Document of The World Bank FOR OFFICIAL USE ONLY Report No. 87928-BA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FOR BOSNIA AND HERZEGOVINA FOR THE PERIOD FY12–FY15 June 3, 2014 South East Europe Country Unit Europe and Central Asia International Finance Corporation, IFC Europe and Central Asia This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Date of Last Country Partnership Strategy: August 30, 2011 CURRENCY EQUIVALENTS (Exchange Rate Effective May 1, 2014) Currency Unit = Convertible Mark (BAM) BAM 1.00 = US$ 0.709429 US$ 1.00 = BAM 1.412152 GOVERNMENT’S FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities BH Bosnia and Herzegovina BD Brcko District CAD Current Account Deficit CEFTA Central European Free Trade Agreement CPS Country Partnership Strategy CRIF Catastrophic Risk Insurance Facility DPO Development Policy Operation EBRD European Bank for Reconstruction and Development EC European Commission EIB European Investment Bank EUR Euro EU European Union FBiH Federation of BH FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility GFDRR Global Facility for Disaster Reduction and Recovery IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IFI International Financial Institutions IMF International Monetary Fund IPA Instrument for Pre-Accession IPARD EU Instrument for Pre-Accession Assistance for Rural Development JBP Joint IBRD/IFC Business Plan LFS Labor Force Survey MoFTER Ministry of Foreign Trade and Economic Relations NPLs Non-performing loans PA Protected Areas PPP Public-Private Partnership PEIR Public Expenditure and Institutional Review PEFA Public Expenditure and Financial Accountability PFM Public Financial Management R&D Research and Development RS Republika Srpska SBA Stand-By Arrangement SIDA Swedish International Development Cooperation Agency SME Small and Medium Enterprise TA Technical Assistance TF Trust Fund UNDP United Nations Development Program USAID United States Agency for International Development VAT Value Added Tax i World Bank IFC Vice President: Laura Tuck Dimitris Tsitsiragos Country Director: Ellen A. Goldstein Tomasz Telma Task Team Leaders: Anabela Abreu Per Kjellerhaug Goran Tinjic Lada Busevac George Konda Acknowledgments We would like to thank BH team members, in particular Sandra Hlivnjak (Economist, ECSP2), Simon Davies (Economist, ECSP2), Gallina Vincelette (Lead Economist and Sector Leader, ECSPE), Wolfgang Fengler (Sector Leader, ECSPF), Timothy Johnston (Sector Leader, ECSH1), Raymond Bourdeaux (Sector Leader, ECSSD), Maria Eugenia Davalos (Economist, ECPS3), Ruvejda Aliefendic (Private Sector Development Specialist, ECPF3), and Nichola Dyer (Country Program Coordinator, ECCU4) for their valuable input and comments. ii BOSNIA AND HERZEGOVINA COUNTRY PARTNERSHIP STRATEGY FY12–15 PROGRESS REPORT TABLE OF CONTENTS I.  INTRODUCTION .....................................................................................................................1  II.  COUNTRY CONTEXT.............................................................................................................3  III. CPS PROGRESS, IMPLEMENTATION AND ADJUSTMENTS ..........................................9  A.  CPS Implementation Progress to date..................................................................................9  B.  Portfolio Performance and Partnerships ............................................................................11  C.  Adjustments to the CPS Program and strategy going forward ..........................................12  IV. RISKS ...................................................................................................................................15  Annex 1: Results Matrix ..........................................................................................................16  Annex 2: List of active Bank administered Trust Funds in BH ...............................................26  Annex 3: AAA Program and Contribution to CPS Pillars.......................................................27  Annex 4: Gender Gaps in BH ..................................................................................................31  Annex 5: Key Economic and Program Indicators - Change from Last CAS ..........................33  Annex 6: BH at a Glance .........................................................................................................34  Annex 7: Selected Indicators of Bank Portfolio Performance and Management ....................37  Annex 8: IBRD/IDA Program Summary .................................................................................38  Annex 9: IFC Investment Operations Program .......................................................................39  Annex 10: Operations Portfolio (IBRD/IDA and Grants) .......................................................40  Annex 11: Map ........................................................................................................................41  iii BOSNIA AND HERZEGOVINA COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT I. INTRODUCTION 1. The Board of Executive Directors discussed the FY12-15 Country Partnership Strategy (CPS) for Bosnia and Herzegovina (BH) on August 30, 2011 (Report No. 64428- BA). This report focuses on how the Bank has responded to changes in the country context since then, and how it will position itself strategically for the remaining period. It also provides initial details on the impact of the catastrophic flooding that occurred during the finalization of this report, and on the Bank’s response. 2. In mid-May 2014, a major natural disaster struck BH, as the heaviest rainfall in Serbia and BH in 120 years of recorded weather measurement caused devastating floods and landslides. From May 13, the country saw massive flooding and over 3000 landslides. Governments declared a state of emergency on May 14, 2014, and requested international assistance. The floods touched about one third of the country’s territory, hitting hardest the northern and central flatlands, where the main agriculture industry is located. The human cost includes 25 confirmed deaths and one million people directly affected, with 40,000 evacuated and sheltered in 42 collective centers/temporary accommodation facilities. Preliminary evidence indicates the largest impact on infrastructure relating to housing, local infrastructure, transport, water and sanitation, and agriculture. 3. Initial reports indicate that damage is extensive and the productive capacity of the economy has been shattered. Side roads and over 20 bridges have been destroyed or damaged, preventing humanitarian assistance from reaching remote areas. Many crops have been completely destroyed and livestock losses are severe, with possibly over 60,000 ha of farm land affected. Water supply was severely interrupted in the affected areas; one million people were deprived of drinkable water at the peak. Animal carcasses, contaminated water and debris pose a serious threat to public health. Over 25,000 houses are damaged and 230 health and school facilities fully or partially destroyed. Land mines that had been well-marked have been dislodged and the warning signs washed away, making recovery efforts more challenging and reconstruction more hazardous. The floods have created significant strains on the supply chains for a variety of goods crucially needed to ensure the continuity of public services and economic opportunities. For example, coal mines have been flooded, resulting in an interruption of supply to the Tuzla and Uglevik thermal power plants (which together account for over one-quarter of capacity and about 35 to 40 percent of generation). The plants are running on available stocks, but these will run out in the next few weeks. 4. The authorities have requested World Bank support for a recovery needs assessment as well as an emergency recovery operation. A $150,000 Global Facility for Disaster Reduction and Recovery (GFDRR) grant has been obtained. The recovery needs assessment led by the government and supported by the Bank, the EU and the UN started on May 29, 2014. The needs assessment will guide possible project restructuring; the emergency recovery project ($57 million1, envisaged to be funded out of the Crisis Response Window) is already under preparation. This operation is to support the governments of BH in reestablishing public services and economic opportunities in flood-affected areas. It would finance emergency 1 The ongoing needs assessment will inform the exact credit amount. 1 disaster recovery goods and rehabilitation of key local infrastructure as well as technical assistance and capacity building activities for the implementation of the project. In light of BH’s imminent graduation from IDA, Board approval of this emergency operation by no later than June 30, 2014 will be sought. 5. The CPS was designed in 2011, with the overall objective of supporting BH’s EU integration, the CPS’ broad objectives are to: (i) support economic growth by improving productivity and competitiveness; (ii) improve social inclusion by strengthening the targeting and fiscal sustainability of social benefits and improving delivery of basic public services; and (iii) strengthen the sustainable use of key natural resources and improve climate change adaptation. The CPS program was built on an analysis of BH’s key development challenges and was kept flexible to reflect the continuous political uncertainty in the country. The CPS envisaged total IDA/IBRD lending of $348 million of which $148 million was IDA and $200 million was IBRD lending. IFC commitments were projected at $80 – 100 million. As of May 16, 2014, $250 million or 72 percent of the total lending envelope was committed ($130 million – IDA; $120 million – IBRD), while IFC’s commitments reached $40 million (including $7 million from IFC-Canada Climate Change Program). 6. The political system in BH is complex, reflecting the provisions of the country’s constitution established to end bitter ethnic conflict nearly twenty years ago. The general government sector consists of four units: the State (or central) level, two entities—Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS)—and Brcko District (BD). The State is governed by the Council of Ministers; each entity has its own government and local government units. In the FBiH, 10 cantons, each with its own government, represent an additional layer between the Government of the FBiH and local government units. 7. Political fragmentation and stalemate have undermined reform processes. As recognized in the initial CPS document, the risk of weak political commitment to reform and of policy reversal was significant. This risk has materialized as the authorities have failed to advance sensitive reforms of social and veteran benefits that would have improved the quality of spending. Consequently, the Bank cancelled its planned programmatic Public Expenditure DPO series. The Bank then demonstrated flexibility and engaged in preparation of a new DPO because the authorities expressed sufficient commitment to business environment and investment climate reforms. Political fragmentation and stalemate remain the principal risks for delivery of the program during the remaining CPS period. This may lead to slower than expected progress against CPS outcomes and failure to deliver the full lending program. A flexible and opportunistic approach is necessary to achieve meaningful results despite limited political cohesion and will to reform. 8. Political stalemate also undermined performance of the Bank Group program. In FY13, two projects worth $160 million (38 percent of total commitments) faced repeated effectiveness delays, and four projects were rated unsatisfactory temporarily in terms of progress either towards development objectives or implementation. FY12 disbursement performance was unusually strong, with the disbursement ratio at 40.7 percent, but in FY13 it deteriorated to 8 percent due to the effectiveness and implementation delays. At end-April 2014 it stood at 16.5 percent and is expected to reach 22 percent by the end of FY14. 9. Progress toward CPS outcomes has been satisfactory with the notable exception of fiscal consolidation associated with an aborted DPO series. The CPS has been flexible to accommodate changing client demand and political cohesion. This CPSPR revises outcomes and indicators to reflect the shift in focus away from fiscal consolidation (Pillar II) and toward 2 business climate reform (Pillar I). Three outcomes were dropped for lack of an associated program, and the rest are either achieved or on track to be achieved by the end of the CPS period. 10. BH graduates from IDA eligibility to IBRD-only status at the end of the IDA16 period. Although its per capita income has long exceeded the threshold for eligibility to IDA funding, eligibility was extended to accommodate post-conflict needs. The graduation from IDA is a complex milestone with important implications because the country has extremely limited access to international capital markets. At the same time, the country faces a notable financing gap in the medium term which is likely to widen in the outer years of the decade if the commitment to fiscal consolidation remains weak. 11. The CPS strategic focus on competitiveness, social inclusion, and environmentally sustainable development remains valid for the rest of the CPS period, and is well aligned with the World Bank Group’s twin goals of eliminating extreme poverty and boosting shared prosperity. These objectives address a still-fragile economic recovery, continued social vulnerabilities and lack of national cohesion, and the need to enhance competitiveness, growth and job creation. Specifically, the focus on enhancing competitiveness provides a foundation for job creation, opening up more opportunities for the poor and less well-off to improve their living standards and contribute to economic growth. Enhancing social inclusion is also clearly linked to the corporate goals by supporting increased access to economic opportunities for vulnerable groups, particularly to labor markets and health services. The program is also working towards promoting environmental sustainability in BH, an overarching goal of the World Bank Group. 12. The Bank Group will continue to be selective and adjust the lending program to reflect the political will to tackle structural reforms. In the course of this CPS, the Bank made a strategic shift away from deeper fiscal reform (where political will was insufficient) toward improvement of the business environment and investment climate, where ownership of reforms was sufficient across all levels of government and results would stimulate growth and jobs. For the remainder of the CPS, the IFC/IBRD/IDA program will maintain its focus on reducing poverty and achieving shared prosperity by improving the competitiveness of the economy, facilitating job creation and strengthening the delivery of basic services for the vulnerable. II. COUNTRY CONTEXT Political Developments 13. In the first half of the CPS period, a series of political crises affected implementation of the government’s programs. Continued political fragmentation marked the period 2011- 2013. State-level Council of Ministers formation took 18 months after the October 2010 elections and as a result, the State level budget for 2012 was not adopted timely. Beyond stymying structural reform efforts, that situation temporarily jeopardized foreign debt service. Reshuffling of the FBiH government has not been completed 23 months after the June 2012 breakup of the ruling coalition. In the RS, the government resigned in block in February 2013, but a new government was formed the following month. Overall, the internal political stalemate weakened the country’s progress toward EU accession and delayed implementation of structural reforms, including those earlier agreed upon with the IMF, the World Bank and the EU. More recently, the government has made some progress on structural reforms with the support of the IMF and the Bank. Both entities are now processing important reforms aimed at improving the business environment and investment climate. The FBiH also adopted a pension strategy aligned with the Bank’s recommendations. 3 14. The domestic political situation continues to pose the most important risk for BH’s development and for EU accession. A 2009 ruling by the European Court of Human Rights (the “Sejdic-Finci” case) stated that BH needs to reverse a situation created under the Dayton peace agreement that prevents ethnicities other than Serbs, Croats and Bosniaks from holding elected positions. As a result of this and a lack of movement on an EU coordination mechanism and on trade issues, the last EU Progress Report noted little advancement on the path to EU membership. The EU reduced by around EUR47 million ($60 million) the 2013 Instrument for Pre-Accession (IPA) funding for BH, and suspended discussion of further IPA-2 financing for the 2014-2020 period pending progress in these areas. Recent Economic Developments and Outlook 15. BH’s economy performed poorly in 2012 due to weak internal and external economic environments. After two years of fragile recovery from the 2009 recession, BH experienced a second downturn in 2012 (Table 1). Deteriorating external conditions, especially the prevailing uncertainty in the Euro zone, a severe winter at the start of 2012, and wildfires in the second half of that year all negatively affected economic activity. Consumption, investment, and exports each slumped in 2012. Industrial production also dropped, mainly due to weak external demand for BH exports. 16. A surge in exports supported a modest economic recovery in 2013. After 14 consecutive months of negative growth rates, industrial production picked up by 4 percent in the first ten months of 2013. Manufacturing grew by 9.7 percent compared with the same period in 2012 - significantly higher than the 5.7 percent in September - and intermediate goods by 15.6 percent, suggesting some revival in the manufacturing sector. Exports of goods grew by 9 percent in the first three quarters of 2013 compared with the same period of 2012. Internal and external risks to this recovery remain, including a slow recovery in the EU, which could prejudice exports, and a slow-down in fiscal revenues, which would affect the 2014 budget. Economic and political risks are discussed in more detail below. 17. Macro projections were prepared prior to the floods and will be updated once the damage and loss assessment is completed. The impact of the recent floods on economic activity in BH is not known yet, however downward pressure on the recovery is expected in 2014. Preliminary information indicates that agriculture, industry, and mining are especially affected. The floods have harmed numerous small and medium size businesses in manufacturing and farming, and have hit predominantly areas with low and middle income households. Reconstruction efforts will partially counteract the negative effect on economic activity, provided adequate financing for reconstruction becomes available. A pickup in construction activities, investment and consumption (as lost items are gradually replaced) is expected. With increased domestic activity, a reversal of the current deflationary trends is possible. 18. The currency board continued to support monetary stability and inflation remained low into 2013.2 Inflation was around 2 percent in 2012 (with core inflation below 1 percent) and the country experienced deflation of 1.5 percent in the first ten months of 2013. International reserves, which are crucial to maintaining monetary stability, remained at a comfortable level during 2013 (at around 5 months of imports). Given BH’s reliance on a currency board which 2 BH operates a currency board, under which the Bosnian convertible mark (KM) is convertible to the Euro at the fixed rate of KM 1.96:EUR1. 4 limits the scope for monetary policy, flexible labor markets and sustainable fiscal policies are exceptionally important to maintain macroeconomic balances and boost economic growth. 19. Labor market participation and employment remain stubbornly low and below pre- crisis levels. Preliminary 2013 Labor Force Survey (LFS) results indicate that labor market participation in 2013 is just under 50 percent of the working age population. The employment rate in 2013 remained one percent below the 2008 (pre-crisis) level of 33 percent. The unemployment rate at 28 percent remained elevated compared with 23 percent in 2008. Unemployment is particularly high among those without tertiary education, women, and young people. The poor investment climate and labor market rigidities have greatly contributed to the persistent unemployment problem in BH. Labor market outcomes are poorer for those in the bottom 40 percent of the income distribution, as they have lower employment rates than the rest of the population due to higher unemployment and lower participation rates. 20. After two years of large current account deficits, the external deficit narrowed in the first half of 2013. From 9.6 percent in 2012, the trade deficit declined to around 6 percent of GDP in the first three quarters of 2013, thanks to higher exports of electricity and goods. Imports of goods were 3.6 percent lower in the first three quarters of 2013 than during the same period of 2012. A blend of foreign direct investment (FDI), grants, foreign credit and remittances financed the external account. FDI performed well in 2013, with investments totaling 2.6 percent of GDP in the first three quarters of the year compared with 1.9 percent in the first three quarters of 2012. However, a part of this increase was due to a surge of investments from Croatian companies wanting to maintain access to CEFTA markets following Croatia’s accession to the EU in mid- 2013. FDI slowed considerably in the third quarter of 2013. 21. Remittances continued to be an important source of financial flows for BH. Remittances held up during the crisis and remain a major part of foreign financing. In 2012, remittances in the narrow definition (workers’ compensation and remittances) amounted to 10.8 percent of GDP and in the broader definition (narrow definition plus private current transfers) to 16.6 percent of GDP. Remittances were largely unchanged in the first three quarters of 2013 but have declined slightly as a percent of GDP. 22. Although the banking sector remained relatively stable in 2013, a high level of non- performing loans (NPLs) continues to plague the system. Many of the foreign-owned banks, which dominate the banking system, gradually deleveraged in the years after the global financial crisis. Some of the largest banks in BH shrank their balance sheets to repay deposits or loans from their parent banks. Banks’ foreign liabilities, which accounted for 31 percent of total bank liabilities at end-2008, represented 18 percent at end-2012 and fell further to 15.6 percent by October 2013. Moreover, the quality of banks’ credit portfolios deteriorated for the fourth year in a row alongside the stagnant economy, pushing NPLs to 14.3 percent of total loans at end-June 2013. Provisioning for these rising NPLs, is at around two thirds. Although reliance on parent banks has declined, continued global financial market turbulence or a further downturn in Europe could make it more difficult for banks to raise funds from parent groups if required to deal with NPLs. In addition, the regulatory framework for dealing with NPLs needs further strengthening. 23. BH faces significant fiscal challenges exacerbated by declining revenues. The authorities began fiscal consolidation in 2010 and reduced the deficit to 2.6 percent in 2012 from 5.5 percent of GDP in 2009. In 2012, weak economic performance brought revenues down by 1.3 percent of GDP, with direct taxes and social security seeing especially large falls. To maintain a sustainable fiscal stance in the face of declining revenues, the authorities took some measures to reduce expenditures, but government spending remains overly concentrated in non- 5 growth enhancing areas. Efforts to contain current spending in 2012 were weak. Wages and social benefits together amounted to 27.7 percent of GDP in 2012. Social benefits are not adequately targeted with only an estimated 37 percent reaching the poorest quintile and over 12 percent going to the wealthiest quintile in the country. This leakage is largely due to excessive spending on war-related benefits, which tend not to reach the neediest. 24. The extension and augmentation of the Stand-By agreement with the IMF in January 2014 will continue to support the financing of the 2014 budget. The BH public sector financing needs for 2014 amount to around 4 percent of GDP, of which 1.4 percent is the deficit and the remainder debt amortization. In January 2014, the IMF completed the fifth review of BH’s economic performance under a 24-month SBA and extended the program through end- June 2015 to provide an anchor for economic policies during the election period and the political transition. 3 However, the IMF has not been able to complete the sixth review under the SBA as some fiscal targets and structural benchmarks were not met. 25. Total public debt is considered broadly sustainable. At the end of 2012, BH’s public debt reached 45 percent of GDP, of which 28 percent was external debt. This external public debt is predominantly on concessional terms to international financial institutions (IFIs). Total public debt is expected to decrease slightly to below 45 percent in 2013. 26. The medium-term macroeconomic framework assumes a slow economic recovery in the region and in the EU in 2014 (Table 1). Overall, the economy is estimated to have grown by 0.8 percent in 2013 and is expected to expand by 2 percent in 20144, driven mainly by recovering export demand. Over the medium term, growth is projected to increase gradually to around 4.0 percent by 2016, based on increased exports and continued stable inflows of remittances. Significant progress in implementing structural reforms will be important if BH is to achieve faster economic growth than currently foreseen. 27. Strengthening public financial management, including debt management policies and practices, as well as focusing spending on growth-enhancing areas, will be an integral part of reinforcing fiscal sustainability and ultimately increasing BH’s medium-term economic potential. 28. The medium to long term growth potential of BH’s economy is also constrained by a weak business environment. BH, ranked 131st out of 185 economies worldwide on the Doing Business index, is the worst-ranked country in Southeast Europe. Businesses face a large bureaucratic burden, complex governance structures, overlapping provisions between different levels of government and lack of transparency and consistent enforcement. 29. External and internal risks threaten the macroeconomic outlook. Since the outlook assumes sufficient recovery in Europe for BH to see continued export growth, external risks are related to deterioration in the European economy and a potential rise in interest rates due to monetary policy tightening in the US and EU. The EU countries remain BH’s largest trading partners, hence an anemic recovery of the Eurozone would have a negative effect on BH’s economic outlook through a number of channels: a reversal of the increase in exports seen in the 3 The authorities entered into a 24 month Stand-By Arrangement (SBA) with the IMF in September 2012. On Jan 31, 2014, the SBA was extended by nine months and five days, increasing access by SDR 135.28 million to meet additional financing needs expected to arise mainly in late 2014. 4 This estimate was prepared prior to the 2014 floods; growth projections will be updated once the damage and loss assessment is completed. 6 first half of 2013; a potential reduction of remittances; and a potential decrease of capital flows. The Bank is adjusting its support to help address some of these risks by supporting alignment to relevant EU systems, including EU inspections systems for export promotion. In addition, as liquidity conditions tighten in the US and, eventually, the EU, interest rates could increase, making it more challenging for the entities to raise financing through short-term debt. Internal risks are posed primarily by the challenges of reconstruction following the devastating floods and by domestic politics. BH’s political environment presents a tough background for reforms; the October 2014 general elections are likely the single largest risk for implementation of planned reforms. To address these risks, the Bank Group is ramping up stakeholder engagement across entities and political parties. Also, financial sector vulnerabilities, including the high level of NPLs and lack of an adequate regulatory framework, persist. The Bank is paying greater attention to the financial sector through increased monitoring and analysis as well as technical assistance to the Financial Stability Unit of the Central Bank. 30. BH will no longer have access to IDA funding at the end of this IDA replenishment. The last IDA resources will be delivered this fiscal year. This is a complex milestone with important implications as the country has extremely limited access to international capital markets. The country is facing a notable financing gap in the medium term, and the cost of filling that gap will rise as the country’s access to concessional financing ends. Access to IBRD resources will be consistent with a strong and continued lending program after graduation from IDA, in line with the country’s performance and IBRD capacity. Table 1. Key economic indicators for Bosnia and Herzegovina  2011 2012 2013 2014 2015 2016 Est. Proj. GDP Growth 1.0 -1.1 0.8 2.0 3.5 4.0 Inflation 3.7 2.0 0.3 1.1 1.5 1.9 Unemployment rate 27.6 28.0 28.0 … … … in percent of GDP Consumption 108.7 108.6 106.2 106.4 105.4 104.6 Gross capital formation 15.7 16.0 16.6 16.3 16.4 16.2 National Savings 6.8 6.3 8.6 8.7 9.4 10.1 Saving-Investment balance -8.9 -9.7 -8.0 -7.6 -7.0 -6.1 Fiscal Sector Revenue 46.1 46.3 45.9 46.2 45.7 45.7 Expenditure 48.9 49.0 48.1 47.5 47.0 46.5 Fiscal Balance -2.9 -2.7 -2.2 -1.4 -1.3 -0.8 Public debt 40.5 45.1 44.9 42.8 40.2 37.4 External sector Current Account Balances -9.9 -9.7 -7.9 -7.6 -7.0 -6.2 External Debt 49.1 52.4 53.0 53.9 52.4 49.5 FDI (Net) 2.1 3.4 2.8 2.3 2.3 2.3 Gross Official reserves (in months of imports) 5.4 5.4 5.2 5.1 4.9 4.6 Social Developments 31. Living standards were rising and poverty declining prior to the 2008 crisis, but past gains likely were eroded since. The period 2004-2007 was marked by strong GDP growth averaging 6 percent per annum. Headcount poverty--measured as the fraction of the population 7 with incomes below BAM 205 per person per month—was 14 percent in 2007, almost 4 percentage points less than in 2004. Poverty was assessed to be primarily rural, with rural poverty twice as high as that in urban areas, and three out of four poor people living in rural areas.5 Although poverty estimates are not yet available post 2007, empirical simulations suggest that the GDP decline over the last years has led to a rise in poverty. Data restrictions currently prevent the estimation of a shared prosperity indicator for BH.6 32. Widespread poverty and high unemployment triggered massive protests throughout the country in February 2014. The protests quickly spread from Tuzla, once the industrial center of the country, to main cities across BH. Initially violent, they continued more peacefully afterwards with protesters demanding new and accountable governments, jobs, fight against corruption, and social equality. 33. BH has made significant progress in promoting gender equality, yet gender gaps remain particularly in access to economic opportunities and agency. Significant gender gaps persist in labor markets, with low female labor force participation rates (32.5 percent in 2013) and lasting gender wage gaps. Moreover, gender inequalities in agency also exist in the country, with relatively fewer women than men participating in politics and leadership positions. Although data are limited, the high incidence of domestic violence is also a source of concern. Annex 5 and Box 1 (below) present more details on the gender situation in BH. Box 1: Gender issues are being integrated into the Bosnia and Herzegovina program The World Bank Group program in BH proactively mainstreams gender issues to address existing inequalities. First, for all projects in the pipeline, gender issues are being considered and included from the early stages. For example, the recently approved (FY13 Q2) Real Estate Registration Project includes raising public awareness of legal rights of women and producing sex-disaggregated data on real estate ownership to narrow gender gaps in women’s access to assets. Second, the gender dimension is also being actively incorporated in selected projects in the portfolio. The ongoing Irrigation Development Project is strengthening its gender dimension through (i) a project desk review to identify opportunities to address gender inequalities, and (ii) engaging in discussions with the Project Implementation Unit and relevant key stakeholders, together with a gender specialist, to identify, address and raise awareness on gender challenges in the project area. Furthermore, in the context of the Real Estate Registration project, the Bank organized (with grant funds from the Umbrella Facility for Gender Equality of the World Bank) a regional leadership training for key Government and non-Government stakeholders in the Western Balkans on land and gender issues, including those from BH. The objective of the training was to promote practical and proactive sector reform initiatives to modify attitudes, norms, and systems in order to facilitate women’s land acquisition and full utilization of land and property rights. Finally, BH will benefit from analytic and advisory activities with important gender components, including analytical work on employment and job creation, the existing regional program on poverty, the Gender Monitoring in the Western Balkans program and the activities under the recently approved Trust Fund “Promoting Gender Equality in the Western Balkans” with support from the Swiss Agency for Development and Cooperation and with a focus on women’s access to economic opportunities. 5 As per the 2009 Poverty Update. 6 Due to restrictions in data access, available poverty estimates are only available up to 2007. However, a recently signed MoU with the statistics offices is paving the way to providing more updated poverty and shared prosperity numbers and analyses. 8 III. CPS PROGRESS, IMPLEMENTATION AND ADJUSTMENTS A. CPS IMPLEMENTATION PROGRESS TO DATE 34. Progress towards CPS outcomes has been satisfactory for the competitiveness and environmental sustainability pillars but less so for the social inclusion pillar. The CPS has been flexible to accommodate changing client demand and political cohesion. As a result, out of the original CPS outcomes for Pillar 1, two (Improved commercial use of the Sava river corridor and Improved confidence in the financial statements of business entities, including SMEs, by using accounting standards adapted to their size) were dropped and three revised. The two outcomes were dropped because associated Bank programs were not pursued. Two new outcomes were added to reflect the increased focus on business climate reforms. Of the ten outcomes now included in Pillar 1, three have been fully or partially achieved and the remainder are on track to achieve expected results by end-FY15. For Pillar II, the planned outcome of fiscal savings equal to 1.8 percent of GDP through improved targeting of social and veteran benefits was dropped because the programmatic Public Expenditure (PE) DPO series, which was the cornerstone of this pillar, was terminated due to lack of commitment of the entity governments to implement the reforms. The other three outcomes under this pillar are on track to achieve expected results by end-FY15. For Pillar III, of the three outcomes, one has already been fully achieved, while two are on track to be achieved by the end of the CPS period. Pillar I – Competitiveness 35. The Bank Group’s program was effective in enhancing competitiveness and contributing to job creation. The program was anchored in analytical work on competitiveness carried out during the previous CPS (see Annex 3). IDA investments in road infrastructure, in partnership with EBRD and EIB, rehabilitated 220 km of roads and helped reduce user costs by almost 18% in the FBiH and by 10.5% in the RS, which exceeded the target of 10%. IBRD financing enhanced access to capital for small and medium enterprises (SMEs) during the financial crisis. The original loan of $70 million was fully disbursed in 2011 and 2012, and 110 SMEs received loans from participating commercial banks. It is estimated that these loans helped sustain 4,000 jobs and create 1,120 new jobs. Additional IBRD financing of $120 million was approved in response to the government’s request for continued intervention in improving access to financing for SMEs. To complement the countercyclical IDA and IBRD crisis response, the IFC invested $40 million to support capacity expansion and energy efficiency improvements of the largest producer of glass, soda ash, and related chemicals in the country, and to support a local company exporting precision tools for the automotive, electrical and ski industries. 36. Efficient registration of real estate helped develop transparent land markets. Property registration transactions, which used to take several months to complete, are now completed in one day in larger urban centers thanks to the IDA-financed Land Registration Project. The project also helped reduce the backlog of pending cases from 80,000 in 2006 to 18,200 in 2012. 37. IFC focused on reducing costs and risks of doing business through improving the business environment and investment climate. IFC is helping the BH authorities to adopt a new and modern law on FDI that would simplify export-import procedures and is expected to yield significant savings for businesses. IFC assisted local governments to simplify over 800 business related permits and licenses, resulting in over $40 million in private sector savings. 9 Going forward, IFC will continue to provide advisory services in the key areas related to investment climate improvements. With financial support from a Swedish grant, IFC and IBRD will jointly work to help with streamlining and reorganization of the inspection functions, processes and legislation in accordance with EU requirements. 38. The Bank demonstrated flexibility and restructured the Agriculture and Rural Development project in response to an urgent need to assist farmers in flooded areas. That assistance included provision of seedlings and greenhouses, as well as investments in rural infrastructure. Competitiveness of the agriculture sector will be further improved through investments in irrigation systems that will be financed by IDA. With IFC’s assistance, state level institutions adopted the Food Labeling Rulebook, which is expected to facilitate local food producers’ access to the EU market. Given that poverty in BH is primarily rural, these interventions are expected to contribute to the government’s efforts to increase economic opportunities for the poorest 40% of the population. 39. In the infrastructure sectors, IFC’s objective is to increase private sector participation by mobilizing private investments and the granting of long-term concessions. IFC is the lead advisor helping the FBiH Government to attract private investments through a public-private partnership (PPP) transaction for a 40 km section of the country’s 5c highway corridor, part of the Pan-European transport corridor. The project is expected to attract EUR350 million worth of investment. Also, IFC supported entity governments in drafting 18 pieces of legislation aimed at unlocking a renewable energy market worth EUR900 million (660 MW total capacity); from among these, the governments have already adopted four critical laws. 40. In the financial sector, IFC has signed a Trade Finance Line with a foreign bank, to enhance its ability to provide export finance, thus contributing to export growth. IFC will continue working with financial intermediaries to provide better access to finance for the private sector, and especially for micro, small and medium enterprises. With IFC’s assistance, three leading microfinance institutions were certified to adhere to the highest standards in client protection in the microfinance industry (SMART campaign). IFC recently partnered with eight municipalities to support debt counseling to over-indebted individuals or small businesses, mainly clients of microcredit institutions. Pillar II – Social Inclusion 41. Guided by the Bank’s analytic work on poverty and social assistance,7 which was reinforced by the conclusions of the Public Expenditure and Institutional Review (PEIR) in 2012, the CPS greatly focused on enhancing the quality and efficiency of public spending. Following the global financial crisis, in 2010 the Bank launched a programmatic Public Expenditure DPO series. While DPO I ($111 million) was disbursed in 2010 after the authorities successfully legislated reforms of cash transfers, the Bank dropped DPOs II and III as structural reforms stalled in 2012, with entity governments stating that they no longer enjoyed the political and social support needed to undertake the reforms. In contrast, businesses and governments in both entities as well as the State government expressed support for investment climate reforms to enhance growth and create jobs. 7 Policy note on Social Assistance Transfers in BH – Moving Toward a More Sustainable and Better-Targeted Safety Net – April 2009; and Protecting the Poor during the Global Crisis – Poverty Update – December 2009. 10 42. As a result, the Bank shifted towards greater support for Pillar I activities through business environment reforms, and scaled down the associated Pillar II lending. The Bank Group initiated a new DPO to support post-crisis growth through improvements in the business environment and investment climate. This growth-oriented reform program is deemed less politically and socially controversial than the earlier fiscal consolidation reforms. 43. Nevertheless, the Bank has maintained a policy dialogue with BH counterparts on public spending and fiscal matters. Technical assistance on pensions and planned technical assistance on public health financing stem directly from the PEIR recommendations. As a result, the FBiH recently adopted a new pension strategy. In addition, through the debt management technical assistance, the Bank is supporting prioritization and production of a coordinated plan of action to strengthen debt management practices. 44. The Social Safety Net and Employment Support Project has been effective in extending job brokerage for vulnerable job seekers. The project achieved the objective of extending job-brokerage services to 10,000 active job seekers among hard-to-employ categories (disabled, long-term unemployed etc). Furthermore, policy dialogue contributed to adoption of the new law on social protection in RS aimed at improvement of targeting of social benefits in this entity. Finally, ongoing technical assistance on options to improve poverty targeting criteria for social assistance programs will be incorporated in the new social assistance legislation which is planned to be introduced in FBiH during 2014-2015. Social assistance targeting in RS is also expected to benefit from incorporation of additional poverty indicators. 45. IDA financing is proving effective in enhancing health system efficiency through strengthening of primary health care along the family medicine model. Population coverage through family medicine teams reached 1.25 million in FBiH and 1.03 million in RS, well on track to meeting the targets of 1.5 million and 1.25 million respectively, or 70 percent coverage of the population by the end of 2014. Given the demographic and epidemiological profile of the population in BH these are critical elements to increase shared prosperity by improving the health status of the population and contributing to reducing out-of-pocket expenditures on health. Pillar III - Environmental Sustainability 46. Bank support is helping to reduce pollution from municipal sources into the Neretva and Bosna rivers and consequently the Adriatic Sea and Danube basins. Bank support strengthened water management through already-completed rehabilitation of the waste water treatment plants in four sites. Rehabilitation of a fifth plant is underway, while rehabilitation of two more plants is expected to be completed during FY14-15. In partnership with the EU, IBRD will significantly upgrade waste water infrastructure in Sarajevo, thus reducing pollution of the Bosna River from the country’s biggest urban center. 47. Coverage of protected forest and mountain areas has increased. The GEF Forest and Mountain Protected Areas project expanded the protected area to 5.5 percent or 280,921 ha, exceeding the goal of 3 percent or 140,000 ha coverage by the end of the project in FY14. B. PORTFOLIO PERFORMANCE AND PARTNERSHIPS 48. After a strong performance of the Bank’s investment portfolio in FY12, continued political stalemate negatively affected overall portfolio performance in FY13. The Bank’s active portfolio currently consists of 12 investment operations with commitments totaling 11 $454.6 million (IDA – $184.1 million; IBRD – $250 million; GEF grants – $14.5 million). In addition, the active recipient-executed trust fund portfolio amounts to $33 million. The period FY10-FY12 saw a healthy portfolio and strong disbursement performance. However, FY13 was marked by a slowdown of project implementation. The political situation delayed effectiveness of recently-approved projects (Irrigation Development Project, Real Estate Registration, and Additional Financing for Enhancing SME Access to Financing) which in turn impinged on overall disbursement performance. Portfolio performance is expected to improve in FY14 as recent restructurings start to bear results, and implementation of larger projects is accelerated. The disbursement ratio for FY14 is currently projected to reach 22 percent. IFC’s portfolio currently stands at $123.8 million, with 11 projects. Due to the complex political environment and high country risk profile, new foreign and domestic investments remain limited. 49. The Bank has developed strong collaboration with partners, in particular the European Commission. Trust funds (TFs) are integrated with the Bank Group strategy and complement projects in areas such as environment, transport and investment climate (see Annex 2). The EU approved a total of about $39 million of IPA resources, $19 million of which are effective and under implementation, as co-financing or additional financing for five Bank- supported investment projects in environment and transport. Three SIDA TFs totaling about $13.7 million complement the Bank’s efforts in improving water management, agriculture and rural development, as well as the investment climate. The Swiss Development Cooperation is the key partner for the new program on risk factors awareness. USAID and UNDP have collaborated in the preparation of the Energy Efficiency Project. Furthermore, the IMF has been a key partner in structural reforms in the social sector, which were central to the IMF’s stabilization program. C. ADJUSTMENTS TO THE CPS PROGRAM AND STRATEGY GOING FORWARD 50. A flexible CPS has been essential given BH’s difficult political economy and changing external environment. Flexibility has enhanced responsiveness to client demand, facilitating program scale-up in relevant areas and allowing the Bank Group to strategically shift support to areas most conducive to reform. In the wake of the Eurozone crisis, the Bank’s additional support to enhance SMEs’ access to financing augured a strategic shift toward private sector development. When political will to engage in sensitive public expenditure reforms proved insufficient and the Bank cancelled the originally-envisaged Public Expenditure DPO series ($200 million), the Bank Group responded flexibly by developing a new Business Environment DPO ($50 million). Indeed, the main shift in the Bank Group strategy since its inception has been to increase focus on Pillar 1 activities related to competitiveness and improvements in the business environment, and concomitantly reduce lending associated with fiscal reforms under Pillar 2. To respond to the flood emergency, support is being prepared rapidly to enable the country to access resources through IDA’s Crisis Response Window prior to BH’s graduation.8 In addition, the portfolio is being reviewed to identify projects that can be restructured to redirect resources to flood response if needed. 51. In response to changing client demand, most recently, the Bank cancelled the proposed IDA credit for the Sava Waterway Rehabilitation Project after the governments failed to reach agreement over institutional arrangements. The remaining IDA resources have 8 The proposed project would finance inter alia energy and power sector goods such as petroleum and fuel products necessary for continuous operation of the thermal electricity generation plants. 12 been used for the Drina River Basin flood preparedness project, which was advanced into FY14. All available IDA funds will be fully committed, reaching $187 million (including the emergency project), by end-FY14. In addition, IBRD lending may reach $218 million upon delivery of the new DPO in FY15 and a possible additional $48 million operation in FY15 (see para. 50), consistent with the original planned CPS lending envelope. The original CPS Results Matrix has been revised to reflect all past program adjustments as well as planned adjustments for FY14 and FY15 (Annex 1). 52. The Bank Group will continue to take a flexible approach, reflecting political commitment for specific reform programs and the adjusted strategy for FY14-15; this approach also allows for rapid response to the flood emergency. Access to IBRD resources will be consistent with a strong and continued lending program after graduation from IDA that will help Government maintain capital spending and pursue a limited structural reform agenda. Table 2. Revised CPS Lending Program, FY12-15 ORIGINAL CPS LENDING PROGRAM (US$ m) IDA IBRD Total REVISED CPS LENDING PROGRAM (US$ m) Country Regional IDA IBRD GEF Total FY12 – FY13 DPO II 100 Enhancing SME Access AF 120 Irrigation Development 40 Irrigation Development 40 CRIF 2 3 Real Estate Registration 30 Real Estate Registration 34.1 Sava Waterway Rehab 16 15 DPO III 100 FY12 - FY13 Total 88 18 200 306 FY12 - FY13 Total 74.1 120 194.1 FY14 - FY15 Sector Investment 42 Energy Efficiency 32 Regional Flood Control Drina Flood Control 24 Emergency Flood Response 57 DPO 50 Competitiveness and Jobs 48 (high case) Sustainable Forest and 5.6 Landscape Management Adriatic Sea GEF 2.4 FY14-FY15 Total 42 42 FY14-FY15 Total 113 98 211 TOTAL IDA and IBRD 130 18 200 348 TOTAL IDA and IBRD 187.1 218 405.1* OVERALL TOTAL *Total lending does not include the GEF operations (US$8.0 million) 53. In FY14 the CPS program has focused on delivering remaining IDA through the Environmental Sustainability Pillar. IDA financing will support improvements in energy efficiency and improvements of flood preparedness along the Drina River Basin. The Energy Efficiency project (FY14 Q3) will demonstrate the benefits of energy efficiency improvements in public sector buildings in the education and healthcare sectors and support the development of scalable energy efficiency financing models. The Drina flood preparedness project will provide increased protection from flood events to agricultural and commercial interests and communities in project areas, increasing resilience to recurring floods and mitigating the catastrophic impact of such floods, especially for the poorest. Finally, the GEF will also support two more projects in FY14: Sustainable Forest Management - $5.6 million (FY14 Q3) and the proposed Adriatic Sea Environmental Pollution Control - $2.44 million.  A proposed $57 million IDA emergency flood 13 response operation is under preparation, to access IDA’s Crisis Response Window before BH’s graduation at end-FY14. The ongoing needs assessment will inform the exact credit amount. 54. The Bank Group will pursue a more comprehensive approach to competitiveness and job creation in FY15, supporting a greater focus on shared prosperity. IBRD financing will support business environment and investment climate reforms through the Business Environment DPO, facilitating business start-up, streamlining investment procedures in inspections and construction, and simplifying cross-border trading processes. Depending on the outcome, a further $48 million of IBRD resources could be used, consistent with the CPS objectives, to develop a more comprehensive approach to increasing competitiveness of the economy, strengthening public finances (including public debt management) and enhancing job creation. If the appetite for further reform in this area is weak, Bank support could be re-directed toward priority investment projects such as reforming the health sector or improving the quality of the road network. Political fragmentation and upcoming elections may prohibit the entities from agreeing on a coherent reform program or identifying a priority investment operation to be supported by IBRD resources. In that case, absorption of IBRD resources may fall below this projection. 55. The Joint IBRD/IFC Business Plan (JBP) for BH, prepared in early 2013, focuses on the competitiveness pillar of the CPS while recognizing the complex and challenging environment. The JBP focuses on policies and programs for SMEs as an area of high client demand, shared WBG interest and often joint interventions. The JBP recognizes that BH has one of the most unfavorable business environments in the region, along with complex government structures, yet also desires to seek to create a single economic space. Progress has been exceptional in the short time since the JBP’s preparation. Working hand-in-hand, combined IBRD and IFC teams initiated the joint Business Environment DPO. IBRD led on the scope of structural reforms and dialogue, while IFC provided technical advice in reform implementation and country analytics, along with established stakeholder relations. Going forward, this joint approach will continue to inform a more comprehensive approach to competitiveness and job creation. 56. The key medium-term development challenges in BH are likely to remain: (i) improving the business environment and the overall competitiveness of the economy; (ii) fostering social inclusion and increasing the pace of job creation; and (iii) maintaining macroeconomic stability, including through strengthening of public financial management. During the second half of the CPS cycle and in preparation for the new Country Partnership Framework, the Bank will engage in policy dialogue with the authorities to ensure that the new program remains firmly anchored in poverty reduction and shared prosperity, with a strong focus on income growth and welfare of the poorest 40 percent of the population. This policy dialogue will be underpinned by the findings of previous and forthcoming analytic and knowledge work conducted by the Bank in BH and the Western Balkans. 57. Analytic and knowledge services in the second half of the CPS period will provide an important diagnostic foundation for preparing the upcoming FY16-19 Country Partnership Framework (CPF) in alignment with the twin goals of eliminating extreme poverty and enhancing shared prosperity. The Western Balkans Poverty Assessment provides for regular monitoring of key poverty and inclusion indicators and statistical support and capacity strengthening, and will address knowledge gaps on poverty and distributional issues, particularly as they relate to Bank-supported reforms and projects. The Regional Activation and Smart Safety Nets programmatic analytical work will provide technical support for labor force 14 participation and social safety net reforms. The Western Balkans Jobs Challenges is intended to identify the main labor market incentives, determine policy priorities and discuss policies to improve labor market outcomes. The Public Expenditure and Financial Accountability (PEFA) Assessment provided a systematic overview of the status of public financial management and quantitative key budget performance indicators. This report represented a new platform for a number of PFM policies and its findings can significantly advance the Bank’s and donor policy dialogue in the country. Building on the extensive work on debt management at both the entity and state levels, the Bank continues to support the authorities in improving debt monitoring and strategy. Through the Western Balkans Regional Research & Development Strategy for Innovation Technical Assistance the Bank will help Western Balkan countries, including BH, to identify funding instruments for the implementation of their R&D action plans. The Western Balkans Financial Sector Outlook will continue to provide a semi-annual analysis of key vulnerabilities of the financial sectors in the region, together with recommendations to mitigate them. Finally, the new regional Deep Dive: Turn Down the Heat will feature the Western Balkans, and will help develop country-specific assessments and recommendations to help BH better prepare itself for extreme climate and possible future natural hazards. Annex 3 summarizes planned and actual delivery of analytic and knowledge services for the CPS period. For IFC specifically, Bosnia and Herzegovina will remain on the list of Fragile and Conflict Affected countries, and as such a priority country to support increased investment in selected sectors and balanced advisory support. Special FCS approval protocol for investments up to $10 million has been activated. IV. RISKS 58. General elections scheduled for October 2014 will further affect the environment for reforms. The governments are unlikely to pursue substantial reforms as parties start positioning for elections. Therefore there is a risk to the Bank Group program, particularly the proposed DPO in FY15, should political instability increase and the country fail to meet all prior actions and/or the IMF SBA targets. In this case the Bank will pursue investment lending in niche areas where the government has a clear commitment to narrower sectoral reforms (see para. 50). 59. Portfolio implementation risks will remain. The Bank’s program will continue to face implementation obstacles as a result of complex political processes. This risk may be augmented after the election due to possible delays in formation of the state and entity level executives. While issues such as effectiveness delays are not completely within the Bank’s control, the Bank will continue to work closely with project units and governments to mitigate this risk by preparing procurement packages so that contracting can start immediately upon effectiveness. The recent flood disaster may bring additional challenges to portfolio implementation as government attention is diverted to address the impact of the floods; overall government capacity may be further weakened. To help address this issue in the context of the flood support, the Bank will work with existing Project Implementation Units that have demonstrated capacity and are well-versed in Bank procedures. More generally, the Bank will continue to work closely with project teams and counterparts and to provide training as needed. The Bank will also continue its collaboration with key development partners, in particular EU institutions. 15 ANNEX 1: RESULTS MATRIX CPS Instruments and Progress to date Original CPS Outcomes Revised and new CPS Outcomes Partners Pillar I - Competitiveness: Support economic growth by tackling some of the bottlenecks to competitiveness and faster productivity growth Transparent land markets developed Original CPS outcome remains valid Partially achieved. Backlog of cases Closed projects: Land through registration of real estate was substantially reduced although a Registration Project rights, and complementary policies that backlog of 18,200 remains in the (P096200) enable transactions to be made with Federation of Bosnia and Herzegonia security and efficiency (FBiH). Transactions completed within Current portfolio: Real one day for 53% of cases in Republika Estate Registration Project Baseline (2010): Backlog of 80,000 cases Srpska (RS), and 39% of cases in the (P128950) and several months (on average) to FBiH. Goal of data entered into complete transactions (2010) automated database for 1.6 million AAA: Public Expenditure folders was exceeded as 1,609,202 and Institutional Review Target (2011): Almost no case backlog folders were completed by June 2012. (FY12 delivered); and transactions completed in one day for 95% of cases. Target (2014) in case of a Partners: SIDA follow up project: further improved transparency and efficiency by making the integrated registration and cadastre information available online nationwide. New CPS Outcome: further improved transparency and efficiency of real estate registration by making the integrated Results are expected during the second registration and cadaster information half of the CPS cycle. available online nationwide Baseline (2013): no cadaster records available online. Target (2015): 20% of cadaster records available online. By 2018, 100% of cadaster records available online. 16 Improved investment climate by: a) Revised CPS outcome: Improved Results are expected during the second Current portfolio: IFC reducing costs and risks of businesses investment climate by strengthening half of the CPS cycle. Advisory Services; SIDA by improving inspection services, inspections systems in the country, TF011205 Investment business operations and exit processes; indicated by establishing the Climate. b) improving the information and data Interoperability Information System exchange system among institutions in enabling electronic data exchange BH in order to comply with respective between relevant institutions: Partners: SIDA, SECO, EU processes, and c) enabling capacity Austrian Government building within institutions Baseline: (2013): no Interoperability Information System exists Baseline (2011): 12 procedures, 23-40 days to register a business in BH. Target: (2015): Interoperability New financing: Business Information System 80% completed Environment DPO under Target (2015): Reduction in time and preparation for delivery by procedures to commence operations in Revised CPS outcome: Improved Results are expected during the second early FY15. BH for 10%, and improvement of business environment by reducing the half of the CPS cycle. investment climate through reformed cost and time for business registration: inspection services and information exchange Baseline (2013): RS - cost - KM 1,500, time - 23 days. FBiH – cost - 1,021 KM, time - 40 days. Target (2015): RS - cost - KM 750, time - 11 days; FBiH - cost KM500, time 20 days New CPS Outcome: Efficient and Results are expected during the second effective inspections regime created half of the CPS cycle. through enactment of the new inspections law (FBiH) and process of obtaining construction permits improved through enactment of the Law on construction (RS). Baseline (2013): FBiH – average number of certificates issued per day is 311. Direct costs for business, based on frequency of visits, is KM 9 million. RS – time required for individual permits on average 45 days. Direct and indirect costs 17 related to obtaining all construction related permits estimated at KM 180 million annually, based on actual frequency of requested permits in all cities and municipalities in the RS. Target (2015): FBiH – effectiveness of certificate issuance increased by 15% Direct costs for businesses based on frequency of visits is reduced by 10% after introduction of risk based inspections. RS – time to obtain construction permits is up to 15 days. KM 17 million annual direct and indirect savings for businesses. Enhance access to finance for SMEs in Revised CPS outcome: Enhanced access On track. US$ 64.0 million of funding Current portfolio: the context of the global financial crisis to finance for SMEs in the context of the had reached the SMEs by 2012. 110 Enhancing SME Access to global financial crisis; indicated by the SMEs received loans from participating Finance Baseline (2010): lending under the total amount of loans disbursed by commercial banks. It is estimated that (P111780); IFC Enhancing SME Access to Financing participating financial institutions under these loans helped sustain 4,000 jobs, investments in MFIs. project by participating financial the SME additional financing project. while creating 1,120 new jobs. IFC’s Microfinance institutions to SMEs - 0 US$ Advisory Project Baseline (2010): US$0 AAA: Western Balkan Target (2014): US$ 70 million Milestone: (2012): US$ 64.9m Financial Sector Outlook – delivered in FY13; Target (2015): US$ 154 million. Consumer Protection TA – delivered in FY13. PEFA; Western Balkans Regional R&D Strategy for Innovation. Partners: EBRD, EC, ADA, SECO, Government of Luxembourg Improved confidence in the financial Dropped National REPARIS (The Road to Europe: Program of Accounting statements of business entities, Reform and Institutional Strengthening) - TA was dropped as planned including SMEs, will enhance access to EU financial support for the activity was not provided. finance and alleviate the administrative burden on SMEs by using accounting standards adapted to their size 18 Baseline (2010): Partial implementation of the EU acquis communautaire as it relates to corporate financial reporting. Uneven application of international standards for financial reporting. Target (2015): Better implementation and application of the EU acquis and international standards. Stronger State and Entity institutions Original CPS outcome and baseline On track (food safety): Farm and client Current portfolio: deliver more efficient and effective values remain valid. register operational in both Entities. RS Agriculture and Rural agricultural services. to upload data in harmonized register. Development Project State Veterinary Office operationalizing (P101213) Baseline (2010): Lack of adequate farm National Livestock registry for large Partners: SIDA, EC. and client livestock registers necessary for livestock, small ruminants and pigs 50% tracking of direct payments and tracking achieved. Residues laboratory testing of livestock movement. Lack of effective capacity under development. Food demand driven extension services. Safety Agency with State Veterinary Regulatory framework under Office developed hygiene package development by the Food Safety Agency, adopted by the Council of Ministers. Agency for Plant Health Protection, and Agency for Plant Health Protection the State Veterinary Office to established digital phyto-register with operationalize registries, and inspections multiple modules and completed border services. Capacity building at pest inspection manual. State Food laboratories under way. Draft extension Safety regulatory framework strategies in both entities completed. substantially developed, in process of Drafts lack strategic vision to develop harmonization with Entity inspection sustainable system. services. Food Safety Agency increasingly assuming its risk Target (2012): 50% of holdings Revised target (2015): food safety - assessment capacity role in line with registered in central farm and client 100% of holdings registered in identical recent amendments to food safety registry; 70% of large livestock registered Entity based farm and client registry. legislation. in the national register. 60% of regulatory 100% of large livestock, small ruminants framework approved by the Council of and pigs registered in the animal registry Ministers. with accurate data as confirmed by field checks of 10% of stock. Phyto-register operational. 80% of regulatory framework compliant with EU and 19 approved by the Council of Ministers and harmonized with entity Laws for inspections and with clear assignment of responsibility for operator databases in both Entities. Revised target (2015): paying system - On track with delays (paying 100% of EU IPARD like payments and systems): No progress with regard to the direct payments made through transparent establishment of a State-level single paying system based on farm and client paying agency and authority. Both register data operating in both Entities. Entities working on establishing paying Ministry of Foreign Trade and Economic systems to capture both IPARD and Relations has limited direct access to Direct Payments. In 2012, 45% of the manipulate database and generates agricultural payments in the RS were in regular reports of agriculture payments in the form of structural investment both Entities and publishes consolidated (IPARD like). In FBiH some 10 - 30% reports of agricultural payments are made as structural investments. In FBiH, substantial progress has been made to strengthen programing and develop systems to coordinate with cantonal structures to harmonize payments. Improved performance of the Original CPS outcome remains valid On track: four large civil works Current portfolio: irrigation systems and the irrigation contracts for irrigation systems Irrigation Development institutions to support agricultural development are underway, and when Project (P115954). producers. completed incremental areas with improved irrigation systems will be New financing: Regional Baseline (2011): 0 ha with improved approximately 3,900 ha. Flood Control Project irrigation system, and no incremental (FY14) – outcomes will irrigation water added; no new operations not be achieved during this and maintenance agreements signed with CPS cycle. water users associations, and operations Partners: EC, WBIF and maintenance fee collection rate 30% Target (2014): 3,500 ha with improved Revised target (2015): 3,900 ha with irrigation system, 10 million m3 of improved irrigation system, 10 million incremental irrigation water added, 4 new m3 of incremental irrigation water added, operations and maintenance agreements 4 new operations and maintenance 20 signed, rate of operations and agreements signed, rate of operations and maintenance fee collection above 30%. maintenance fee collection above 30%. BH participates in the SEE energy Original CPS outcome remains valid Partially achieved. The ECSEE APL3 Closed project: ECSEE market, and is meeting requirements project supported the government’s SEE APL3 (P090666) for integration into the EU energy and EU market integration efforts with Partners: KfW, EBRD, market successful outcomes on market EIB liberalization for no-residential Baseline (2005): electricity generation - customers, environment and financial New financing: Energy 12,800 gWh. In 2009, generation and and management systems, as well as Efficiency - outcomes will export reached record levels. Regulatory partially achieved outcomes on markets, not be achieved during this framework for renewable energy projects distribution, generation assets and dam CPS cycle; IFC not enacted. Twenty renewable energy safety. In terms of electricity investments in renewable projects developed. generation, target was fully achieved. In energy. terms of renewable energy, IFC Target (2012): Equal or greater supported entity governments draft 18 AAA: IFC advisory electricity generation. Number of laws / pieces of legislation. Four key laws have services. regulations /amendments enacted on already been enacted (Decree on entity level 12: (FBiH 6; RS 6). No of Renewable Energy Sources and renewable energy projects implemented - Cogeneration, Renewable Energy Law 60. As a result of new renewable energy RS, Law on Concessions RS, Law on plants – 0.5 MtCO2e/year avoided. Renewable Energy and Efficient Cogeneration FBiH). Upgraded road network, and reduced Original CPS outcome remains valid Achieved. Decline in vehicle operating Closed project: Road user costs on the priority sections. costs of 17.75 percent in the FBiH, and Infrastructure and Safety 10.5 percent in the RS, compared to Project (P100792). Baseline (2010): the FBiH Road baseline values. Directorate and the RS Road Directorate AAA: IFC’s Private Public collect data on road user costs for Partnership advisory rehabilitated road sections. mandate. Target (2012): 10% road user cost reduction. Improved commercial use of the Sava Dropped Project was cancelled Partners: EC IPA TF (EUR river corridor (Croatia, BH, and 5.6 million) finances Serbia) in BH. preparatory activities such as feasibility studies and 21 Baseline (2011): sections of the river are demining. not navigable. Target (2017): Priority sections of the Sava river returned to navigability. CPS Instruments and Progress to date Original CPS Outcomes Revised and new CPS Outcomes Partners Pillar II - Inclusion: Improve the delivery of public services for the vulnerable and the targeting and fiscal sustainability of social benefits to the poor Increased share of social benefits reach The target related to fiscal savings is Current portfolio: Social the poorest. Fiscal savings resulting dropped due to the failure of the Public Safety Net and from reforms of cash transfers equal Expenditure DPO. Employment Support 1.8% of GDP. More effective job Project (P116774). brokerage services extended to the Revised CPS outcome: Increased share On track. Job-brokerage services were vulnerable active job-seekers. of social benefits reach the poorest. extended to 10,000 vulnerable active job AAA: Western Balkan More effective job brokerage services seekers. In the FBiH, 70% are employed Poverty Assessment; Baseline (2011): it will be established extended to the vulnerable active job- one year after receiving services. Poverty TA, Pension TA. with the 2011 Extended Household Based seekers. Development of the new eligibility Smart Social Safety Nets Survey. Job-brokerage services extended determination processes and formulae is TA to 1,468 vulnerable active job-seekers. Baseline (2013): Means testing of last- underway based on EHBS 2011 survey. Legal framework in place for resort social assistance exists but New social assistance legislation with implementation of means/income testing targeting to the poorest needs to be comprehensive income test is adopted in for non-insurance cash transfers. Bylaws improved. Job-brokerage services are the RS. New social assistance law is regulating means/income thresholds need extended to 1,468 vulnerable active job- under preparation in the FBiH. to be adopted. seekers. Target (2014): Improved targeting Target: (2015): Social assistance laws accuracy by 25%. Job-brokerage services adopted with improved means testing of extended to 10,000 vulnerable active job- last-resort social assistance benefits. Job- seekers, 35% are employed one year after brokerage services extended to 10,000 receiving the services. Means/income vulnerable active job-seekers by the end testing underway for selected vulnerable of 2014, 35% of them stay employed one categories. Fiscal savings equal 1.8% of year after receiving the services. GDP. Reduced incidence of non- Revised CPS outcome: Increase access On track. Coverage of population Current portfolio: Health communicable diseases through to quality family medicine primary health through Family Medicine (FM) teams Sector Enhancement increased access to quality family care with special focus on primary and reached in FBiH: 1,250,000 and in RS: Project Additional 22 medicine primary health care. secondary prevention of non- 1,034,229. A pilot program introducing Financing (P088663) communicable diseases payment incentives for primary and New Swiss TF – anti- Baseline (2010): about 58% of population secondary prevention of NCD under tobacco covered through family medicine (FBiH: Baseline (2010): about 58% of implementation in the FBiH. 1,000,000; RS 1,200,147). population covered through family Partners: Council of medicine (FBiH: 1,000,000; RS Europe Development Target (2014): about 70% of population 1,200,147). Bank. covered (FBiH: 1,500,000; RS: 1,250,000) Target (2014): about 70% of population covered (FBiH: 1,500,000; RS: 1,250,000) Original CPS outcome remains valid On track. Number of unserved Current portfolio: Solid Improved availability, quality, households reduced for 50,000 Waste Management II environmental soundness, and financial equivalents to 6.5% reduction. (P107998) viability of solid waste management Extension of regional solid waste services. management system ongoing but with Partners: EC IPA TF grant delays. Rehabilitation of regional financing (EUR 8 million) Baseline (2010): 75% of households in landfills ongoing in five regions. This supports investments in targeted area not served by the formal will result in significant increase of Banja Luka, and Mostar, waste management system. 145 of percentage of households served by and will be extended to estimated 1,200 wild dumps closed. formal waste management system both Bos. Krupa, Neum, in RS and FBiH. Srebrenik and Sarajevo Target (2015): number of unserved sanitary landfills. SIDA households reduced by 50%. 25% of wild financing – focusing on dumps closed. collection – complements Bank financed activities. Progress to date Original CPS Outcomes Revised and new CPS Outcomes CPS Instruments and Partners Pillar III - Environmental Sustainability: Ensure a sustainable use of natural resources, such as water and forestry, which are key to economic growth in BH, and adapt to climate change. Promote the sustainable development of basic municipal services Reduction of the population’s exposure Original CPS outcome remains valid On track. Works on the sewerage Current portfolio: Sarajevo to highly polluted water from Miljacka network in Sarajevo nearly completed. Waste Water Project and Bosna rivers, and improved waste Contracting (supply and install) (P090675). water collection in the Sarajevo underway for the works on Sarajevo Partners: EC IPA TF grant Canton. wastewater treatment plant. financing (EUR 8 million) 23 Baseline (2010): 0 m3/day of waste water will close the financing collected treated at primary level. 0 gap identified in Sarajevo connections rehabilitated. Waste Water project. EBRD financing will Target (2014): 200,000 m3/day treated at complement the Bank primary level. 48,000 connections financing. rehabilitated. AAA: Vrbas River basin management (P117927) – delivered in FY13. Reduced pollution from municipal Original CPS outcome remains valid On track. Numeric values on the Current portfolio: sources into the Neretva and Bosna, percentage of municipal wastewater Water Quality Protection - subsequently reduced pollution in the treated in accordance with the net GEF (P085112); Neretva Adriatic sea and Danube basin, and standards will be available by the end and Trebisnjica more sustainable water management. 2014 once all the works are completed. Management - GEF The rehabilitation of the wastewater (P084608). Baseline (2010): 5.5% of municipal waste treatment plants in Trnovo, Odzak, and water is treated and discharged according Bileca were completed and the plants Partners: EC IPA TF grant to standards. No integrated water are fully operational. A reduction in the financing (EUR 1.5 management in any river. level of municipal-sourced pollution of million) supports the Bosna river has been confirmed and investments in Zivinice Target (2015): 11% of municipal in line with technical specifications and and Mostar waste water wastewater treated in accordance with standards. The rehabilitation of the treatment plant. SIDA also new water standards. Main rivers are Zivinice wastewater treatment plant co-finances waste water covered by completed or near-completed phase I was completed, and phase II is treatment plant in Zivinice frameworks for sustainable water underway. Rehabilitation of the and Mostar. EC IPA TF management. wastewater treatment plant in Mostar is (EUR 1.9 million) will also underway, as well as the rehabilitation support rehabilitation of of the Ljubuski sewerage system. the sewerage network in Progress was also made in developing Ljubuski municipality. framework for sustainable water management. Three key studies were New financing: Regional completed: (i) a Wastewater Flood Control Project Improvement Plan for reducing River (FY14), GEF Adriatic Pollution, (ii) Biological Monitoring of (FY14) – outcomes will Rivers, Lakes and Reservoirs, and (iii) a not be achieved during this feasibility study on low-cost, natural CPS cycle. treatment of wastewater. Expanded coverage of protected forest Original CPS outcome remains valid Achieved. 5.5% or 280,921ha of areas Closed project: Forest and 24 and mountain areas, and strengthened under formal protection achieved. Mountain Protected Areas institutional and technical capacity for - GEF (P087094). their sustainable management. New financing: GEF Baseline (2010): 2.1%, or 112,000 ha of Sustainable Forest areas under formal protection. Management (FY14) - outcomes will not be Target (2013): 3% or 153,000 ha achieved during this CPS formally protected. cycle. 25 ANNEX 2: LIST OF ACTIVE BANK ADMINISTERED TRUST FUNDS IN BH Net Grant Amount Trust Fund # Trust Fund Name Donor Country Exec. By (thousands of USD) BiH Institutional Strengthening SIDA TF - WB TF011204 Technical Advisory 882.00 Sweden Bank Bosnia and Herzegovina: Technical Assistance for Improving Investment Climate and TF011205 Institutional Strengthening 3,750.00 Sweden Recipient Bosnia and Herzegovina EC IPA TF for Water Quality Protection Project - Zivinice Water and TF011422 Sanitation Subproject 1,939.15 EU Recipient Bosnia and Herzegovina EU IPA CO-TF for Second Solid Waste Management Project, TF011456 Mostar and Banja Luka Subprojects 7,206.53 EU Recipient Bosnia and Herzegovina Investment Climate TF011484 Program 2,515.40 Sweden Bank Bosnia and Herzegovina Sava Waterway TF012243 Rehabilitation Project - Recipient Executed 7,311.90 EU Recipient European Union Instrument for Pre Accession TF012937 Trust Fund for Sarajevo Waste Water Project 10,495.55 EU Recipient TF013095 SAFE BiH PEFA 2012 279.09 EU Bank Bosnia and Herzegovina #10295 Liberalizing TF014050 MTPL Insurance Market 467.37 Other Bank TF014657 Bosnian Road PPP 600.00 Austria Bank TF014890 Bosnia & Herzegovina Microfinance, Phase II 1,200.00 Switzerland Bank TF015153 Bosnia-Serbia Knowledge Exchange Grant 49.00 Other Bank EU INVESTMENT GUARANTEE TRUST TF051092 FUND FOR BOSNIA HERZEGOVINA 13,861.00 EU Bank BOSNIA AND HERZEGOVINA SWEDISH GRANT FOR AGRICULTURE & RURAL TF090773 DEVELOPMENT PROJECT 6,444.74 Sweden Recipient EC IPA TF for Ljubuski Sewage-Neretva TF012620 Trebisnjica Project 2,639.35 EU Recepient SIDA CO-TF for Water Quality Protection TF099534 Project, Mostar Water and Sanitation subproject 3,455.75 Sweden Recipient Total 63,096.83 26 ANNEX 3: AAA PROGRAM AND CONTRIBUTION TO CPS PILLARS Delivered Pillar Prior to this CPS Description Pillar I Pillar III FY II Investment Climate Assessment The study assessed the main obstacles that require attention if private sector-led growth is to become a significant FY09 x influence in the expansion of the BH economy. Local Governance and Service The study analyzed the outcome of local services and found Delivery in Bosnia and that: i) access to and user satisfaction with services is low; FY09 x x x Herzegovina ii) municipalities lack resources and need to increase fiscal space to expand access to services; iii) service providers lack incentives to improve performance. Are Skills Constraining Growth in The policy note assessed what types of skills firms are Bosnia and Herzegovina looking for and not finding in the marketplace. It found that FY10 x the shortage of skills sought by key export-oriented and import competing industries is substantial and threatens to constrain future economic growth of BH. Moving Toward a More The policy note analyzed the level of spending on non- Sustainable and Better-Targeted insurance social protection cash transfers, and the targeting FY09 x Safety Net accuracy. Protecting the Poor During the Provided an update on headcount poverty and found that Global Crisis – Poverty Update headcount poverty declined by 4% between 2004 and 2007. FY10 x The Road to Europe, Transport The transport sector review provided an in-depth assessment Sector Review of the transport sector in BH and provided recommendations FY10 x x on key policy areas that need to be addressed in the transport sector. Agricultural Sector Policy Note The policy note analyzed competitiveness of the agriculture for Bosnia and Herzegovina: sector in BH and provided recommendations on policy FY10 x x Trade and Integration Policy Note actions that need to be taken to improve competitiveness of agribusinesses in the country. 27 Delive Planned Pillar During CPS FY12-FY15 Description red Pillar I Pillar III FY II FY Social Exclusion in Bosnia and The policy note started documenting the household impact - FY12 x Herzegovina and the Global Crisisof the financial crisis in BH, and for the first time presented estimates of the indicators of social exclusion. Public Expenditure and The report provided policy recommendations in the areas FY12 FY12 x x x Institutional Review: Challenges such as fiscal, pensions, public sector wages, health, and Directions for Reform education, forestry and energy. Integrated Water-Energy The study evaluated different options of developing water FY11 FY12 x x Development Study on the Vrbas resources and hydro-energetic potentials in the Vrbas river River basin, and provided recommendations on further actions in this area. Pension Technical Assistance Technical assistance was provided to entity authorities to FY12 FY13 x x further strengthen their pension systems. The TA also helped develop a pension sector strategy in the FBH. Public Expenditure and Financial The study will provide a systematic overview of the status of FY13 FY14 x Accountability (PEFA) Assessment public financial management and quantitative key performance indicators, covering budget planning and preparation, budget execution and control, reporting and transparency, and external scrutiny and oversight. This report represents a new platform on which a number of PFM policies can be advanced and its findings can significantly advance the Bank’s and donor policy dialogue in the country. Western Balkans Poverty The study will: (i) provide regular monitoring of poverty, FY13-FY15 FY14- x Assessment inequality and exclusion indicators; (ii) provide statistical FY15 support and strengthening capacity in areas related to the measurement of poverty and exclusion; and (iii) address knowledge gaps on poverty and distributional issues, particularly as they relate to Bank-supported reforms and projects. Regional Activation and Smart Analytical work provided technical support for labor force FY13 FY13 x x 28 Safety Nets Programmatic participation and social safety net reforms through a Analytical Work combination of analytical/knowledge products, just-in-time advice, and intensive policy dialogue. Western Balkans Jobs Challenges Analytic work will identify the main labor market FY14-FY15 FY14- x x incentives, determine policy priorities and discuss policies to FY15 improve labor market outcomes. Western Balkans Regional The TA will identify funding instruments for the FY14-FY15 FY14- x x Research & Development Strategy implementation of the R&D action plans in Western Balkan FY15 for Innovation Technical countries. Assistance Western Balkans Financial Sector Provides semi-annual analysis of key vulnerabilities of the FY14-FY15 FY14- x Outlook financial sectors in the region, and recommends actions to FY15 mitigate such vulnerabilities. Western Balkans Energy Aimed at developing a roadmap for implementation and - FY14 x Efficiency Scale-Up in Buildings sharing of energy efficiency best practices, policy and implementation options, case studies and plans across the target countries. Directions for the Energy Sector Meant to identify key energy issues and constraints which - FY15 x x x in the Western Balkans require country-specific and regionally-coordinated interventions, in order to position and guide the Bank’s policy dialogue, technical assistance, and financing support in the Western Balkans. Biomass Based Heating in the Will identify options and solutions for increasing the - FY15 x Western Balkans sustainable use of biomass for heating throughout the Balkans. Regional Deep Dive: Turn Down The study will help develop country-specific assessments FY15 FY15 x x the Heat and recommendations to help BH better prepare itself for extreme climate and possible future natural hazards. Western Balkans Programmatic The program aims at promoting gender equality by FY13-FY15 FY13- x x Gender Monitoring strengthening the knowledge base and evidence on gender FY15 disparities in BH, Kosovo, FYR Macedonia and Serbia, in order to inform government, donor and civil society interventions. The work will identify and prioritize 29 opportunities to strengthen the regional knowledge base on gender, as these countries face similar challenges in several areas, while at the same time addressing country-specific obstacles for gender equality. Education ESW Dropped FY13 - x 30 ANNEX 4: GENDER GAPS IN BH BH has made significant progress on gender equality issues, and the government has been supportive in these efforts. The 2003 Law on Gender Equality required the government to create a Gender Action Plan. Completed in 2006, the plan outlines strategies and program objectives for achieving gender equality. Positive developments have included “legislation on gender equality, the legal prohibition of gender-based violence and harassment, and the institutionalization of gender mainstreaming in government offices,” (ILO 2011). Lack of recent microdata prevents an in-depth, updated analysis of gender issues in BH. Nevertheless, a literature review of available sources has been conducted to inform this CPSPR and suggests that important constraints to gender equality remain, most notably in the areas of access to economic opportunities and agency. Upon availability of recent microdata, a thorough gender assessment will be conducted to shed further light on gender inequalities in the country. Education. There are currently no significant gender gaps in primary and secondary enrollment rates in BH, and women are more likely than men to enroll in tertiary education (WDI 2011). However, a higher proportion of adult women than men still have only primary education (ILO 2011). Similar to patterns in the region, segregation exists in fields of study, affecting labor market outcomes and contribute to the gender segregation seen there as well. Health. BH has positive female health outcomes in many areas with gaps persisting in others. Nearly all pregnant women receive antenatal care and have births attended by a skilled attendant (UNICEF 2012), and maternal mortality is low (WDI 2010, 2011). Life expectancy is comparable to the ECA average for both men and women (WDI 2011); nevertheless, male adult mortality is nearly double female adult mortality (WDI 2010). Access to economic opportunities. Some of the most significant gender gaps in BH are in access to economic opportunities. Female and male labor force participation rates are lower than the regional average in BH, at 42 percent and 68 percent, respectively, for those aged 15 to 64 (WDI 2011). This gender gap, primarily driven by low female activity, is larger than that in ECA and is in part determined by traditional gender roles and insufficient child care facilities (WDI 2011, ILO 2011). For women who work, a lack of data limits discussion of the wage gap, but in 2006 the UNDP estimated it to be 42 percent in the non-industrial production sector (2007). Further, only 33 percent of firms have female participation in ownership, and only 14 percent have women in top management despite a larger share of women than men in the labor market having completed tertiary education (WDI 2009, 2009, 2011). Women’s property rights are legally protected, yet tradition frequently favors male inheritance of property, and ownership of property is traditionally registered to male family members. Agency. Women in BH are less likely than men to occupy leadership positions. Women hold 19 percent of the seats in Parliament, and only 12 percent of government ministers 31 between 2006 and 2011 were female (Inter-Parliamentary Union 2013, UNICEF 2012). Data is not widely collected on violence against women, yet it is estimated that a third of women are victims of domestic violence, and that few ever seek help from the police. At the same time, sex trafficking is highlighted as a source for concern in the country, particularly among vulnerable groups such as the Roma (U.S. Department of State 2012). Sources: International Labor Organization (2011), Lejla Somun-Krupalija, “Gender and Employment in BH - A Country Study.” Bureau for Gender Equality, Working Paper 4/2011, Inter-Parliamentary Union (2013), available at http://www.ipu.org/wmn- e/classif.htm OECD (2012), Social institutions and gender index, available from: http://genderindex.org/ UNECE (2008), Statistical Database, available at http://w3.unece.org/pxweb/ UNICEF(2012), available at http://www.unicef.org/infobycountry/bosniaherzegovina_statistics.html UNDP (2007), “Social Inclusion in BH”, available at http://hdr.undp.org/en/reports/nationalreports/europethecis/bosniaherzegovina/BOSNIA_ AND_HERCEGOVINA_2007_en.pdf U.S. Department of State (2012), “Trafficking in Persons Report 2012.”, available at http://www.state.gov/documents/organization/192594.pdf World Bank (2012), World Development Indicators (WDI) 32 ANNEX 5: KEY ECONOMIC AND PROGRAM INDICATORS - CHANGE FROM LAST CAS Forecast in Last CAS Actual Current CAS Forecast a b b b c c a b b Economy (CY) 2012 2013 2014 2015 2012 2013 2014 2015 2016 Growth rates (%) GDP 4.0 4.3 4.5 4.5 -1.1 0.8 2.0 3.5 4.0 Exports -3.0 6.5 9.7 10.1 8.2 Imports -4.0 1.0 7.0 7.6 8.2 Inflation (%) 2.5 2.5 2.6 2.7 2.0 0.3 1.1 1.5 1.9 National accounts (% GDP) Current account balance -5.8 -5.7 -5.4 -5.3 -9.7 -7.9 -7.6 -7.0 -6.2 Gross investment 20.7 21.2 21.6 22.1 16.0 16.6 16.3 16.4 16.2 Public finance (% GDP) Fiscal balance -1.7 -1.0 -0.5 0.1 -2.7 -2.0 -2.2 -1.4 -1.3 Foreign financing 2.7 2.1 2.9 2.4 1.0 International reserves 4.4 4.2 4.0 4.0 5.4 5.0 5.2 5.1 4.9 (as months of imports) a b b b a b a b b Program (Bank’s FY) FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15 FY16 Lending ($ million) 145 161 21 21 160 34.1 56 98 IBRD total debt outstanding ($ million)* 455 439 450 *End of calendar year data a. Estimated year b. Projected year c. Actual outcome 33 ANNEX 6: BH AT A GLANCE 34 Bosnia and Herzegovina B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 12 Governance indicators, 2000 and 2012 (US$ millio ns) To tal merchandise expo rts (fo b) 1,130 6,261 To tal merchandise impo rts (cif) 4,1 66 11,120 Voice and accountability Net trade in go o ds and services -2,577 -3,987 Political stability Current acco unt balance -396 -1,327 Regulatory quality as a % o f GDP -7.2 -7.6 Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 1,607 1,849 Control of corruption Reserves, including go ld 497 4,390 0.0 25.0 50.0 75.0 100.0 2012 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Worldw ide Governance Indicators (w w w .govindicators.org) Current revenue (including grants) 39.0 48.7 Tax revenue 21.1 42.1 Current expenditure 42.8 44.1 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 12 Overall surplus/deficit -5.8 -1.8 P aved ro ads (% o f to tal) 52.3 92.1 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual .. .. subscribers (per 1 00 peo ple) 23 111 Co rpo rate .. 10 High techno lo gy expo rts (% o f manufactured expo rts) 1.8 2.5 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 2,800 10,577 A gricultural land (% o f land area) 42 42 To tal debt service 319 1,062 Fo rest area (% o f land area) 42.8 42.8 Debt relief (HIP C, M DRI) – – Terrestrial pro tected areas (% o f land area) 0.6 1.5 To tal debt (% o f GDP ) 50.9 60.6 Freshwater reso urces per capita (cu. meters) 9,108 9,246 To tal debt service (% o f expo rts) 14.2 12.5 Freshwater withdrawal (% o f internal reso urces) .. 1.0 Fo reign direct investment (net inflo ws) 146 350 CO2 emissio ns per capita (mt) 6.1 8.1 P o rtfo lio equity (net inflo ws) 0 0 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 4.3 4.0 Composition of total external debt, 2012 Energy use per capita (kg o f o il equivalent) 1,133 1,848 Short-term, IBRD, 455 1,262 IDA, 1,193 Wo rld B a nk G ro up po rt f o lio 2000 2 0 12 IMF, 888 (US$ millio ns) IB RD Other multi- lateral, 1,228 To tal debt o utstanding and disbursed 562 455 Disbursements 0 26 Private, 4,629 P rincipal repayments 0 25 Bilateral, 922 Interest payments 33 8 US$ millions IDA To tal debt o utstanding and disbursed 398 1,193 Disbursements 44 22 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 12 To tal debt service 3 33 Time required to start a business (days) – 37 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 14.9 To tal disbursed and o utstanding po rtfo lio 30 98 Time required to register pro perty (days) – 25 o f which IFC o wn acco unt 30 98 Disbursements fo r IFC o wn acco unt 5 0 Ranked as a majo r co nstraint to business 2000 2 0 12 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 1 12 n.a. .. 34.9 n.a. .. 33.3 M IGA Gro ss expo sure 21 104 Sto ck market capitalizatio n (% o f GDP ) .. .. New guarantees 21 0 B ank capital to asset ratio (%) 20.1 11.3 No te: Figures in italics are fo r years o ther than tho se specified. 3/13/14 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG). 35 Millennium Development Goals Bosnia and Herzegovina With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) B o s nia a nd H e rze go v ina G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 12 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) .. .. <2 <2 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. .. .. 14.0 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. .. 9.1 6.7 P revalence o f malnutritio n (% o f children under 5) .. .. 4.2 1.5 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. .. .. .. P rimary co mpletio n rate (% o f relevant age gro up) .. .. .. .. Seco ndary scho o l enro llment (gro ss, %) .. .. .. .. Yo uth literacy rate (% o f peo ple ages 15-24) .. .. 100 100 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) .. .. .. .. Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) .. .. .. 41 P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. .. 7 21 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 18 14 10 7 Infant mo rtality rate (per 1,000 live births) 1 6 12 9 6 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) 52 53 80 94 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 18 1 4 10 8 B irths attended by skilled health staff (% o f to tal) 97 99 100 100 Co ntraceptive prevalence (% o f wo men ages 1 5-49) .. .. 48 46 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. .. .. .. Incidence o f tuberculo sis (per 100,000 peo ple) 94 84 63 49 Tuberculo sis case detectio n rate (%, all fo rms) 96 72 100 76 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 97 97 98 100 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. 95 95 95 Fo rest area (% o f land area) 43.3 43.1 42.8 42.8 Terrestrial pro tected areas (% o f land area) 0.5 0.5 0.6 1.5 CO2 emissio ns (metric to ns per capita) 1.0 1.0 6.1 8.1 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) .. 3.7 4.3 4.0 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 14.5 6.8 20.3 23.1 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 2.4 87.6 Internet users (per 1 00 peo ple) 0.0 0.0 1.1 65.4 Ho useho lds with a co mputer (%) .. .. 5.2 39.8 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 25 100 120 100 75 80 50 60 40 25 0 20 2000 2005 2010 0 0 1990 1995 2000 2012 2000 2005 2010 Primary net enrollm ent ratio (..) Bosnia a nd Herzegovina Fixed + mob ile subscribers Ratio of girls to boys in prima ry & secondary education (..) Europ e & Central Asia Internet users 36 ANNEX 7: SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT 37 ANNEX 8: IBRD/IDA PROGRAM SUMMARY Proposed IBRD/IDA Base-Case Lending Program Fiscal year Proj ID US$(M) Strategic Rewards b (H/M/L) 2014 Energy Efficiency Project 32.0 Drina Flood Protection Project 24.0 Emergency Flood Response 57.0 Result 113.0 2015 BiH DPL 50.0 Competitiveness and Jobs 48.0 Result 98.0 Overall Result 211.0 38 ANNEX 9: IFC INVESTMENT OPERATIONS PROGRAM As of 4/30/2014 (In USD Millions) Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 2013 Bekto precisa 11.06 0 0 0 0 11.06 0 0 0 0 2008 Cimos bosnia 0 0 30.42 0 0 0 0 30.42 0 0 2008 Heart center bh 3.22 0 0 0 0 3.22 0 0 0 0 2006 Nova banka 0 1.58 0 0 0 0 1.58 0 0 0 0/05 Raiffeisen-bos 13.14 0 0 0 0 13.14 0 0 0 0 11/13/2007 Sisecam bosnia 49.49 0 0 1.2 0 49.49 0 0 0 0 0 Unicredit bosnia 0 8.43 0 0 0 0 8.43 0 0 0 Total Portfolio: 76.91 10.01 30.42 1.2 0 76.91 10.01 30.42 0 0 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types. 39 ANNEX 10: OPERATIONS PORTFOLIO (IBRD/IDA AND GRANTS) 40 ANNEX 11: MAP 41