46968 THE WORLD BANK OFFICE IN BOSNIA AND HERZEGOVINA NEWSLETTER No. 3/2008 · OCTOBER 2008 ECONOMIC UPDATE DOING BUSINESS 2009: BOSNIA AND HERZEGOVINA RANKED A robust growth of the BH econ- 119TH AMONG 181 COUNTRIES ­ WHAT DOES IT REALLY MEAN? omy from 2007 (6.8%) continued In the new Doing Business report published on September 10, Bosnia and Herzegovina (BH) was into 2008, yet macroeconomic ranked 119 on the list that shows the ease of doing business in 181 economies in the world. The stability has been negatively affec- ranking of BH remained essentially unchanged compared to last year's Doing Business report ted by the international food and when BH was ranked 117th of 178 countries, but the inclusion of three new well-performing coun- fuel price hikes, as well as the tries and a methodological adjustment resulted in lower placement this year. However, this year's now-almost-global financial crisis. rankings of the countries in Southeastern Europe (Hungary-41, Romania-47, Bulgaria-49, FYR As the below table shows, the Macedonia-71, Albania-86, Montenegro-90, Serbia-91, Croatia-106) reconfirm that other countries growth of industrial production are doing more to improve their business environment and that BH should intensify its efforts in this continues. The export growth is area in order to render itself more attractive for investment and to facilitate job creation. above expectations (17% year-to- The Doing Business report identifies those reforms that are the most called for and suggests how date), with service exports perfor- their impact on businesses can be measured. Some Doing Business indicators include complex ming even better (20% growth indices on the effectiveness of laws. They also reveal the duration and cost of many typical Jan-Jun). Growth has been the procedures businesses are required to complete. The report recognized the efforts undertaken strongest in the construction in- over the last 12 months to improve the business environment in BH in four out of ten indicators: dustry (about 40 and 12% in the closing a business, dealing with construction licenses, enforcing contracts and registering property. The time required to register property was reduced by 203 days (from 331 to 128 days) FBiH and RS respectively). On the and dealing with licenses now requires 171 days less than last year (296 vs. 467 in 2007). However, other hand, growing international some findings show a turn in the opposite direction. While "paying taxes" indicator showed fuel and food prices have adverse- improvement in the previous years on the number of payments annually, this year the average ly affected the economy. First, fuel number of hours it took a firm to actually process the paperwork increased, which indicates the and food price inflation was the need for better coordination of legal and regulatory changes with institutional reform and main culprit for the 10% year-to- implementation efforts. Similarly, the business registration in the courts became faster over the past date growth in consumer prices. year, but the recent introduction of notaries-public in the overall process of business registration Second, since BiH imports most of caused the total duration of the registration for a new business to actually increase. its fuel and much of its food, These cases help us understand that a significantly improved coordination of executive, legislative nominal imports grew faster than and judicial authorities is needed for complex reforms to be completed successfully and to yield exports (21%), resulting in an results beneficial to the business community and the society as a whole. This year, the state, entity increase of the trade imbalance; governments and even some local governments are intensifying their efforts pertaining to business moreover, as remittances have not environment initiatives such as the regulatory guillotine in the Federation BH and in a number of kept up with the growth of the municipalities across the country. The continuation and intensification of these and other similar trade imbalance (probably af- efforts will help strengthen confidence of businesses large and small; these steps represent an fected by the global financial cri- important part of policy actions the authorities may consider to strengthen BH position at time of sis), the current account deficit international financial turmoil. The World Bank Group will continue to work with the BH authorities on the creation of better environment for private sector development and job creation. has widened significantly (from January to June). The 2009 Doing Business Report can be downloaded at http://www.doingbusiness.org/ Annual Quarterly Monthly 2007 2008 2008 2006 2007 Q3 Q4 Q1 Q2 IV V VI VII VIII Industrial Production FBH (% change y-y) 7.5 9.1 9.2 2.9 -1.5 5.1 2.5 5.1 6.7 8.3 5.2 RS (% change y-y) 19.1 1.4 -8.5 -5.7 9.0 10.7 14.2 6.2 10.6 12.5 6.2 Gross Monthly Wage FBH (% change y-y) 8.2 9.7 9.6 11.0 12.2 13.1 13.0 13.4 12.8 15.7 n/a RS (% change y-y) 12.0 10.3 8.2 11.0 22.3 31.4 30.4 31.8 32.1 33.5 31.8 Cost of Living /CPI* FBH (% change y-y) 6.0 1.5 0.7 3.8 6.8 8.5 7.6 8.3 9.8 10.2 9.6 RS (% change y-y) 9.4 1.8 1.5 5.9 6.1 8.2 7.4 8.0 9.3 9.7 9.4 Current Account Balance (Millions of ) -764 -1,396 -339 -479 -409 -515 n/a n/a n/a n/a n/a Trade Balance (Millions of ) -3,134 -4,072 -1074 -1166 -1077 -1290 -452 -423 -415 -443 -427 Exports of Goods (Millions of ) 2,640 3,035 791 780 801 911 290 307 314 324 280 % change y-y 36.5 15.0 12.5 11.3 14.8 19.0 20.3 17.2 19.6 19.2 12.0 Imports of Goods (Millions of ) 5,823 7,106 1865 1947 1878 2201 742 730 729 768 707 % change y-y 1.9 22.0 16.6 16.9 27.4 20.9 29.5 17.0 17.0 20.1 13.0 Foreign Exchange Reserves (Mil. of ) 2,787 3,425 3,311 3,425 3,376 3,339 3,354 3,313 3,339 3,425 3,479 Broad Money (Millions of ) 5,151 6,263 5,979 6,263 6,341 6,541 6,446 6,507 6,541 6,687 6,787 % change y-y 24.8 21.6 22.8 21.6 18.1 14.3 17.4 15.8 14.3 14.9 14.8 Credit to Non-govt Borrowers (Mil. of ) 4,724 6,052 5,687 6,052 6,450 6,911 6,629 6,752 6,911 7,034 7,115 % change y-y 23.3 28.1 29.4 28.1 28.7 28.7 29.1 28.5 28.7 28.1 27.4 Sources: BH statistics agencies, Central Bank and World Bank calculations. / * As of January 2008 both entities report CPI ACTIVE WORLD BANK PROJECTS BOSNIA AND HERZEGOVINA AND IN BOSNIA AND HERZEGOVINA CROATIA PARTNER UP TO PROTECT Available for NERETVA AND TREBISNJICA BASIN Project Status Commitment disbursement (US$ million) Governments of Bosnia and Herzegovina and (US$ million) the Republic of Croatia signed in September Community Development effective 20.00 3.75 Grant Agreements with the World Bank for the Neretva and Trebisnjica Management Project Employment Support effective 12.00 0.44 totaling US$8 million. The two Global Environ- Education Restructuring effective 10.00 9.62 ment Facility (GEF) grants amount to US$6 million for BH and US$2 million for the Republic Health Sector Enhancement effective 17.00 9.17 of Croatia. Over the course of the project the two countries ECSEE APL 3 (Power IV) effective 36.00 38.55 will cooperate to develop capacity for effective Solid Waste Management effective 26.00 13.58 water resource management including the information of river basin management plans, Urban Infrastructure and Service Delivery effective 25.00 16.37 address saline water intrusion in Neretva Delta in Croatia, reduce water pollution, and introduce GEF ­ Water Quality Protection effective 8.90 8.46 civil society participation in the decision-making Forest Development and Conservation effective 7.10 3.53 process for water resource management. The World Bank hopes this project will be a Land Registration effective 15.00 14.37 catalyst for inter-state cooperation in water resource management and the application of Small Scale Commercial Agriculture effective 12.00 1.59 international water management principles and Agriculture and Rural Development effective 21.00 21.40 best practices. It is a promising sign for the future of water resources management to see Avian Influenza Preparedness effective 5.00 4.98 such commitment by these two countries to strengthen cross-border cooperation. Road Infrastructure and Safety effective 25.00 25.4 GEF - Neretva and Trebisnjica Management signed 6.00 6.00 GEF - Forest and Mountain Protected Areas approved 3.40 3.40 TOTAL 249.40 180.61 FIRST IBRD LOAN NEGOTIATED ­ SOLID WASTE MANAGEMENT PROJECT II On September 22-23, 2008, delegations of BH and the World Bank completed negotiations for a new IDA credit in the amount of US$ 15 million and an IBRD loan in the amount of US$ 25 million for the second phase of the Solid Waste Management Project. The objective of this project is to further improve availability, quality, environmental soundness and financial stablity of solid waste management services in participating regions. This is the first project that will include a portion of IBRD (International Bank for Reconstruction and Development) financing.which carries an interest close to LIBOR rate and has a repayment term of 20 years including 8 years grace period. Transition to IBRD financing is an important signal about the maturity of the country's economy. Since 1996, the World Bank has supported 61 projects in BH with interest free IDA credits and grants in the total amount of US$ 1.27 billion. NEW TRANSPORT SECTOR PROJECT READY FOR IMPLEMENTATION The Road Infrastructure and Safety Project was declared effective in September 2008. Interest free IDA credit in the amount of US$ 25 million is provided to accelerate the recovery of the main road network and improve institutional capacity in relation to road safety. The project will finance the rehabilitation of about 240 kilometers of regional roads in both BH entities. Additionally, the project will also help develop a strategy for improving road safety in the country through: (a) support to the creation of an adequate institutional framework; (b) support to the legal/legislative framework; (c) assistance to the development of Entity Level Strategies and their coordination/transposition at the State level; (d) design and monitoring of road safety indicators; (e) preparation of a road safety action plan to manage and finance short-, medium- and long-terms road safety activities and (f) implementation of pilot operations to test the effectiveness of the action plan. The implementation of these activities will start in March 2009. The US$ 25 million project by the World Bank is a part of a broader road rehabilitation program financed by the two entity governments, the European Investment Bank, and the European Bank for Reconstruction and Development. PROJECT PIPELINE Projects that are currently under preparation include: Municipal Development Project; and Sava Waterway Rehabilitation Project. The World Bank is also discussing with the Governments about possible partnership in the areas of private sector development and social sector reform. Information about The World Bank in Bosnia and Herzegovina is available on our website: www.worldbank.ba Contact: Goran Tinjic, gtinjic@worldbank.org The World Bank Country Office in Bosnia and Herzegovina Fra Anela Zvizdovia 1 (B17), 71000 Sarajevo; Phone: (+387 33) 251-518 and/or 251-500, Fax: (+387 33) 440-108