million) (US$ million) Agriculture and Rural Development effective 21.0 18.4 Avian Influenza Preparedness effective 5.00 4.2 ECSEE APL 3 (Power IV) effective 36.0 37.8 Forest Development and Conservation effective 7.10 1.8 GEF - Forest and Mountain Protected Areas effective 3.40 2.8 GEF - Neretva and Trebisnjica Management effective 6.00 5.0 GEF ­ Water Quality Protection effective 8.90 7.8 The Annual Meetings of the World Bank Health Sector Enhancement effective 17.0 3.3 Group and the International Monetary Fund (IMF) each year bring together Land Registration effective 15.0 10.4 central bankers, ministers of finance and development, private sector executives, Road Infrastructure and Safety effective 25.0 22.6 and academics to discuss issues of global concern, including the world Small Scale Commercial Agriculture effective 12.0 0.2 economic outlook, poverty eradication, economic development, and aid Solid Waste Management effective 26.0 7.0 effectiveness. The Meetings, which are widely covered by the international media, Solid Waste Management II approved 40.0 40.0 also offer an opportunity for civil society organizations to share their views and Urban Infrastructure and Service Delivery effective 25.0 14.6 interact with policymakers in a global setting. TOTAL 247.4 176.2 FOUR PROJECTS TO BE APPROVED IN THE NEXT FEW MONTHS PUBLIC EXPENDITURE DEVELOPMENT POLICY LOAN (US$ 96 MILLION - IDA AND IBRD). The Project will provide direct support to the budget to reduce the burden of Government on the economy; strengthen fiscal coordination and; improve the targeting of social benefits. Policy measures proposed under this operation include: (i) improve sustainability of veteran's benefits through rationalization of the overall veteran benefits scheme; (ii) adoption of framework legislation for means-testing of all civilian benefits and veteran-related benefits with the exception of benefits for disabled with disability level of 60% or more; and (iii) adoption of legislation to create an integrated database for all cash benefits. Government officials in both Entities expressed commitment to the program and are working to meet the needed policy actions by the end of 2009. SOCIAL SAFETY NET AND EMPLOYMENT PROJECT (US$ 15 MILLION ­ IDA CREDIT). The development objective of the proposed project which complements the efforts under the budget support loan is threefold: (i) to support non-insurance cash transfers in reaching the eligible poor and disabled; (ii) to improve efficiency and transparency of benefit administration; (iii) to support job brokerage services for those active job seekers who become ineligible to receive cash transfers. The project has been successfully negotiated and will be presented to the World Bank Board for approval in February 2010. SMALL AND MEDIUM ENTERPRISES (SMEs) LINE OF CREDIT (US$ 70 MILLION ­ IBRD LOAN). This project was prepared as part of the crisis response package. The project will extend financing to SMEs through eligible commercial banks, thus helping with access to credit to SMEs while supporting economic prospects and jobs. The project has been successfully negotiated and will be presented to the World Bank Board for approval in December 2009. SARAJEVO WATER AND WASTE WATER DEVELOPMENT PROJECT (US$ 35 MILLION ­ IBRD LOAN). The Development objective of the proposed project is to improve access, quality, and reliability of basic local services. The project would finance priority investments in rehabilitation of water and waste water infrastructure in the Canton Sarajevo. Investments will include (i) rehabilitation of the waste water treatment plant in Sarajevo; and (ii) replacement of primary and secondary waste water transmission pipes, and other network rehabilitation. The project is scheduled for appraisal and negotiations in November 2009 and submission for the World Bank Board approval in December 2009. Information about The World Bank in Bosnia and Herzegovina is available on our website: www.worldbank.org.ba Contact: Goran Tinjic, gtinjic@worldbank.org The World Bank Country Office in Bosnia and Herzegovina Fra Anela Zvizdovia 1 (B17), 71000 Sarajevo; Phone: (+387 33) 251-518 and/or 251-500, Fax: (+387 33) 440-108