Document of The World Bank FOR OFFICIAL USE ONLY Report No. 130043-BA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK FOR BOSNIA AND HERZEGOVINA FOR THE PERIOD FY16–20 December 28, 2018 Western Balkans Country Unit Europe and Central Asia Region International Finance Corporation Europe and Central Asia Department The Multilateral Investment Guarantee Agency Economics and Sustainability Group This document is being made publicly available after the Board consideration. It may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. The Country Partnership Framework was discussed by Executive Directors on December 15, 2015. GOVERNMENT FISCAL YEAR January 1 to December 31 CURRENCY EQUIVALENTS Currency Unit = Convertible Mark (BAM) 1 US$ = BAM 1.71858 (as of December 10, 2018) WEIGHTS AND MEASURES Metric system ABBREVIATIONS AND ACRONYMS ASA Advisory Services and Analytics BAM BiH currency, the Convertible Mark BiH Bosnia and Herzegovina CPF Country Partnership Framework DFID UK Department for International Development DPF Development Policy Financing DPL Development Policy Loan EBRD European Bank for Reconstruction and Development EC European Commission ECA Europe and Central Asia EHBS Extended Households Based Survey EIB European Investment Bank EU European Union EUR Euro FBH Federation of Bosnia and Herzegovina FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GEF Global Environmental Facility IBRD International Bank for Reconstruction and Development IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund IPF Investment Project Financing MAP REA Regional Economic Area Multi-Annual Action Plan MFD Maximizing Financing for Development MIGA Multilateral Investment Guarantee Agency MSME Micro, Small and Medium Enterprises NPL Non-Performing Loan PES Public Employment Services PLR Performance and Learning Review PPP Public-Private Partnership RE Renewable Energy RS Republika Srpska SCD Systematic Country Diagnostic SHPP Small Hydro Power Plant SIDA Swedish International Development Agency SME Small and Medium Enterprise SOE State-owned Enterprise TA Technical Assistance TF Trust Fund USAID U.S. Agency for International Development WBG The World Bank Group World Bank IFC MIGA Vice President: Cyril E. Muller Georgina Baker Keiko Honda Director: Linda Van Gelder Wiebke Schloemer Merli M. Baroudi Country Manager: Emanuel Salinas Munoz Thomas Lubeck Task Team Leader: Goran Tinjic Lada Busevac Gianfilippo Carboni George Konda Levent Karadayi PERFORMANCE AND LEARNING REVIEW FY16–20 Country Partnership Framework BOSNIA AND HERZEGOVINA TABLE OF CONTENTS I. INTRODUCTION II. CHANGES IN COUNTRY CONTEXT III. SUMMARY OF PROGRAM IMPLEMENTATION IV. EMERGING LESSONS V. ADJUSTMENTS TO PROGRAM VI. RISKS TO PROGRAM TABLES Table 1: Overview of Progress against CPF Indicators Table 2: CPF IBRD Financing Program Table 3: IFC Advisory Projects Table 4: Systematic Operations Risk-Rating Tool ANNEXES Annex 1: FY16-20 Country Partnership Framework Results Framework – Updated CPF Result Matrix Annex 2: Matrix of Changes to the Original CPF Result Matrix Annex 3: Selected Macroeconomic Indicators Annex 4: Citizen Engagement Annex 5: World Bank Active Portfolio Annex 6: Statement of IFC’s Held and Disbursed Portfolio Annex 7: Statement of MIGA’s Outstanding Exposure BOXES Box 1: Jobs Challenge in BiH I. INTRODUCTION 1. This Performance and Learning Review (PLR) assesses the implementation of, and presents the changes to, the World Bank Group Country Partnership Framework FY16-FY20 (CPF) for Bosnia and Herzegovina (BiH). Since the CPF approval, the World Bank delivered five IBRD loans worth US$321 million (one Development Policy Financing (DPF) operation, and four Investment Project Financing operations), or 43 percent of the originally planned lending program. The reform processes have slowed down due to shift of priorities during the period leading to local elections in 2016 and general elections in 2018, and the originally planned World Bank lending of US$750 million will not be delivered in full. IFC’s investments reached US$13.2 million, with an additional US$199 million facilitated in new private investments through advisory services engagements. The mentioned shift of priorities affected investment prospects, and IFC investment volume is expected to remain significantly below the original CPF envelope of US$70 to 100 million. Since CPF approval, MIGA has issued four new guarantees in the financial sector supporting two new and two existing projects, with new commitments totaling US$400 million. 2. Despite the lower than expected lending volume, the CPF program has advanced significantly towards achieving its development objectives. During the first years of the CPF, the World Bank DPF and Analytical Services and Advisory (ASA) supported strong reform performance by the Council of Ministers and entity governments in BiH and contributed to improvements in public sector efficiency, effectiveness, and service delivery. Throughout the CPF period, investment financing has contributed to significant improvements in economic infrastructure, and IFC advisory services have contributed to improvements in business environment. As a result, in spite of the lower than expected lending volume, 5 out of 20 CPF indicators have been achieved, 11 are still expected to be achieved before the end of the CPF cycle, and 4 indicators are off track. 3. Important lessons are drawn from the CPF program implementation, including: - Readiness to take a “high risk/high reward” approach when reform commitment is strong, proved to be a sound principle of engagement in BiH at the beginning of the CPF cycle. - Flexibility in deployment of the World Bank support has been critical. The World Bank has maintained support for structural reforms through targeted investment lending, analytic work, technical assistance, and continued policy dialogue when the pace of reforms slowed down. - The experience supporting local public infrastructure and services (including water supply and sanitation), showed that shortcomings in financial and institutional capacity need to be addressed at a systemic level as these constraints hamper the ability of local governments 1 to operate and maintain public infrastructure and services. - For IFC, it is critical to remain involved and pursue upstream reforms that will lead to market creation and enable a level playing field for the private sector. Cutting the red tape, regulatory consolidation in power, microfinance, insolvency, business registration, and investment policy and promotion are the examples of this approach. 4. For the remaining part of the CPF cycle, the PLR proposes an increasing focus on addressing systemic deficiencies and a holistic approach to stimulate growth and jobs. With regards to addressing systemic shortcomings, the World Bank will aim at working closely with authorities to enhance the long-term sustainability of municipal services and strengthening the performance of the health sector. The PLR also proposes supporting the growth and jobs agenda through targeted ASA, IBRD lending and IFC advisory to improve business environment and stimulate investments in key sectors such as agribusinesses, manufacturing and infrastructure. During the second 1 Local governments in this context mean municipalities in both entities in BiH, and cantons in the FBH. 1 half of the CPF cycle, the World Bank plans to support 3 new operations and provide additional financing for two ongoing operations for a total amount of US$215 million.2 This would bring the total World Bank commitments to US$536 million or 71 percent of the originally planned commitments. IFC and MIGA will also continue to explore opportunities to support private sector development. II. MAIN CHANGES IN COUNTRY CONTEXT 5. BiH’s strong reform performance after adoption of the Reform Agenda has not been sustained. The medium-term Reform Agenda was adopted in July 2015 by the BiH Council of Ministers, and Governments of the constituent entities, the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS), and Brcko District as the platform for structural reforms in BiH. The Reform Agenda has focused on six areas: fiscal sustainability and consolidation, business climate and competitiveness, labor market reform, targeting of social assistance and pension system reform, rule of law, and public administration reform. The WBG has been one of the lead partners in five out of six reform areas. Reform performance was strong during the first year of implementation with particularly significant advances made in the areas of fiscal sustainability, business climate, and labor market. The reform performance stalled ahead of local elections in October 2016 and has been slow thereafter. 6. Meaningful progress with the Reform Agenda has been a key precondition for BiH’s path to EU membership and IMF financing. While progress has been slow, a notable milestone was achieved in February 2018 when BiH submitted responses to the European Commission's questionnaire on readiness for the EU candidate status. BiH also entered an International Monetary Fund (IMF) Extended Fund Facility (EFF) program in September 2016 and completed the first review of the program in February 2018. The arrangement with the IMF is currently off-track due to increase of public sector wage bill in the RS, and possible increase of veteran benefits in the FBH. 7. Irrespective of the reform slowdown, the Reform Agenda continues to provide a framework for the WBG engagement in BiH. During the PLR consultations, the BiH Council of Ministers, the Government of the FBH, and the Government of the RS reiterated continued commitment to the goals of the Reform Agenda. 8. The elections provide an opportunity to renew the impetus of reforms, but delays in government formation pose a risk that this opportunity may be lost. A record number of political parties competed in the general elections held in October 2018. While a rapid governments formation after elections and renewal of impetus for reforms are desirable, earlier experiences suggest that delays in governments formation are possible. A. Changes in Key Macroeconomic and Debt Developments 9. BiH economy has been growing at 3 percent on average since 2017. BiH experienced the beginning of a moderate economic recovery in 2013 when growth reached 2.4 percent. This was interrupted by the floods in May 2014 which impacted almost all sectors of the economy and slowed growth to 1.1 percent in 2014. The economy recovered in 2015 and since then it has been growing on average at 3 percent, mainly due to support from private consumption and to some extent investments. 2 The program estimate is based on confirmed areas of interest by the authorities. The World Bank will consider Fiscal Reform DPF, and investments in regional trade and transport facilitation, integrated program on Sava-Drina River Corridor, agriculture, and forestry sectors in case a strong demand for financing and commitment for reforms emerges in these sectors after elections. 2 Domestic demand remains the dominant driver of growth with consumption adding 3 percentage points, investment 0.8 percentage points and net exports subtracting -0.8 percentage points. Improved external demand has supported export growth, but a strong rise in imports is offsetting this momentum. With negative overall net exports, they are estimated to have subtracted from growth (-0.8 percentage points). See Annex 3 for summary of macroeconomic indicators. 10. Unemployment remains high, and the structure of employment places a burden on the private sector. Only 16 percent of the labor force is employed in enterprises, highlighting the size of economic burden on private sector (see Box 1 below). The unemployment rate fell from 25.4 percent in 2016 to 20.5 in 2017, driven by a fall in activity rate and a slight rise in employment. The decrease in unemployment was more pronounced among workers with only primary education (from 26 percent in 2016 to 18 percent in 2017), which is likely to have reduced poverty in 2017. In spite of these modest improvements, BiH is the only country in the Western Balkans that has not been able to reach employment levels observed before the financial crisis. Box 1: Jobs Challenge in BiH 3 Social sustainability cannot be ensured without private sector jobs A small percentage of BiH citizens have jobs, few have formal jobs, and even fewer have private sector jobs. For every 100 BiH citizens (2017 LFS figures), 12 are under 15, 51 are inactive (20 of whom are over 65), and just 38 are in the labor force. Of the 38, 8 are unemployed, which means that only 30 are employed. Of the employed, 6 are self-employed and 1 works in a family business, leaving only 22 who are employees. Of these, based on estimates for 2015, around one third, or 7, work for the general government. This leaves only 16 out of 100 BiH citizens employed in enterprise sector. However, this includes people working in State Owned Enterprises. The proportion of people working in private sector is likely much lower. This highlight the size of the economic burden on private sector employees. 11. Inflation has increased, but this has not had a major negative impact on the population. After almost two years of deflation, inflation started to pick up in 2017, owing to the recovery of global oil price and imported inflation. In 2017 the consumer price index rose on average by 0.8 percent. The increase in consumer prices was due to a rebound of global energy markets and the increase in excise duties. Given limited growth in nominal salaries, higher consumer prices will most likely reduce the real incomes. 12. Public revenues have increased, and expenditures decreased. In 2017, the fiscal surplus reached 2 percent of GDP, up from a deficit of 0.3 percent in 2016. In 2017, revenues rose mainly due to stronger collection of indirect taxes while expenditures declined mainly because of continued restraint on current public spending. In 2018, as tax revenues continued to increase, the authorities have increased spending on wages, social transfers, and investments, and are expected to increase borrowing, causing a deficit of 0.5 percent of GDP. Irrespective of developments in 2018, the fiscal balance is expected to remain in surplus over the medium term. Total public debt in 2017 remained at 37 percent of GDP (external public debt was 27 percent of GDP) and consisted largely of concessional debt to international financial institutions. 13. The economy is expected to continue growing, but the pace of growth is lower than the country’s potential and the sources of growth are not sustainable. Economic growth is projected to strengthen to about 4 percent by 2020, supported primarily by consumption and to some extent by public investment. A moderate rise in exports is expected, but these may be offset (as contribution to 3 From the World Bank ASA entitled “Bosnia and Herzegovina’s Economic Journey: Through Peace and Transition to Prosperity” 3 growth) by strong demand for imports. Remittances are likely to remain stable, and, together with progress on reforms, are expected to underpin a gradual pickup in consumption, which is likely to remain a major driver of growth. Investments in energy, construction, and tourism are expected to support investment growth generally, as well as job creation in those sectors. Because of these dynamics, real GDP growth is projected to rise from 3 percent in 2017 to 3.2 percent in 2018 and to 4 percent in 2020. While this growth rate is positive, the growth drivers highlight that BiH still needs three major shifts: (i) from inward looking growth to export oriented growth, (ii) from public driven growth to private sector led one, and (iii) from consumption to investment. These three movements are necessary to unlock the potential of the country and enhance the sustainability and equity of growth going forward. B. Changes to Poverty Reduction and Shared Prosperity 14. In a context of modest economic growth, BiH has struggled to reduce poverty and inequality. Since the publication of the CPF a new round of the Extended Household Budget Survey (EHBS) has been made available, extending the available poverty series until 2015. According to this new data, 16 percent of the population in BiH were below the national poverty threshold in 2015. This is a slight increase from the 2011 estimate of 15 percent. Across entities, there was a small increase in the FBH (from 15 to 17 percent), but it remained stable in the RS (close to 14 percent). Inequality has remained constant in BiH between 2011 and 2015, at 33 Gini points. Since this data was collected, poverty is estimated to have decreased by around 2 percentage points, driven by labor market improvements. 4 While this is positive, it is still a slow pace in poverty reduction. 15. Welfare along the income distribution deteriorated in 2011-2015 but is expected to have recovered slightly in more recent years. Average household consumption in BiH fell by 0.8 percent annually between 2011 and 2015. This decrease was more pronounced among households in the top 60 percent (0.9 percent), but the bottom 40 also saw their level of consumption decrease, though to a lesser extent (0.5 percent). The more recent improvements in labor markets recorded in 2015-2018 (e.g. employment rates increased from 31.9 to 34.3) suggest that household consumption have recovered slightly, though the lack of welfare data after 2015 prevents from reporting an actual estimate. 16. Increases in pensions and social assistance supported household income in 2011-2015. Among the different income components, only pensions and social assistance played a meaningful role supporting consumption, avoiding what could have been otherwise an increase in poverty of 1.8 percentage points between 2011 and 2015. Pensions played a much more important role supporting consumption in urban areas, while social assistance (family and child benefit) equaled the importance of pensions in rural areas. Labor market related income components had a small poverty-increasing effect, but this effect is expected to have shifted to poverty-reducing in 2015-2018, in line with the improved performance of labor markets. 17. Despite some recent improvements, youth in BiH faces considerable challenges for their participation in labor markets, sending a worrisome signal for the prospects of economic growth. Only one out of three young people in BiH are in the labor force and, of these, less than half have a job. 5 This high level of unemployment and inactivity not only affects people now, but it also 4 The improvement in labor market indicators recorded between 2015 and 2018 suggests that poverty may have reduced recently. Simulations that replicate the fall in unemployment captured by the Labor Force Survey (LFS) show that this impact could account for a decrease of 2 percentage points in poverty. 5 The youth (15-24 years old) report low levels of labor force participation (32.5 percent in 2017) and high unemployment rates (45.8 percent) 4 undermines their prospects of finding high-productivity (and better paid) jobs in the future. Moreover, those not in employment, education or looking for a job are 27.3 percent, 6 the highest in Europe behind Kosovo and Albania. 7 While these poor indicators reflect the inability of the youth to find jobs, more critically they also show that the pace of job creation in the private sector is well below what is needed to provide opportunities for the youth. This largely underpins the high pace of economic migration and is potentially the highest risk that the country faces – losing its human capital. 18. BiH made progress in promoting equity between men and women, but gaps remain, particularly in access to economic opportunities. Employment and participation in labor is substantially lower for women in BiH. This starts among the youth but remains throughout the life cycle. Unemployment rates are higher for women compared to men (23 versus 19 percent, respectively). Although this gap is narrower than in the previous three years, it remains wide (from 4.9 in 2015 to 3.1 in 2018). Gaps are observed in entrepreneurship as well, as only 24 percent of firms have a woman as manager and only 9 percent include female participation in ownership. [5] For those in the labor market, it is estimated that women earn 9 percent less than the average hourly wage of a male worker. Segregation in fields of study — where young women tend to concentrate more on certain areas such as health, education, and humanities and arts — also influences women’s labor market prospects. These outcomes are driven by persistent barriers and disincentives that women face and that require corrective policies. III. SUMMARY OF PROGRAM IMPLEMENTATION A. Portfolio Performance Issues 19. Portfolio quality and disbursement performance were sound at the beginning of the CPF cycle but deteriorated in FY17-18. The World Bank portfolio currently consists of 10 investment projects with total commitments of US$508.7 million (including US$503.1 IBRD and IDA resources, and US$5.6 GEF resources - see Annex 5 for details). As of December 2018, there is one problem project –Drina Flood Protection Project – resulting in 13.7 percent of portfolio commitments at risk. Disbursement performance was strong during the period FY14 - FY17 with disbursement ratio reaching 24, 23.7 and 30.8 percent respectively. But disbursement performance deteriorated in FY18 due to effectiveness delays (Banking Sector Strengthening), slow start of implementation upon effectiveness (Employment Support Project and FBH Road Sector Modernization), and slow disbursement of the problem projects. Disbursement performance is expected to improve in FY19 as mature projects are expected to continue with strong disbursement, problem projects will be restructured, and all projects in the portfolio will be effective and under implementation. FY19 disbursement ratio as of December 20, 2018 was 18.2 percent. 20. Effectiveness delays remain a chronic problem in BiH. On average, it takes 10.7 months from the project approval by the World Bank Board to effectiveness, and in some cases, this delay exceeds eighteen months. 8 While this delay is often related to the complexity of the approvals needed by various authorities in BiH, in practice, a project can reach effectiveness in less than three months. 9 This suggests that it is possible to rapidly meet administrative conditions for project effectiveness despite undoubtedly complex signing and ratification procedures at the entity and state level in BiH 6 2017 LFS 7 World Bank Group (2016) Ten Messages About Youth Employment in South East Europe. South East Europe Regular Economic Report, No. 9 S; World Bank, Washington, DC. 8 The Banking Sector Strengthening Project was approved in April 2017 and declared effective in October 2018. 9 The Floods Emergency Recovery Project was effective 2.5 months after approval. 5 which are often quoted as the main reasons for effectiveness delays. Working with the Governments in BiH, the World Bank team will map out all processes (on the World Bank and the Borrower side) during the project preparation and implementation. Such mapping would contribute to better preparedness for negotiations, improve implementation readiness, and help the Governments to manage processes that cause effectiveness delays. 21. The World Bank teams will continue to focus on implementation readiness, and accelerated implementation. Unresolved property issues have undermined the implementation of two projects in this CPF period (FBH Road Modernization Project and Drina Flood Protection Project). Going forward, efforts will be made to advance land acquisition ahead of project effectiveness to avoid delays. The recent experience under the Employment Support Project suggests that delays in forming the implementation teams and completing the project operations manual lead to effectiveness and implementation delays. The Bank teams will continue to work with counterparts to address these shortcomings aiming to have clear staffing structure of implementation agency and draft operations manuals ready by negotiations. Unplanned staffing changes were made in two projects (Floods Emergency Recovery Project in the RS, and Energy Efficiency Project in the FBH), and temporarily affected performance of these otherwise highly satisfactory operations. These factors have translated into implementation delays, often requiring project extension (all projects that were closed over the past two years had multiple extensions). The World Bank, the Ministry of Finance and Treasury, the FBH Ministry of Finance, and the RS Ministry of Finance will conduct regular quarterly and in-depth annual portfolio reviews to proactively address emerging portfolio issues. 22. During the CPF, IFC’s investments reached US$13.2 million in long-term funds, with an additional US$199 million facilitated in new private investments through advisory work. IFC’s own account investments have been limited due to a number of constraints. Most notably, the relatively low demand in the financial sector, as a result of banks’ excess liquidity; limited progress on key structural reforms to unlock the potential of the private investments; and a complex political environment has weighed on the economy, business climate, and investor sentiments. In the real sector, IFC committed US$8.5 million to Sisecam Soda Lukavac, the BiH soda ash producing subsidiary of the Sisecam Group, one of the largest glass producers in the world. IFC’s investment in Sisecam Soda Lukavac helped increase energy and resource efficiency and productivity in production processes resulting in reductions in CO2 emissions. IFC provided US$4.2 million to Mostar-based UniCredit Bank to support its lending activities for energy efficiency and renewable energy projects, leading to increased access to finance of households and SMEs while promoting energy efficiency. Additionally, through targeted corporate governance, resource efficiency, and regulatory level reform interventions, IFC Advisory Services facilitated US$199 million of private sector investments. Although direct lending volume remained below the original CPF envelope, IFC’s main impact in BiH has been primarily based on a strong advisory program aimed at promoting an enabling environment, and providing much needed support for reforms and institutional capacity building in critical areas. Main areas of Advisory Services support include insolvency, NPL resolution, corporate governance, investment climate, FDI promotion, trade facilitation, renewable energy and energy efficiency, and access to finance. 23. MIGA’s gross outstanding exposure in BiH reached US$421 million as of December 25, 2018 in support of four projects in the financial sector. In 2016, MIGA issued two guarantees for two new projects totaling US$248 million covering the equity investments by UniCredit Bank AG of Austria, and UniCredit S.p.A. of Italy in their respective subsidiaries in BiH, against the risk of expropriation of funds held at the Central Bank of BiH. In March 2018, MIGA issued a US$141 million guarantee covering the equity investment by Raiffeisen Bank International AG in its subsidiary in BiH also against the same risk of expropriation of funds held at the Central Bank. In July 2018, MIGA 6 issued a US$10 million guarantee covering the equity investment by ProCredit Holding AG of Germany, in its subsidiary in BiH also against the same risk of expropriation of funds held at the Central Bank. These MIGA guarantees will free up equity held at the parent banks to protect against perceived BiH country risk thereby facilitating the subsidiaries’ ability to extend more credit, and with it the potential to stimulate growth and employment in BiH. B. Corporate Priorities (citizen engagement, climate change, gender, MFD) 24. Since 2014, when the Citizen Engagement (CE) corporate requirements were introduced at the WBG, efforts were stepped up to embed CE in all IPFs in the BiH portfolio. While the country has now reached 100 percent compliance for CE, the portfolio has struggled with quality and with the level of implementation of CE mechanisms. Of those projects that have included CE activities, 50 percent enable citizens to provide feedback at least annually and only 25 percent make available more than one CE mechanism. The portfolio largely relies on rather passive mechanisms, such as Grievance Redress Mechanisms and satisfaction surveys, which do not provide an opportunity for direct interaction or active engagement. During the remainder of the CPF period, specific actions are planned to improve the quality and strengthen implementation of citizen engagement, including: (i) shifting from passive to active CE tools in the BiH portfolio which encourage more dialogue and a state/non-state interface, (ii) linking the implementation of CE activities to more open and frequent reporting of results, (iii) taking corrective action on projects facing CE challenges, and (iv) identifying CE country priorities in a CE country roadmap linked to CPF objectives (see Annex 4 for details). 25. Climate co-benefits 10 analysis of the proposed projects in the second half of the CPF cycle suggests that over a third of financing carries climate mitigation or adaptation co-benefits. Proposed additional financing operations, and new investments in road modernization and water and sanitation services are expected to carry over one third of climate mitigation or adaptation co-benefits. 26. The CPF program focused on gender equality and services to the most vulnerable but the gaps still persist. Recognizing “social inclusion” as a cross-cutting theme of the CPF, much progress has been made in the diagnosis of gender barriers over the past years, due to a large body of analytical work produced under a gender-focused Trust Fund program. Findings show that women face lower access to assets such as property and finance. Constraints embedded in labor regulation affect women’s employment opportunities. Limited access to services that support economic participation such as child and elder care present another constraint. This analysis is feeding into the World Bank dialogue on access to finance in BiH, whereas at the regional level the World Bank is advocating a regional engagement aimed at addressing the above identified structural constraints and increasing cross- learning and monitoring. On the lending side, while all approved projects were gender informed, this has not led to significant outcomes in narrowing gender gaps. For example, in case of the RS Railways Restructuring project – the workforce retrenchment plan aimed to maintain the current 85 percent male to 15 percent female employee ratio rather than attempting to narrow the gap. On a positive side, Energy Efficiency Additional Financing operation included strong gender analysis and devised actions to help close skills gaps in the area of energy efficiency. 27. Public sector dominates the economy, hence there are limited opportunities for the private sector development in BiH. Therefore, through focus areas 1 and 2 by tackling governance of SOEs and improving the use of public resources and competitive business environment, the CPF 10 Climate co-benefits tracking determines a portion of project’s financing that carries climate mitigation or adaptation co-benefits. 7 aims at addressing maximizing financing for development (MFD) binding constraints. The program targets investments in public goods in such sectors as energy, infrastructure, water, trade, and finance, which are essential for strengthening the enabling environment for private sector financing. Most promising results in terms of specific MFD enabling investments were demonstrated in the energy sector. Both IBRD and IFC have been working on supporting energy market improvements that can lead to country’s longer-term energy self-sustainability, especially through increased reliance on renewable sources. Over the next two decades BiH can develop new renewable energy (RE) facilities (hydro, wind and solar) worth US$1.5 billion if conditions are created to encourage private sector developments. IFC has helped with drafting the new RE laws, worked on increasing private sector participation in small-scale projects, and advised financial institutions on strengthening their risk management practices for the RE sector. As result of these activities, IFC facilitated close to US$161 million of investment in small hydro, solar, and bio mass projects. IBRD and IFC technical teams jointly developed the Power Note that describes various scenarios of power sector development and sustainability focused on meeting country’s climate targets. Both organizations have also started working together on the Drina river basin program to systematically create conditions for RE development at a larger scale while addressing flood prevention and biodiversity preservation. Additionally, BiH scores low on overall energy efficiency, and IBRD has prepared the Energy Efficiency AF project, scheduled for the Board in October 2018. The operation is designed to mobilize commercial solutions in the medium-term to scale up financing mechanisms beyond concessional financing. IFC, MIGA and IBRD teams will continue to systematically pursue the MFD potential in the energy and other key infrastructure sectors. C. Evolution of Partnership and Leveraging 28. The WBG has supported implementation of the Reform Agenda with high level of alignment and cooperation with development partners. In addition to support to the Reform Agenda, the World Bank closely collaborated with the EU in areas such as public finances, public sector management reform, waste water treatment, solid waste management, and agriculture. The IMF has been a close partner in strengthening public finances. Going forward, the World Bank and the IMF plan to provide additional technical assistance to the FBH Government aimed at taking stock of arrears and developing an action plan to prevent further accumulation and reduce the amount of public sector arrears in the FBH. In the transport, energy, and environment, the WBG will continue to explore partnerships with the EBRD, EIB, and the EU. Close collaboration is also visible in areas of transport where the World Bank cooperates with the EBRD, EIB and EU, but also in energy and environment. Swiss Development Cooperation remains the key development partner in the health sector, whereas SIDA and USAID will be closely consulted during preparation of the Water and Sanitation Services Modernization project. Concerning cooperation with Civil Society Organizations, more regular dialogue will be conducted during the remaining part of the CPF cycle to further improve understanding of reform processes and benefits of reforms in key sectors. 29. In support of the Reform Agenda, and in particular its focus on restarting privatization process, IFC worked in close collaboration with IMF. In the context of the IMF’s Extended Fund Facility program, BiH authorities requested IFC assistance in completing a detailed due diligence as a basis for future privatization of BH Telecom, the largest telecom operator in the country, and 98 percent owned by the FBH government. However, the FBH Government could not commit to start a privatization process, and therefore was unable to sign any mandate for engagement with IFC to start this process. 8 30. UK DFID/Good Governance Fund, the Swiss Government/SECO and the EU were the lead partners of the WBG in the areas of investment climate, and access to finance. Specifically, IFC partnered with these development partners in the following programs: Local Investment Friendly Environment (LIFE), Investment Climate Advisory Project (ICAM), and Debt Resolution and Business Exit. Swiss Government/SECO continued to support IFC efforts in the microfinance sector through a country-based project. In parallel, it has provided funding to strengthen the financial market through trainings and other outreach activities under the umbrella of the regional advisory program in selected ECA countries, including BiH. IFC launched its Western Balkans Investment Policy and Promotion Project in collaboration with the European Commission. The project aims at unlocking higher levels of foreign direct investment, spur economic growth and promote job creation across the region. ECA Energy and Water program and recently approved ECA Power program (expanded from the Balkans Renewable Energy program) are implemented with support of the Austrian Federal Ministry of Finance. A total of 14 advisory projects were approved or active during reporting period. Seven projects had country specific allocations of US$18 million, while the other six operated under regional umbrella platforms. It is estimated that approximately additional US$5 million was allocated to BiH through regional platforms. D. Overview of Progress toward Achieving CPF Objectives 31. The design of the CPF Result Framework partially contributed to relatively solid performance against the CPF indicators despite stalled reforms. The original CPF Result Framework largely reflected targets that were attainable during the first two years of the CPF cycle from mature operations, and Public Finance DPL, preparation of which was underway at the time of the CPF preparation. Recognizing the risk of reform slowdown, the CPF Result Framework was based on expectation that reform progress will be uneven during the CPF cycle. Consequently, the analysis of CPF indicators suggests stronger than expected progress considering the stalled reform process (see Table 1 below and Annex 1 for details). For example, targets in Focus Area 1: Increasing Public Sector Efficiency and Effectiveness appear largely on track although the reforms have stalled and the authorities in BiH showed little appetite for additional budget support over the past two years. The PLR introduced changes to the CPF Result Framework to align it with the planned engagement during the remaining part of the CPF cycle. Table 1: Overview of Progress against CPF Indicators CPF Focus Area Achieved On Off track track Focus Area I: Increasing Public Sector Efficiency and Effectiveness 0 4 2 Focus Area II: Creating Conditions for Accelerated Private Sector Growth 2 5 2 Focus Area III: Building Resilience to Natural Shocks 3 2 0 TOTAL 5 11 4 32. In this context, the CPF is on track to meet its relatively modest objectives and remains aligned with the BiH Reform Agenda. Based on the Systematic Country Diagnostic (SCD) priorities, and the BiH Reform Agenda, the CPF was designed around three pillars focusing on public sector efficiency, private sector growth, and resilience to natural shocks. Relatively stable performance of investment operations carried forward from the previous cycle, results of the World Bank development 9 policy financing (Public Finance DPL), and a strong engagement in technical assistance 11 and IFC advisory services have all contributed to attainment of CPF objectives. Investment projects approved during the first half of this CPF cycle (Federation Road Modernization, Employment Support Project, RS Railways Restructuring, and Banking Sector Strengthening) are expected to contribute to CPF objectives in the second half of this CPF cycle. 33. In Focus Area 1, the CPF program is largely on track to achieve targets in increasing public sector efficiency, while important governance shortcomings were observed in public service delivery. Public Finances DPF and strong ASA program strengthened management of public assets and liabilities, and improved transparency of public finances by supporting adoption of the Medium-Term Debt Strategy, Public Investment Programs at the state and entity levels, and introduction of reporting requirements on arrears for budget users in the FBH and health sector arrears in the RS. The Bank program also helped contain fiscal pressures by addressing structural challenges in pensions through new pension law in the FBH, public employment and public enterprises through reforms of the labor law, new bankruptcy procedures, and adoption of regulation on pricing of pharmaceuticals. Overall, whereas planned extensive DPF engagement did not materialize, strong ASA engagement contributed to progress against CPF indicators. For example, only for the CPF objective 1, seven different pieces of technical assistance and analytical work were delivered over the past two years, and six are currently ongoing. The program was less successful in reducing the fiscal burden of State-Owned Enterprises (SOEs), as the FBH Government’s resolve to address this risk on fiscal health has weakened. Nevertheless, the Bank has helped reduce budgetary burden of SOEs in the RS by providing financing for restructuring of the RS Railways. Through the work on RS Railways, and substantive analytic work (SOE Diagnostic Note, and Policy Note on Railways Modernization), the World Bank has provided important inputs for improved transparency and better management of SOEs and paved the way for better informed policy making, and possible future engagement in this area. Mixed results were achieved in improving public service delivery. The Bank temporarily discontinued preparation of a lending operation in the health sector in recognition that the obstacles hampering the efficiency of the sector are not related to financing but to shortcomings in terms of strategic direction and governance; but policy dialogue and technical assistance in this sector have continued. While solid progress has been made in improving waste water services, sustainability of outcomes is uncertain as financial and operational sustainability of assets after project closure has been inadequate due to financial and governance constraints. 34. In Focus Area 2, the WBG program has been on track to achieve targets related to competitive business environment and economic infrastructure, and less successful in improving employment opportunities. There has been some progress in improving the business environment, however the country’s Doing Business ranking has continued to deteriorate due to a depth and pace of business environment reforms that is much lower than that of peers. In financial sector, there has been considerable progress towards implementation of actions needed to enhance financial stability 12. On economic infrastructure, noteworthy advancements were made in upgrading energy efficiency of public buildings and increasing renewable energy generation. On employment, despite effectiveness delays, the Employment Support Project is expected to support achievement of objectives related to 11 23 different ASA products were completed in the first half of the CPF cycle and 18 are still ongoing. 12 Actions followed recommendations from the World Bank’s Financial Sector Assessment Program completed in 2015 and, include improvement in the areas of bank supervision and resolution aiming at strengthening financial oversight and safety net. The World Bank’s technical assistance has supported enactment as well as implementation of a solid legal framework for banking aligned with EU requirements; and supported the authorities in conducting a Money Laundering/Terrorist Financing National Risk Assessment and developing an action plan based for the prevention and mitigation of money laundering and terrorism financing risks. 10 promoting and improving labor market outcomes. Some progress has already been made in this area, including two rounds of amendments to the labor law on collective bargaining, severance pay, and minimum wage, and new law on reduction of social security contributions. 35. The CPF program achieved limited success in sustaining and creating jobs through direct real sector investments. IFC financing for MSMEs in BiH helped more than double its client banks’ outstanding MSME portfolio, resulting in indirect job creation. IFC completed three repeat investments with real sector clients and helped sustain existing jobs, though with limited impact on new job creation. An important development for IFC has been the PPP Advisory mandate for the Corridor 5c, a European route that connects Budapest with the Adriatic Sea, with an estimated investment volume of EUR400 million. Completion of this road section as a PPP concession is still unclear as progress had been delayed by the authorities due to elections. IFC’s Debt Resolution and Business Exit program made progress in improving insolvency framework in BiH. The new Bankruptcy Law enacted in the RS in 2016 has already helped resolve 51 insolvency cases valued at US$50 million. As a result, 600 jobs have been saved, which were at risk in ailing companies. Through its Investment Climate Advisory Project, IFC provided support for the development of five laws, focusing on improving operating environment for SMEs in tourism and agri-business value chains. These draft laws are currently pending for approval by the entity governments or parliaments. Western Balkans Investment Policy and Promotion Project supported the design and adoption of the Regional Economic Area Multi- Annual Action Plan (MAP REA). The plan will serve as the major roadmap for investment policy cooperation among the Western Balkan countries over the next 3-5 years. Besides notable achievement in cost savings to businesses, IFC’s Local Investment Friendly Environment (LIFE) Project made significant strides towards more transparent and predictable business environment. It helped institute twelve public electronic registries for business procedures and thirteen inventories of investment incentives. IFC, through its Microfinance Bosnia Advisory project, is helping the FBH Banking Agency with the development of five new laws and policies. These will be critical for the consolidation of the market while also providing institutional and operational capacity support. 36. In Focus Areas 3, the CPF program was successful in preventing degradation of natural resources and achieved mixed results in building resilience to natural shocks. Targets related to sanitary landfills, sustainable land management have been already achieved, whereas targets related to management of hot spots and water resources management are on track to be achieved by the end of this CPF cycle. Noteworthy progress was made in supporting rehabilitation of regional and local infrastructure after catastrophic floods in 2014. The CPF program has been less successful in building resilience to floods along Drina river where unresolved property issues threaten to halt the project implementation in the RS, and targets will need to be significantly revised. BiH benefited from the regional projects aimed at building resilience to natural shocks (Drina GEF Special Climate Change Fund project). The Western Balkans Investment Facility TA for Joint Management of Sava River supported development of a regional platform for Flood Forecasting and Warning System. As stated earlier, institutional and financial capacity to operate and maintain infrastructure has proven problematic in BiH and will need to be addressed during restructuring of the existing and preparation of new operations. IV. EMERGING LESSONS 37. The World Bank was flexible in aligning its instruments to the reform commitment. The CPF design took into consideration the lessons from earlier periods of strong support to structural reforms in BiH which suggested the need to continuously assess political commitment for reforms, align complexity of operations with institutional capacity in BiH, and maintain flexibility to adjust the 11 engagement 13. The CPF correctly recognized the reform momentum in 2015 upon adoption of the Reform Agenda. Indeed, early reform efforts supported by the WBG through DPF and strong ASA support delivered positive results in pushing forward long overdue structural reforms in the labor market, public sector finance, and business environment. As the pace of reforms slowed, the World Bank used investment lending to support corporate restructuring and employment support, while continuing provision of ASA support. Going forward, factors such as lower than expected pace of reforms and low interest for budget support in light of fiscal surpluses are likely to reduce the need for DPF as a source of financing and an instrument to support policy reforms. The World Bank will remain actively engaged with the authorities through investment lending, ASA and policy dialogue in key sectors, and use these instruments to support policy reforms. 38. The World Bank needs to continue actively supporting the improvement of the efficiency of SOEs. The recent experience of the RS Railways Restructuring Project suggests that it is possible to support structural reforms, improve transparency and reduce budget burden from SOEs through well designed investment operations. ASA on Balkans Digital Highway also provided important lessons on avenues for SOE efficiency improvements. For example, in case of the SOE “Elektroprenos” Banja Luka, annual revenue could be increased by 3 to 5 percent by more efficient use of spare fiber optics capacity, 80 percent of which was unused as the time of assessment. Going forward, there will be continued engagement on the SOE agenda through ASA work, policy dialogue with the authorities and in cooperation with development partners (IMF, EU). 39. Enhancing the operational and financial sustainability of infrastructure for provision of public services is paramount. The results of the World Bank’s engagement in supporting infrastructure investments in transport, local infrastructure, waste water, and solid waste management were often undermined by inadequate operations and maintenance upon project closing. This is often linked to lack of operational and financial capacity of municipalities to run and maintain the underlying infrastructure. Going forward, the World Bank will aim to work pro-actively with all relevant authorities to address these shortcomings, aiming at ensuring that all investments are sustainable in the long term. 40. Clear strategic direction and commitment to reforms is necessary to address systemic shortcomings in key sectors. In the health sector for example, the World Bank will continue working closely with all relevant authorities to identify the issues undermining efficiency in the sector and to propose workable solutions. The experience working in this sector over the past decade highlight that bringing additional financing into the sector without addressing these shortcomings is unlikely to substantively contribute to an efficient and responsive sector that adequately serves the needs of the population in BiH. 41. To seize the opportunity to increase private sector investment, coordinated engagement between IBRD, IFC, and other development partners is of paramount importance. Recent experience with the BiH Energy Strategy development is one such example. A joint team of experts from IBRD and IFC developed the BiH Power Note, including a critical diagnostic to assess sustainability of power market in the country. The note was used by a team of consultants, overseen by the UK embassy under their Berlin process/Reform agenda mandate, during the preparation of the 13 In 2006, encouraged by the surge in public revenue after introduction of the VAT, the authorities abandoned an ambitious reform agenda that envisaged reforms of social benefits, higher education, public sector reform, and privatization of selected SOEs. Consequently, three World Bank credits (two DPLs and one TA credit) were cancelled and resources redirected for regional and local infrastructure investments. 12 BiH Energy Strategy. The strategy was finally adopted in August 2018, after years of delays resulting in repeated sanctions by the EU Energy Community. 42. IFC’s sequenced interventions in the renewable energy sector have been successful in attracting private investment into the sector for a number of small scale projects. IFC deployed a cascade approach effectively during a long-term, systematic and multi-pronged engagement. From 2010 to 2013, IFC focused on harmonizing regulatory framework which was complex and not harmonized to support RE development and investment. IFC’s initial advisory support under the Balkan Renewable Energy Program (BREP) eventually led to adoption of key renewable energy sector laws. In the second stage, IFC organized firm level workshops for local and international developers while, in parallel, supporting the policy process through further educating the policy makers. In the third stage, IFC provided assistance to local banks to build their internal capacities, especially in project finance, including support in assessing the first small hydro power plant (SHHP) projects in their pipeline. In 2016, in line with its advisory efforts, IFC extended a blended finance credit line to UniCredit Bank DD Mostar to support sustainable energy finance on-lending, especially to SHHPs. Finally, through its Renewable Energy Bosnia SHPP advisory project, IFC facilitated a cumulative US$161.5 million in private sector financing into RE assets. The implementation of large scale private projects is still challenging mainly due to the dominance of public sector, counterparty risks related to key project parties (potential off-takers), and the level of development of contractual framework. These constraints need to be addressed by the regulator to unlock the potential for large scale projects in which IFC is willing to engage on the advisory and investment side. 43. In an environment where there is inconsistent commitment to reform at the national level, some progress can still be made at the subnational level, provided there is leadership willing to reform. Canton Sarajevo was a good example of how this model can bring about the results directly affecting the businesses – following the reforms, various fees related to court fees for land and business registers were reduced by 50 percent, followed by reduction of fees to register business by 82 percent, and re-registration fees reduced by 77 percent. The redundant fee for work permits for foreigners has been abolished (from a baseline of BAM1,000). These amendments and changes have resulted in US$1,316,745 in direct cost savings for private sector on annual basis. In 2016, after the reforms were completed employment figures in Sarajevo Canton surged by 29.7 percent. Furthermore, experience working with the local (municipal) authorities under the Floods Emergency Recovery Project has been very positive. Local governments have proven capable to identify, prepare and implement priority projects in response to disastrous flooding in May 2014. Close to 400 sub-projects were implemented to rehabilitate and build-back-better local infrastructure in flood affected areas. This included rehabilitation of 226 kilometers of rural roads, rehabilitation of water supply and sewage systems, land slide rehabilitation, river beds rehabilitation, and rehabilitation of key local facilities such as schools, kindergartens and ambulances. The World Bank will build on this positive experience while designing the new Water and Sanitation Services Modernization Project. 44. IFC’s recent experience with a local sponsor in breach of contractual and payment obligations highlighted several systemic issues in relation to governance of private companies and legal predictability of the business environment. IFC’s attempts to resolve a contractual breach situation lasted for over 18 months, and did not result in mutually acceptable agreement, which has been a key lesson learned for IFC when operating in a politically complex environment. Although IFC found local courts to be relatively efficient and independent, the complexity of enforcement processes coupled with flawed valuation practices proves that international lenders are at risk of not being able to exercise their repayment rights. 13 V. ADJUSTMENTS TO COUNTRY PARTNERSHIP FRAMEWORK 45. The CPF focus areas and cross-cutting theme of social inclusion remain relevant and fully aligned with the BiH Reform Agenda. Consultations with the Ministry of Finance and Treasury, and entity level ministries of finance, representatives of opposition parties, and civil society confirmed continued relevance of the CPF design. Political stakeholders also confirmed that, irrespective of the outcome of October 2018 general elections, the priorities outlined in the Reform Agenda will continue to provide a broad framework for economic and social reforms in BiH. 46. Nevertheless, recognizing the current low pace of reforms, the World Bank will adjust its program. The original CPF design envisaged a strong focus on support for structural reforms through a series of four development policy operations. World Bank support will increase focus towards addressing structural deficiencies and stimulate growth and jobs mainly through targeted investment lending and ASA. Until the end of the cycle, the CPF program will include additional financing for successful operations, new investment lending in areas where there is strong commitment (Table 2 below outlines the proposed IBRD financing program), and a strong ASA program. The ASA program will help maintain policy dialogue in the key sectors and provide analytical underpinning for engagement in key areas (for example: health, SOE reform) if the reform momentum re-emerges. Table 2. CPF IBRD Financing Program CPF FY16-FY20 LENDING SUMMARY PLANNED (in US$ millions) ACTUAL and PROPOSED (in US$ millions) FY16 IBRD FY17 IBRD TF Management of Fiscal Resources for 70 Public Finances DPL 80 Growth Federation Road Sector Modernization 64.6 Health Project 50 Federation Road Sector Modernization 55 Employment Support Project 55.8 FY17 Banking Sector Strengthening 60 RS Road Sector Modernization 50 Reducing Health Risk Factors 1.4 Business Environment (result based) 60 FY18 Employment Support Program 50 RS Railways Restructuring 60.6 Management of Fiscal Resources for Growth 2 70 Sub-total FY17-FY18 321 1.4 Sub-total FY16-FY17 405 FY19 – FY20 proposed program* Energy Efficiency AF 32 FY18 – FY20 indicative program Real Estate Registration AF 23 SOE Reform (DPL) Business Environment Strengthening 60 Management of Fiscal Resources for Growth 3 Water and Sanitation Services Modernization 50 SME Support for selected sectors, with IFC RS Road Modernization 50 Disaster Risk Management/Flood 215 Protection Sub-total FY18-FY20 Financial Sector Stability 345 Sub-total FY18-FY20 TOTAL planned 750 536 1.4 *The program estimate is based on confirmed areas of interest by the authorities. The World Bank will consider Fiscal Reform DPF, and investments in regional trade and transport facilitation, integrated program for Sava-Drina river corridor, agriculture, and forestry sectors in case a strong demand for financing and commitment for reforms emerge in these sectors after elections. 14 47. The IFC will revise its investment targets for the CPF period to US$60-80 million while actively seeking to scale up depending on the reform progress in post-October election period. The IFC’s original lending target of US$70-100 million was based on expected increase in FDI investments, implementation of structural reforms, particularly the privatization of SOEs including in the telecommunication sector, as well as the realization of the PPP on Corridor 5c. Most of these did not materialize, and IFC investment remained at only US$13.23 million during the first two years of the CPF period. Given the lack of clarity in moving ahead with privatization and PPP agenda, coupled with stagnant FDIs in the country, the IFC will continue to allocate resources to support necessary structural reforms through its advisory services. The prospects for IFC to provide intermediate financing for on-lending to MSMEs is limited by several factors related to both the supply and demand for credit. On the supply side, BiH financial sector has recovered after the crisis and is now sufficiently liquid. The banking sector has gone through a systemic upgrade, having adopted new banking laws and strengthened banking operations and supervision role by introducing Basel III and IFRS9 standards. Non-performing loans have been steadily declining from the peak level of 15.1 percent in 2013 to 9.3 percent as of mid-2018, albeit still high in the corporate segment. Lending activity is geared towards retail and public sector as well as entity governments bonds, while small segment of the private sector being banked is driving low margins and shrinking profitability. European development banks continue to provide financing to a selected number of banks below market price, which further affects IFC’s lending to banks. On the demand side, there is no uptick as the private sector is showing modest signs of recovery. Private sector accounts for about 50% of the GDP and is represented almost entirely by micro and small businesses. IFC will continue to support microfinance sector, help systematically mitigate market risk by modernizing insolvency framework, and provide support for NPL buy-outs. This is expected to result in increased lending volumes to the private sector in the MSME segment. Also, IFC will continue with targeted business environment reforms to stimulate business entry and operations. 48. Considering the proposed shift from budget support to structural reforms towards addressing structural deficiencies in key sectors, the objectives of Focus Area 1 will be supported through ongoing investment lending, and strong program of advisory services and analytics. Recently approved RS Railway Restructuring operation will contribute to results in this Focus Area. Engagement through the RS Railway Restructuring project, completed and ongoing analytic work on SOEs, and policy dialogue with the authorities on the SOE agenda, may pave the way for possible future operations in this area. Planned Water and Sanitation Services Modernization project will focus on improving public services in water sector by enhancing operational and financial sustainability. Based on the positive earlier experiences working with local governments, this project will build on the reform commitments and further strengthen capacity of selected local governments in the water sector. The ASA Program will continue supporting broad aspects of Public Sector Management Reform and informing the design of lending operations via diagnostics and capacity building. A series of tasks, including Debt Sustainability and Expenditure Arrears, Public Sector Accounting and Reporting, and Strengthening Legislative Scrutiny, will focus on debt reporting and recording, reporting of arrears, and overall fiscal planning and transparency of public finances. Functional reviews of health system performance and education service delivery will be conducted to assess structural deficiencies in these sectors. Pension Reform TA will continue strengthening social protection in BiH. Urban Partnership Program, Urbanization Review, the Danube Water Program, and Solid Waste Management TA will focus on enhancing local governance, effective public service delivery, and urban planning. 49. New activities in Focus Area 2 will be aligned with the holistic approach to growth and jobs. Additional financing for the Real Estate Registration Project will contribute to improvements in 15 business environment and provide prerequisite for rural development. A planned Business Environment Strengthening operation will support further enhancements of business environment. Additional financing for the Energy Efficiency Project will contribute to improvements of economic infrastructure. Building on the previous work, through a technical assistance program, the Bank will focus on fostering investment and improving access to finance and financial sector oversight and management. The Improving Commercial Justice TA aims at reducing procedural inefficiencies and practices that cause the greatest delays in commercial cases. Western Balkans Study on Diversification of Financial Markets and Western Balkans Competitiveness TA will be supporting the implementation of the Multiannual Action Plan for a Regional Economic Area in the Western Balkans Six, including BiH, with the aim to make the region more attractive for investment and trade. Developing Private Employment Services, Western Balkans Pension Reform TA, Public Sector Employment and Labor Markets, and Western Balkans Poverty Program will focus on improving labor market flexibility and social protection. A series of tasks, including Mainstreaming Disaster Risk Management into Road Network Management and Integrated Water and Hydropower Development in the Drina River Basin, will also tackle structural deficiencies in infrastructure. The World Bank Energy team will deepen its strategic support to the CPF program through: (i) a follow-up IFC/IBRD regional ASA on Integrated Water and Hydropower Development in the Drina River Basin to help review, identify and prioritize hydropower development projects for BiH, Serbia and Montenegro, and (ii) supporting key energy sector market reforms and renewable energy developments through follow-up ASAs and policy dialogue. 50. IFC’s advisory program in Focus Area 2 will remain largely unchanged, as most active programs have been approved for continuation. Building on its experience from the ECA Corporate Governance Advisory Project (completed in 2017), the IFC will continue supporting corporate governance improvements in BiH through a new regional initiative — the ECA Integrated Environment, Social and Corporate Governance Advisory Program. Regional ECA Financial Market Public Outreach Program is set to finish implementation in FY19 but similar activities are expected to continue under a new financial sector advisory program. Upon the closure of Balkans Renewable Energy Program, support to renewable energy market development has continued through recently approved IFC ECA Energy and Water program. Table 3 below indicates active IFC advisory projects and allocated budgets as of July 2018. Table 3: IFC Advisory Projects BiH SPECIFIC PROJECTS ACTIVE as of July 2018 Funded through MF Bosnia (569807) US$ 3,281,324.00 30/Jun/20 DR BiH (601099) US$ 1,550,000.00 30/Mar/22 Bosnia SN IC (600904) US$ 8,226,202.00 31/Mar/19 ICAM (601646) US$ 2,500,000.00 31/Mar/19 REGIONAL PLATFORMS ACTIVE IN BH as of July 2018 ECA FMPO (600668) US$ 1,081,444.00 31/Dec/18 ECA Power (601333) US$ 4,959,482.00 30/Jun/19 W.Balkans IPP (601642) US$ 2,766,000.00 30/Jun/2020 ECA Energy&Water (601067) US$ 4,210,582.00 31/Dec/2019 DCW ECA CGP (599538) US$ 1,285,446.00 31/Dec/2018 16 51. In Focus Area 3, CPF objectives will be pursued through a strong portfolio of existing investment projects with increased emphasis on sustainability of infrastructure investments. Floods Emergency Recovery Project and Sustainable Forest and Landscape Management Project are in final phase of implementation and have already significantly contributed to CPF objectives in this focus area. Drina Flood Protection and Irrigation Development Project will be restructured and are expected to meet their targets. Restructuring of these operations will also address sustainable operations and maintenance of project supported infrastructure. Solid Waste Management TA will continue helping improve sustainability of solid waste management practices in BiH. The Regional Air Quality Management study, focused on three cities in the Balkans where air pollution is most prominent, including Sarajevo, will assess the current status, help forge the path to future cooperation, and draw attention to the interlinked relationship between population health impacts and pollution management. A series of ASAs will focus on water resource management and capacity building for flood management and forecasting (Joint Flood Management of the Sava River Basin, Integrated Water and Hydropower Development in the Drina River Basin, Study for Establishment of the Protection Zones of a Klokot Source). Finally, preparation of a regional Integrated Program for Sava-Drina River Corridor is underway and offers another opportunity to strengthen capacity and build resilience to natural shocks. 52. IFC and MIGA remain committed to support private sector development. Depending on the pace of reforms after the October elections, IFC will explore opportunities to provide support through direct investments in distressed assets through IFC’s regional DARP initiative, general manufacturing, agribusiness, services, and infrastructure. Advisory work will support better business environment, primarily to unlock viable assets by instituting modern insolvency regimes, reduce administrative burden and cut the red tape at municipal level, strengthen investment policy and promotion, introduce advanced trade facilitation regimes, further support microfinance sector, and help companies develop better corporate governance and resource efficiency mechanisms. In the remaining part of the CPF cycle, MIGA will continue to look to support cross-border investments, both debt and equity, aligned with the CPF’s focus areas and objectives. 53. The CPF Result Framework was revised to reflect changes in the program and to correct inaccuracies in the original version. Timeline for baseline and target values was introduced for all indicators. The indicator on fiscal burden of SOEs was dropped and a new indicator introduced to better capture the nature of the World Bank engagement in this sector. The indicator on pharmaceuticals is better aligned with the earlier World Bank engagement in this sector and available data. Supplemental indicators related to planned health sector engagement were dropped due to uncertain engagement in this CPF cycle. Supplemental indicator was revised for engagement in flood management along Drina river to reflect realistic target until the end of the CPF cycle. See Annex 2 to review all revisions introduced. VI. RISKS TO PROGRAM 54. The challenging political environment remains the key domestic risk. The political environment may delay reforms and investments in critical sectors. Possible delays in governments formation after elections may delay planned operations. Political uncertainties also raise risks to the economic outlook. A deterioration of the external environment is a further risk to macroeconomic stability and growth. BiH continues to face balance of payments needs and relies on IFIs and the EU to fund its external financing gap. The country’s export base, which is strongly dependent on steel and aluminum among other commodities, make the economy vulnerable to hikes in import tariffs. Moreover, shocks affecting the EU can be transmitted to BiH through trade and financing channels. 17 As recognized in the CPF, development of sound sector strategies and policies in the complex and decentralized governance structure in BiH remains challenging and creates adverse incentives for groups of stakeholders. Despite significant improvements, particularly in procurement and financial management, institutional capacity for implementation remains a substantial risk. Environmental and social risk remain substantial as the country is prone to natural disasters, floods in particular, and is yet to develop sustainable coping mechanisms. Summary of risk ratings is provided in Table 4 below. 55. The risks will be mitigated through continued rigorous political economy analysis and adjustment of the program in line with commitment to reforms, and through intensive consultation during preparation. The World Bank will strengthen focus on implementation readiness, and client capacity building, and intensify implementation support efforts to ensure continuous strengthening of sector strategies and institutional capacity. In addition to rigorous political economy analysis, political risk will be mitigated by focusing on lending and ASA instruments that are realistically deliverable in areas with strong commitment for reforms by majority of political stakeholders. Sector strategies and institutional capacity risk will also be mitigated through increased focus on structural deficiencies in key sectors and sustainability of investments in infrastructure. Table 4: Systematic Operations Risk-Rating Tool Risk Category Rating (H, S, M or L) Political and governance High Macroeconomic Moderate Sector strategies and policies Substantial Technical design of project or program Moderate Institutional capacity for implementation and sustainability Substantial Fiduciary Moderate Environment and social Substantial Stakeholders Substantial Overall High 18 ANNEX 1: Bosnia and Herzegovina - FY16–20 Country Partnership Framework – Performance and Learning Review Updated CPF Result Matrix FOCUS AREA 1: INCREASING PUBLIC SECTOR EFFICIENCY AND EFFECTIVENESS CPF OBJECTIVE 1A: IMPROVE MANAGEMENT AND EFFICIENCY OF PUBLIC FINANCES CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Public sector arrears Off track - The entity Indicator 1: Adoption of On track - Achieved in 2016 Completed lending: are documented, publicly available governments drafted annual budgets at the Entity and 2017. In 2018, annual - Public Finance DPL and updated on a regular basis and strategies/programs on dealing and Institutions level in line budget for RS adopted in line the level of such arrears is reduced with public sector arrears. with budget calendar. with the budget calendar, Completed ASA: as a share of GDP. While adoption of annual budgets for BiH - Macro modelling TA strategies/programs is possible Institutions and FBH adopted - Debt Sustainability TA Baseline: No data until the end of the CPF cycle, with delays. - Wage Bill Management TA Target: Public sector arrears data strong reform commitment by - Public Sector Arrears TA available and updated on the newly elected authorities Indicator 2: Adoption of Achieved - Medium-Term - Western Balkans Pension governments’ website and level of will be required to tackle Medium-Term Debt Strategy Debt Strategy for the country Reform TA arrears reduced relative to initial public sector arrears for the country. adopted for the period 2016- - Western Balkans Regional estimates particularly in the health 2018. Health Engagement and sector. Health Sector Arrears Study Indicator 3: New pension law Achieved with delays - (law - Deposit Insurance Agency Indicator 2: Reduction in general On track - New pension law approved in the FBH (mid- adopted in January 2017, and Strengthening (Financial government pension expenditure as adopted in the FBH and 2016) entered into force in January Sector Advisory Services a share of GDP entered into force in 2018. The 2018). Center) target is achievable until the Baseline: 10.4 percent end of this CPF, as pension Target: 9.4 percent Indicator 4: Deposit On track – Deposit Insurance Ongoing ASA: expenditures are estimated to Insurance Fund adequately Fund is adequately capitalized -Capacity Building for decline by 1 percentage points capitalized and balance according to its biannual Medium Term Fiscal of GDP over the next 4 years sustained. assessment and is Planning and Forecasting in of implementation (first year finalizing discussions with BiH is 2018). EBRD over a new stand-by -Support to Public arrangement valued at EUR Management Reform 19 30m. The Bank did not pursue -Urban Partnership Program planned operation in this area, -Internal Audit Training of only TA. This supplementary Trainers Program indicator will be dropped. -Strengthening Legislative Scrutiny in the Western Balkans -Western Balkans poverty program FY18-19 CPF OBJECTIVE 1B: STRENGTHEN THE GOVERNANCE AND REDUCE THE FISCAL BURDEN OF SOEs CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Fiscal burden of SOEs Off track - SOE Diagnostic Indicator 1: Adopt a plan for On track - Report on Public Completed lending: is substantially reduced Note delivered. SOE restructuring. Sector Arrears recommended - Public Finance DPL Report on Monitoring, short-term and long-term Baseline: No data on SOEs Completed ASA: Management and Prevention policy options. Target: To be set after analytical - Balkans Competitiveness of Public Sector Arrears in the Regional TA (SOE work is completed [TBD] FBH also delivered. SOE’s Indicator 2: Legal framework On track- Transfer for unpaid Diagnostic Note) continue to present major risk for missing pensions past pension contributions will - Support to Railway on fiscal health mainly due to contributions formulated. be determined by the Law on Modernization (Policy Note) accumulated arrears (5.45% of Settling the Unpaid Pension - Western Balkans Pension BiH GDP; 8.39% of FBH Contributions. The Law is Reform TA GDP at the end of 2016), but prepared but currently on hold - IFC ECA Corporate the FBH Government due to its potentially high Governance TA commitment to address this fiscal cost. The FBH - Western Balkans Gender – FY18 agenda has been weakened Government may decide to ahead of 2018 elections. adopt it in 2019 after elections. Ongoing ASA: Indicator to be dropped. Indicator 3: 80% of SOEs On track - Training provided -Western Balkans poverty attending governance to Board members and program FY18-19 trainings implement changes management of 10 SOEs. and report improved Percentage of SOEs that performance (e.g. operational, implement changes will be organizational, financial). monitored going forward. 20 CPF OBJECTIVE 1C: IMPROVE PUBLIC SERVICE DELIVERY CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Tobacco excise taxes On track - Based on the BiH Indicator 1: Legislation Not achieved. There has been Completed lending: are aligned with EU standards. Law on Excises, the structure adopted to strengthen no progress in this area and the - Public Finance DPL of tobacco taxes is compatible autonomy and accountability Bank temporary discontinued - Sarajevo Waste Water Baseline: min. 51 EUR per 1000 with the EU system. As of of public hospitals. engagement. Policy dialogue - GEF Water Quality cigarettes January 2018, minimal excise about possible engagement in Protection Target: min. 90 EUR per 1000 duty amounts to 66.4 EUR per the health sector will continue cigarettes Ongoing lending: 1000 cigarettes. End target not during the remaining part of - Reducing Health Risk achievable by 2020 and will the CPF cycle. Factors (Swiss TF) be revised to 75 EUR per 1000 cigarettes. Indicator 2: Increase Not achieved. There has been Closed ASA: spending on preventive and no progress in this area and the - Western Balkans Gender Indicator 2: Reduce expenditures on On track - Rulebook on public health services Bank temporary discontinued FY18 pharmaceuticals by: Pharmaceuticals has been engagement. Policy dialogue Ongoing ASA: Baseline: 1.75 percent of i) reducing the total cost of the 50 approved by the BiH Council health spending in 2013 about possible engagement in - Danube Water Programme most commonly prescribed of Ministers in November Target: 2.25 percent of health the health sector will continue - BiH: Solid Waste outpatient medicines. 2016. Adoption led to during the remaining part of Management spending reduction in outpatient sales the CPF cycle. - Urban Partnership Program Baseline: from KM 72 million in 2015 - Western Balkans poverty Target: Reduction by 20 percent Indicator 3: Establish scope Not achieved. Planned Water program FY18-19 to KM 67 million in 2017. for water and wastewater and Sanitation Services ii) reducing the total cost of the 20 Overall, there has been 9 PPPs. Modernization project will most commonly used hospital percent decrease in overall consider pursuing this activity (inpatient) medicines. Health Insurance Fund Baseline: no work has yet in cooperation with IFC, but spending. been undertaken; and indicator will not be achieved Target: completion of PPP Indicator 3: Improved services of On track – WWTPs in this CPF cycle and will be study and vetted by key water and wastewater. operational in Sarajevo, dropped. stakeholders Zivinice, Odzak, Trebinje, Baseline: 3% of collected waste Konjic, Ljubuski, Trnovo Indicator 4: Improve legal Not achieved. Planned Water water is treated (WB supported), and Bihac and regulatory framework and and Sanitation Services Target: 30% of collected waste and Bijeljina (other donors). institutional capacity Modernization project will water is treated WWTP in Mostar to be consider pursuing this activity 21 operational by the end of in cooperation with IFC, but Baseline: EU assessment calendar year 2018 when the indicator will not be achieved Target: [Double] execution target of 30% is expected to be in this CPF cycle and will be capacity of civil service to fully achieved. dropped. undertake PPPs. FOCUS AREA 2: CREATING CONDITIONS FOR ACCELERATED PRIVATE SECTOR GROWTH CPF OBJECTIVE 2A: SUPPORT A COMPETITIVE BUSINESS ENVIRONMENT AND ACCESS TO FINANCE CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Improve Doing Achieved - As per Doing Indicator 1: Up to US$50 Achieved – IFC direct Completed lending: Business Distance to Frontier. Business 2018 BiH Distance million of investment investments reached US$13.23 - SME Access to Finance to Frontier improved to 64.2 facilitated as a result of million in long term funds: - Improving Quality Baseline: 60.55 points. improved corporate Infrastructure and Investment Target: 63 • US$4.24 million RE governance, energy efficiency Climate (RETF) credit line to UniCredit and regulatory reform Indicator 2: New and sustained jobs Off track - No new IFC clients Bank supported through Ongoing lending: interventions. through real sector investments in the real sector where Energy and Water - WB Real Estate employment measured. SSL advisory program, Registration Project Total sustained jobs baseline: 950 IV is a repeat investment in • US$8.48 million (existing) Completed ASA: 2016 with Sisecam Bosnia, investment by Sisecam Total sustained jobs target: 1700 - Improving Commercial Case already a portfolio client. SodaSo, the biggest (existing + new clients) Management in the Cimos Bosnia, a subsidy of a Turkish glassware Slovenian SOE, will be closed producer. Federation BH (under Good Total new jobs baseline: 0 (existing Governance and Investment as announced by the ailing clients) Through its advisory work IFC Climate Reform TF parent company. No actuals Total new jobs target: up to 400 facilitated additional Management and are reported in CY16-18 for (existing clients) US$199.19 million in new Knowledge) Bekto Precisa, an NPL client. private investments - BiH Financial Sector Indicator 3: By FY20 at least On track – Actual outstanding • Renewable Energy Bosnia Strengthening double outstanding MSME and MSME portfolio reached SHPP project facilitated a - Corporate Governance housing finance of IFC portfolio US$124.4 million as of 2017. cumulative US$161.5 Program clients Housing finance indicator is 22 MSME outstanding portfolio partially achieved. million of financing into - Tax Transparency and baseline: US$ 58 million Outstanding housing finance RE assets. Simplification Program MSME outstanding portfolio portfolio increased to US$91.5 • Corporate Governance (IFC) target: US$ 124 million million as of 2017. and Resource Efficiency Housing finance outstanding advisory program helped Ongoing ASA: portfolio baseline: US$ 83 million companies raise US$3.04 - FinSAC Bank Resolution Framework and Supervision Housing finance outstanding million, and TA portfolio target: US$ 147 million Indicator 2: Reduction of Additional US$34.65 million - EU REPARIS (Road to administrative burden of through strengthened Europe – Program of licensing in select areas, investment policy and Accounting reform and disaggregated below (using regulatory simplification. Institutional Strengthening) WBG T&C methodology): - Local Investment Friendly Advisory Project (IFC) On track - Direct costs a. direct costs savings by - Investment Climate savings of US$3.26 million. Advisory Project (IFC) $7 million as measured by standard CCS indicator. - Debt Resolution and On track - relevant laws yet to Business Exit (IFC) b. 20% reduction in indirect costs for businesses be enacted and implemented - Microfinance Bosnia Advisory Project (IFC; Achieved - 14,866 firms approved extension) c. up to 2000 firms will benefit from reformed - IFC ECA Energy and Water benefit from reformed - Western Balkans Investment licensing and registration procedures. Policy and Promotion requirements. Project - Regional ECA Financial On track –374 cadastral Market Public Outreach Indicator 3: Cadastral municipalities. Program (IFC) municipalities with - ECA Integrated harmonized land register and Environment, Social and cadastral data/established Corporate Governance REC in urban areas Advisory Program (IFC) Baseline: 62 MIGA guarantees: Target: 524 - Cover to foreign banks for expropriation of funds held at the Central Bank of Bih, freeing up capital to support extended lending in BiH 23 Indicator 4: Additional Not achieved - 338 enterprises enterprises reached with reached (2016), of which 109 financial services owned by women with additional 39 where women Baseline: 316 (2015), of held senior management which 125 owned by women positions. The Bank planned (owners/stakeholders) engagement in this area was Target (2020): 700, of which delayed. 200 owned by women. Indicator 5: New bank Achieved - Bank resolution resolution framework enacted frameworks were enacted in (2016). both entities (April 6, 2018 in FBH, Official Gazette 6/18; and in March 16, 2018 in RS, Official Gazette 20/18). Indicator 6: New insolvency Partially achieved - In the RS laws enacted in both entities new Insolvency Law adopted (2016). in February 2016 (Official Gazette of Republika Srpska no. 16/2016), and in the FBH currently in the adoption phase. CPF OBJECTIVE 2B IMPROVE LABOR MARKET FLEXIBILITY AND SOCIAL PROTECTION CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Ongoing lending: Indicator 1: Decrease the number of On track – 320,485 inactive Indicator 1: Reform of Public On track, although limited - BiH Employment Support inactive persons: persons, and unemployment Employment Services, progress has been made to Program reduced by 10% for both men including: (i) delinking of date. FBH has formulated an men aged 15 to 64, reduce by 10% and women - (total registered health insurance from Action Plan to reduce Baseline: 346,000 (2014) Completed ASA: unemployed is 519,228). unemployment registration, informality. The Plan is Target: 311,400 - Strengthening Employment Results achieved due to awaiting FBH Government Outcomes in BIH 24 women aged 15 to 64, reduce by outmigration and negative and (ii) improved profiling of approval. Further support will - Western Balkans Pension 10% population growth rather than unemployed. be provided under the Reform TA Baseline 580,000 (2014) due to positive measures. Employment Support Project. - Western Balkans Education Target: 522,000 Engagement Indicator 2: Reduced number Off track - number of men (source: LFS) - Western Balkans Gender of men who are registered who are registered with PES FY18 with the Public Employment but not looking for a job in Indicator 2: Increase in private Services as active job 2017 - 156,000. Number of Off track - 368,104 in private Ongoing ASA: sector formal employment: seekers,but are not looking women who are registered sector formal employment of - Developing Private for work because they are with PES but not looking for a men by 10%, which 220,989 women. Employment Services in BiH informally employed or job in 2017 - 190,000. Baseline: 401,000 (2013) - Western Balkans poverty inactive, by 15 percent, from Target: 441,000 (2020) program FY18-19 152,000 (2014) to 129,000. women by 10%, Reduced number of women Baseline: 240,000 (2013) who are registered with the Target: 265,000 Public Employment Services (source: LFS and administrative as active job seekers, but are data) not looking for work because they are informally employed Indicator 3: Improve targeting On track – 44 percent of social or inactive, by 20 percent, accuracy of last resort social assistance reaching the poorest from 183,000 (2014) to assistance: percentage of last resort quintile 146,000 (20xx) social assistance benefits reaching (source: LFS) the poorest quintile. Indicator 3: In the FBH, Not achieved – this target is Baseline: 40 percent social assistance framework achievable after elections. Target: 65 percent law and law on benefits for While the legislation has been families with children already drafted, its adoption passed/adopted (with will depend on political improved targeting formula) commitment in the FBH to Centers for Social Work start pursue reforms in the social using an improved targeting sector. formula to calculate cash benefits 25 CPF OBJECTIVE 2C UPGRADE ECONOMIC INFRASTRUCTURE CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Travel time saving as a On track - FBH Road Sector Indicator 1: Percentage of On track – works started under Ongoing lending: measure of connectivity between Modernization was declared primary roads improved. the FBH Road Sector - Energy Efficiency Project major economic growth poles. effective only in October 2017 Baseline: 0 Modernization Project - Federation BH Road Sector and the civil works started. Target: 12 percent Modernization Baseline: 0.0 - Republika Srpska Railways Target: 15 percent savings Indicator 2: Value of Achieved – IFC facilitated Restructuring financing for energy sector US$161.5 million of RE- - IFC PPP Mandate with FBH Indicator 2: Increase lifetime On track - 501,864 MWh facilitated through PPP or related financing. Autoceste on Corridor 5c energy savings. energy savings advisory support (US$) Baseline: No saving (0) Target: 80 million Target: 650 thousand MWh Achieved – IFC facilitated Completed ASA: Indicator 3: Facilitated Indicator 3: Additional Renewable Achieved - 49.68 MW of new - IFC Balkans Renewable increase in RE generation 188,773 MWh of increase in Energy capacity facilitated RE installed capacity Energy program in BiH Target: 125,000 MWh RE generation. closed on June 30, 2016 Target: 50 MW facilitated by IFC. - ECA Energy Solutions for Indicator 4: GHG emission On track - RE generation of Power and District Heating expected to be avoided (mln 188,773 MWh facilitated Sector tCO2/a) emission avoidance of 0.158 - IFC PPP Mandate with FBH Target: 0.2 mln tCO2/a. Autoceste on Corridor 5c - IFC ECA Water and Energy Advisory - IFC ECA Power - Power Sector Note: Least- Cost Power Development Plan - Sector Study on Biomass- heating in the Western Balkans - Southeast Europe Gas Power Consortium 26 - Directions for the energy sector in the Western Balkans Ongoing ASA: - Mainstreaming disaster risk management into road network management - Financing of Public Buildings in the Western - IFC ECA Water and Energy Advisory - Digital Balkans - Balkans Digital Highway - Global Cyber Security Capacity Program FOCUS AREA 3: BUILDING RESILIENCE TO NATURAL SHOCKS CPF OBJECTIVE 3A PREVENT THE DEGRADATION OF NATURAL RESOURCES CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Adoption of a plan for On track - RS has adopted a Indicator 1: Area restored or On track – 862 ha (FBH 488, Completed lending: management of hot spots in BiH Waste Management Strategy re-afforested RS 374). - Solid Waste II (with support under the WB Baseline: 117 ha Baseline: No plan for management SSWMP). FBH is currently Target: 1000 ha Ongoing lending: of hot spots in BiH working to update their SWM - Sustainable forest and Target: Adoption of a plan for Indicator 2: Number of Partially achieved – 8 regional landscape management (I1) Strategy and Plan. Both are management of hot spots in BiH in engineered regional landfills sanitary landfills. expected to be finalized by the period covered by the CPF. Baseline: 6 Completed ASA: 2020. Both will utilize the Target: 11 -ECA Deep Dive: Leveraging Sector Assessment Report and Reform Outline prepared by Turn Down the Heat ESW for the World Bank. ECA -Climate Resilient and Green Growth 27 Indicator 2: Collection rate and Achieved - 66% of generate Ongoing ASA: disposal capacity of engineered solid waste appropriately - BiH: Solid Waste landfills expanded to reach disposed. Management AA minimum EU sector standards Baseline: 50% of generated solid waste appropriately disposed per year Target: 65% of generated solid waste appropriately disposed per year Indicator 3: Increased area where Achieved – 3,178 ha sustainable land management practices were adopted Baseline: 117 ha (2016) Target: 3000 ha (2020) CPF OBJECTIVE 3B BUILD RESILIENCE TO FLOODS CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: People in flood Achieved - 715,165 people in Indicator 1: Area provided On track - 56ha of semi urban Ongoing lending: affected/prone areas benefiting from flood affected areas benefited with flood protection (rural and urban area protected from - Drina Flood Protection goods received and infrastructure from emergency disaster and urban land) floods, and 161 ha of Project rehabilitated with projects' support recovery goods, and rural/agricultural land - Floods Emergency Recovery Baseline: 0 ha Project rehabilitated regional and protected from floods. Targets Baseline: 0 Target: 8554 ha - Irrigation Development local infrastructure. to be revised. Target: 300,000 Project - West Balkans Drina River Indicator 2: Public service Achieved – 343 infrastructure Basin Management Indicator 2: Strengthened capacity On track - infrastructure facilities facilities recovered in water resources management, As of March 2018, Sava River recovered to pre-floods Completed ASA: including flood management, Basin (including BiH) system condition with projects’ - Support to Water Resources forecasting and warning, in Drina for forecasting and early support Management in Drina River and Sava River basins warning on floods was set for Basin Baseline: 0 28 testing. Sava River Basin Target: 200 Baseline: no plans; no forecasting Ongoing ASA: plans are developed and and warning systems, fragmented Indicator 3: Number of Achieved – 107 public officials - Joint Flood Management in agreed in the FBH and the RS. Sava River Basin hydrological models public officials who successfully completed Procurement of the Drina Target: 2 RBM plans developed successfully completed capacity building training on Water Resource study, Drina and agreed by key counterparts; capacity building activity on disaster risk management hydrological and hydraulic forecasting and warning system and disaster risk management modelling has been initiated. hydrological model for Sava basin Baseline: 0 in BiH established Target: 30 Indicator 4: Water users On track – 9,109 as of June provided with Improved 2018. irrigation services (number) Baseline: 1,810 Target: 18,000 29 ANNEX 2: Bosnia and Herzegovina - FY16–20 Country Partnership Framework – Performance and Learning Review Matrix of Changes to the Original CPF Result Matrix FOCUS AREA 1: INCREASING PUBLIC SECTOR EFFICIENCY AND EFFECTIVENESS CPF OBJECTIVE 1A: IMPROVE MANAGEMENT AND EFFICIENCY OF PUBLIC FINANCES CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Public sector arrears Revised – years added to Indicator 1: Adoption of Reference to “BiH” Ongoing ASA: are documented, publicly available baseline and target values annual budgets at the Entity institutions added - Capacity Building for and updated on a regular basis and and BiH institutions level in Medium Term Fiscal the level of such arrears is reduced line with budget calendar. Planning and Forecasting in as a share of GDP. BiH Indicator 2: Adoption of BiH No change - Support to Public Baseline: No data (2015) Medium-Term Debt Strategy Management Reform Target: Public sector arrears data - Urban Partnership Program available and updated on website of Indicator 3: New pension law No change - Internal Audit Training of relevant ministries, and level of approved in FBH (mid-2016) Trainers (IA ToT) Program arrears reduced relative to initial - Strengthening Legislative estimates (2020) Scrutiny in the Western Indicator 2: Reduction in general Revised – years added to Balkans (SAFE TF) baseline and target values Supplemental indicator government pension expenditure as - Western Balkans poverty related to Deposit Insurance a share of GDP program FY18-19 Fund is dropped as the Bank Baseline: 10.4 percent (2015) will not engage in this sector. Planned ASA: Target: 9.4 percent (2020) - BiH Debt sustainability and expenditure arrears - BiH Functional Review of Health System Performance 30 - BiH Public Sector Employment and Labor Markets - Western Balkans Urbanization Review - Western Balkans Pension Reform TA FY19 - Public Sector Accounting and Reporting (PULSAR) - Western Balkans - Strengthening Fiscal Institutions to Build Resilience CPF OBJECTIVE 1B: STRENGTHEN THE GOVERNANCE AND REDUCE THE FISCAL BURDEN OF SOEs CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Reduction in financing Indicator on fiscal burden of Indicator 1: Adopt a plan for No change Ongoing lending: transfer to the pension system in SOEs dropped. New indicator SOE restructuring. - RS Railways Restructuring FBH excluding transfers for unpaid introduced which is related to past pension contribution. SOEs – see below. Indicator 2: Legal framework No change Ongoing ASA: for missing pensions Baseline: 1.3 percent of GDP - Western Balkans poverty contributions formulated. (2015) program FY18-19 Target: 1.1 percent of GDP (2020) Indicator 3: 80% of SOEs No change Planned ASA: Indicator 2: Improving financial attending governance New indicator introduced - Western Balkans Pension sustainability of the railways in trainings implement changes Reform TA FY19 Republika Srpska by reducing and report improved - Strengthening Legislative working ratio in Public Company performance (e.g. operational, Scrutiny in the Western RS Railways. organizational, financial). Balkans (SAFE TF) Indicator 4: RS Railways New supplemental indicator Baseline: RS Railways working labor productivity improved ratio 1.7 (2015) 31 Target: 1.0 (2020) (thousand traffic units per employee) Baseline:146 (2017) Target: 155 (2019) CPF OBJECTIVE 1C: IMPROVE PUBLIC SERVICE DELIVERY CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Tobacco excise taxes Revised – years added to Indicator 1: Minimal excise Supplemental indicator Ongoing lending: are aligned with EU standards. baseline and target values. duty amounts to 70 EUR by related to autonomy and - Reducing Health Risk End target revised to reflect December 2019. accountability of public Factors (Swiss TF) Baseline: min. 51 EUR per 1000 realistically achievable target hospitals is dropped due to Planned lending: cigarettes (2015) (ie. 75 EUR per 1000 uncertainty over engagement in -Water and Sanitation Services Target: min. 75 EUR per 1000 cigarettes). this sector. New supplemental Modernization cigarettes (2020) indicator introduced and aligned with the CPF indicator Ongoing ASA: Indicator 2: Reduce expenditures on Revised – indicator is revised - Danube Water Programme outpatient drugs: to align with the Bank Supplemental indicator - BiH: Solid Waste Baseline: KM 72 million (2015) intervention, and to track the related to spending on Management Target: 10 percent reduction (2020) data that is monitored by the preventive and public health - Urban Partnership Program Drugs Agency. services is dropped due to - Western Balkans poverty uncertainty of engagement in program FY18-19 health sector in this CPF cycle. Planned ASA: Indicator 3: Improved services of Revised – years added to Indicator on scope for water - BiH Functional Review of water and wastewater. baseline and target values, and and waste water is dropped. Health System Performance Baseline: 3% of collected waste baseline value added. Planned Water and Sanitation - BiH Functional Review of water is treated (2015) Services Modernization project Education Service Delivery will consider pursuing this - Western Balkans Target: 30% of collected waste activity in cooperation with Urbanization Review water is treated (2020) IFC, but indicator not achievable in this CPF cycle. Indicator related to legal and regulatory framework and 32 institutional capacity of civil servants to undertake PPPs is dropped. Planned Water and Sanitation Services Modernization project will consider pursuing this activity in cooperation with IFC, but indicator not achievable in this CPF cycle. FOCUS AREA 2: CREATING CONDITIONS FOR ACCELERATED PRIVATE SECTOR GROWTH CPF OBJECTIVE 2A: SUPPORT A COMPETITIVE BUSINESS ENVIRONMENT AND ACCESS TO FINANCE CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Improve Doing Revised – years added to Indicator 1: Up to US$50 No change Ongoing lending: Business Distance to Frontier. baseline and target values. million of investment - Real Estate facilitated as a result of Registration Project Baseline: 60.55 (2015) -Banking Sector improved corporate Target: 63 (2020) Strengthening governance, energy efficiency and regulatory reform interventions. Ongoing ASA: - Tax Transparency and Indicator 2: Reduction of No change Simplification Program Indicator 2: New and sustained jobs Revised - years added to administrative burden of (IFC) through real sector investments baseline and target values. licensing in select areas, - Corporate Governance disaggregated below (using Program (planned extension) Total sustained jobs baseline: 950 WBG T&C methodology): - Microfinance in BIH (IFC) (existing 2015) - FinSAC Bank Resolution Total sustained jobs target: 1700 a. direct costs savings by Framework and Supervision (existing + new clients 2020) $7 million as measured by TA (Under Financial Sector standard CCS indicator. Advisory Services Center) Total new jobs baseline: 0 (existing b. 20% reduction in - EU REPARIS (Road to clients - 2015) indirect costs for businesses. Europe - Program of 33 Total new jobs target: up to 400 c. up to 2000 firms will Accounting Reform and (existing clients 2020) benefit from reformed Institutional Strengthening) procedures. Indicator 3: By FY20 at least Revised – years added to MIGA guarantees: double outstanding MSME and baseline and target values. Revised – years added to - Cover to foreign banks for Indicator 3: Cadastral baseline and target values. expropriation of funds held housing finance of IFC portfolio municipalities with Target value revised in line at the Central Bank of Bih, clients harmonized land register and freeing up capital to support with the new value established MSME outstanding portfolio cadastral data/established extended lending in BiH during the Real Estate baseline: US$ 58 million (2015) REC in urban areas Registration Project MSME outstanding portfolio Planned ASA: Baseline: 62 (2016) restructuring in 2017. target: US$ 124 million (2020) - Commercial Justice TA in Target: 468 (2020) BiH Housing finance outstanding portfolio baseline: US$ 83 million - BiH Remittances and Indicator 4: Additional Payments (2015) No change Housing finance outstanding enterprises reached with - Improving Governance and financial services Business Model of portfolio target: US$ 147 million Development Banks TA (2020) Baseline: 316 (2015), of - WBS Diversification of which 125 owned by women Financial Markets - (owners/stakeholders) Developing regional capital Target (2020): 700, of which markets for better economic 200 owned by women. integration No change - Western Balkans Indicator 5: New bank Competitiveness TA resolution framework enacted Program (2016). Indicator 6: New insolvency No change laws enacted in both entities (2016). CPF OBJECTIVE 2B IMPROVE LABOR MARKET FLEXIBILITY AND SOCIAL PROTECTION CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Decrease the number of Revised – year added to target Indicator 1: Reform of Public Revised – supplementary Ongoing lending: inactive persons: values. Employment Services, indicator revised to better 34 including: (i) improved reflect the nature of proposed - BiH Employment Support men aged 15 to 64, reduce by 10% categorization of registered reforms of the Public Program Baseline: 346,000 (2015) unemployed, and (ii) Employment Services. Target: 311,400 (2020) improved profiling of Ongoing ASA: women aged 15 to 64, reduce by unemployed. - Developing Private 10% Employment Services in Baseline 580,000 (2015) Indicator 2: Reduced number Revised – year added to target BiH Target: 522,000 (2020) of men who are registered values. - Western Balkans poverty (source: LFS) with the Public Employment program FY18-19 Services as active job seekers, Indicator 2: Increase in private Revised – baseline value but are not looking for work Planned ASA: sector formal employment: revised to apply the latest data. because they are informally - Western Balkans Pension employed or inactive, by 15 Reform TA FY19 men by 10%, percent, from 152,000 (2014) - BiH Public Sector Baseline: 390,204 (2015) to 129,000 (2020). Employment and Labor Target: 441,000 (2020) Reduced number of women Markets women by 10%, who are registered with the Baseline: 232,083 (2015) Public Employment Services Target: 265,000 (2020) as active job seekers, but are (source: LFS and administrative not looking for work because data) they are informally employed or inactive, by 20 percent, Indicator 3: Improve targeting Revised – years added to from 183,000 (2014) to accuracy of last resort social baseline and target values. 146,000 (2020) assistance: percentage of last resort (source: LFS) social assistance benefits reaching Indicator 3: Social assistance No change the poorest quintile. framework law and law on Baseline: 40 percent (2015) benefits for families with Target: 65 percent (2020) children passed/adopted (with improved targeting formula) Centers for Social Work start using an improved targeting formula to calculate cash benefits 35 CPF OBJECTIVE 2C UPGRADE ECONOMIC INFRASTRUCTURE CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Travel time saving as a Revised – years added to Indicator 1: Length of main Supplementary indicator on Ongoing lending: measure of connectivity between baseline and target values. roads improved. percentage of primary roads - Energy Efficiency Project major economic growth poles. Baseline: 0km (2016) improved is dropped and new - Federation BH Road Sector Target: 33 km (2020) indicator introduced to better Modernization Baseline: 0.0 (2015) capture Bank’s engagement - IFC PPP Mandate with FBH Target: 15 percent savings (2020) Autoceste on Corridor 5c in this area. Indicator 2: Increase lifetime Revised – years added to Planned lending: Indicator 2: Value of No change energy savings. baseline and target values. - Energy Efficiency AF financing for energy sector Baseline: No saving (2015) - RS Road Sector facilitated through PPP or Modernization Target: 650 thousand MWh (2020) advisory support (US$) - Regional Integrated Program Target: 80 million for Sava-Drina Corridor Indicator 3: Additional Renewable Revised – years added to Energy capacity facilitated baseline and target values. Development Indicator 3: Facilitated No change Baseline: 0 MW (2015) increase in RE generation Ongoing ASA: Target: 50 MW (2020) - Mainstreaming disaster risk Target: 125,000 MWh management into road Indicator 4: GHG emission network management No change - Financing of Public expected to be avoided (mln Buildings in the Western tCO2/a) Balkans Target: 0.2 - IFC ECA Water and Energy Advisory - Digital Balkans - Balkans Digital Highway - Global Cyber Security Capacity Program Planned ASA: - Integrated Water and Hydropower Development in the Drina River Basin 36 - Strengthening of the integration of disaster risk management and climate resilience in the Western Balkans FOCUS AREA 3: BUILDING RESILIENCE TO NATURAL SHOCKS CPF OBJECTIVE 3A PREVENT THE DEGRADATION OF NATURAL RESOURCES CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: Adoption of a plan for Revised – years added to Indicator 1: Area restored or Revised – years added to Ongoing lending: management of hot spots in BiH baseline and target values. re-afforested baseline and target values. - Sustainable forest and Baseline: 117 ha (2016) landscape management Baseline: No plan for management Target: 1000 ha (2020) of hot spots in BiH (2015) Ongoing ASA: Target: Adoption of a plan for Indicator 2: Number of Revised – years added to - BiH: Solid Waste management of hot spots in BiH in engineered regional landfills baseline and target values. Management the period covered by the CPF Baseline: 6 (2014) (2020). Target: 11 (2018) Planned ASA: Indicator 2: Collection rate and - Regional Air Quality Revised – years added to disposal capacity of engineered Management - Western baseline and target values. landfills expanded to reach Balkans - Study for Establishment of minimum EU sector standards the Protection Zones of a Baseline: 50% of generated solid Klokot Source (Bihac) waste appropriately disposed per Intersected by Interstate year (2015) Boundary Target: 65% of generated solid waste appropriately disposed per year (2020) Indicator 3: Increased area where No change sustainable land management practices were adopted Baseline: 117 ha (2015) 37 Target: 3000 ha (2020) CPF OBJECTIVE 3B BUILD RESILIENCE TO FLOODS CPF Objective Indicators Proposed change Supplementary Progress Proposed change WBG Program Indicators Indicator 1: People in flood Revised – years added to Indicator 1: Area provided Revised – years added to Ongoing lending: affected/prone areas benefiting from baseline and target values. with flood protection (rural baseline and target values. - Drina Flood Protection goods received and infrastructure and urban land) Target revised to align with Project rehabilitated with projects' support progress in Drina Flood - Floods Emergency Recovery Baseline: 0 ha (2014) Project Protection project. Baseline: 0 (2015) Target: 4200 ha (2020) - Irrigation Development Target: 300,000 (2020) Project Indicator 2: Public service Revised – years added to - West Balkans Drina River Indicator 2: Strengthened capacity Revised – years added to infrastructure facilities baseline and target values. Basin Management in water resources management, baseline and target values. recovered to pre-floods including flood management, condition with projects’ Planned lending: forecasting and warning, in Drina support - Water and Sanitation and Sava River basins Services Modernization Baseline: 0 (2014) Baseline: no plans; no forecasting Target: 200 (2018) Ongoing ASA: and warning systems, fragmented Indicator 3: Number of - Joint Flood Management in Revised – years added to hydrological models (2015) Sava River Basin public officials who baseline and target values. Target: 2 RBM plans developed successfully completed and agreed by key counterparts; capacity building activity on Planned ASA: forecasting and warning system and disaster risk management hydrological model for Sava basin - Integrated Water and in BiH established (2020) Baseline: 0 (2014) Hydropower Development in Target: 30 (2018) the Drina River Basin Indicator 4: Water users Revised – years added to provided with Improved baseline and target values. irrigation services (number) Baseline: 1,810 (2016) Target: 18,000 (2020) 38 ANNEX 3: Selected Macro-Economic Indicators BOSNIA AND HERZEGOVINA 2014 2015 2016 2017f 2018f 2019f 2020f Real GDP growth (percent) 1.1 3.1 3.1 3.0 3.2 3.4 3.9 Composition (percentage points): Consumption n.a. n.a n.a 3.0 3.5 2.6 2.7 Investment n.a. n.a n.a 0.6 0.8 1.0 0.8 Net exports n.a. n.a n.a -0.8 -1.1 -0.2 0.4 Exports n.a n.a n.a 4.2 1.7 1.7 0.9 Imports (-) n.a n.a n.a 5.1 2.7 2.0 0.2 Consumer price inflation (percent, period -0.9 -1.0 -1.6 0.8 1.1 1.4 1.4 average) Public revenues (percent of GDP) 44.2 43.2 43.1 43.7 44.5 42.9 42.7 Public expenditures (percent of GDP) 46.3 42.5 42.1 41.4 45.0 42.6 41.5 Of which: Wage bill (percent of GDP) 12.1 11.5 11.0 11.0 11.1 10.9 10.6 Social benefits (percent of GDP) 17.2 16.5 15.9 17.8 18.3 17.1 16.7 Capital expenditures (percent of 4.3 2.0 2.4 2.3 5.0 4.3 4.1 GDP) Fiscal balance (percent of GDP) -2.1 0.7 1.0 2.4 -0.5 0.3 1.2 Primary fiscal balance (percent of GDP) -1.2 1.6 1.9 3.2 0.5 1.3 2.2 Public debt (percent of GDP) 41.6 41.9 40.5 35.9 35.6 34.2 33.1 Public and publicly guaranteed debt 43.4 43.6 42.3 37.5 37.2 35.2 34.1 (percent of GDP) Of which: External (percent of GDP) 30.0 29.4 28.6 24.9 25.3 23.6 21.8 Goods exports (percent of GDP) 25.0 25.2 25.7 28.5 31.2 33.9 35.2 Goods imports (percent of GDP) 53.8 50.3 49.3 52.3 55.9 59.1 60.8 Net services exports (percent of GDP) 6.1 6.6 6.8 7.1 8.0 8.3 8.4 Trade balance (percent of GDP) -28.8 -25.2 -23.5 -23.8 -24.7 -25.2 -25.6 Remittance inflows (percent of GDP) 8.4 8.3 8.2 8.3 8.2 8.3 8.4 Current account balance (percent of -7.5 -5.4 -4.9 -4.8 -5.3 -5.5 -5.6 GDP) Foreign direct investment inflows -2.9 -1.7 -1.6 -2.1 -2.1 -2.2 -2.3 (percent of GDP) External debt (percent of GDP) 76.3 72.2 71.0 70.9 69.3 68.8 68.8 Real private credit growth (percent, 3.1 1.1 3.1 6.2 6.8 n.a. n.a period average) Non-performing loans (percent of gross 14.2 13.7 11.8 10.0 9.7 n.a. n.a loans, end of period) Unemployment rate (percent, period 27.5 27.7 25.4 20.5 18.4 n.a. n.a average) Youth unemployment rate (percent, 62.9 62.3 54.3 45.8 n.a. n.a. n.a period average) Labor force participation rate (percent, 43.7 44.1 43.1 42.6 42.1 n.a. n.a period average) GDP per capita, PPP (current 11,16 11,52 12,17 12,87 13,20 13,77 14,25 international $) 4 6 3 5 0 5 8 Note: f-forecast 39 ANNEX 4: Citizen Engagement Although international organizations have attempted to encourage citizen participation through educating local communities (known as MZs - mjesne zajednice) 14, NGOs and local governments, citizens’ confidence and motivation to participate is low, and it is generally agreed that the context for citizen engagement in BiH has worsened over the last decade. Lack of communication, information and responsiveness on the part of authorities, and citizens’ lack of belief that authorities will take their opinions into account, all contribute to citizens’ passiveness and limited participation.15 In particular, socially marginalized groups are poorly represented. 16 Since 2014, when the Citizen Engagement (CE) corporate requirements were introduced at the WBG, efforts were stepped up to embed CE in all IPFs in the BiH portfolio. While the country has now reached 100 percent compliance for CE, the portfolio has struggled with quality and with the level of implementation of genuine mechanisms in a number of projects. From FY14 to FY18, eight projects in BiH were subject to the CE corporate requirements. With regards to compliance with the CE requirements, after a lag in FY14, by FY17 (no projects in FY15-16), 100 percent of BiH projects approved by the Board were fully compliant with both CE requirements. A review of the quality of the CE in all IPFs was undertaken in 2016 and updated in 2018 to inform this PLR. Of those projects that have included CE activities, 50 percent enable citizens to provide feedback at least annually (frequency of feedback) and only 25 percent make available more than one CE mechanism (multiple channels for feedback). The portfolio largely relies on rather passive mechanisms (GRMs and satisfaction surveys) which do not provide an opportunity for direct interaction or active engagement (depth of engagement), some which were established for safeguards only (placing restrictions on feedback). Efforts to improve quality of CE results are already underway. To address some gaps in quality and implementation, Capacity Building Workshops on Citizen Engagement was conducted in Sarajevo and Banja Luka in 2017. Targeted at PIUs and Ministries working on projects in BiH, approximately 25 participants attended in all, from a range of sectors (agriculture, banking, employment, floods, forestry, irrigation, real estate registration, roads/railways, waste water, water). Of those projects more recently approved, the Employment Support Program, approved in FY17, includes several citizen engagement mechanisms allowing for unrestricted feedback (e.g. consultations with multiple stakeholder groups, yearly client satisfaction surveys as part of its effort to strengthen management systems to monitor employment services efficiency – providing opportunities to use the feedback provided to make adjustments and further improve services). In addition, the survey will focus on monitoring results for different vulnerable categories of job seekers. During the remainder of the CPF period, specific actions are planned to improve quality and strengthen implementation. To ensure genuine improvement, it will be vital to: (i) shift from passive to active CE tools in the BiH portfolio which encourage more dialogue and a state/non-state interface, (ii) better link the implementation of CE activities to more open and frequent reporting of results, (iii) take corrective action on projects facing challenges in implementation, and to ensure inclusion in CE processes. and (iv) identify CE country priorities in a CE country roadmap linked to CPF objectives (Figure 1. below). 14 OSCE BiH. Community Engagement. 2018. 15 SADC BiH. Citizenship in BiH. Digitalne Priče.Net. 2018. 16 Bertelsmann Transformation Index (BTI). Bosnia and Herzegovina Country Report. 2018. 40 Figure 1 BiH Citizen Engagement Country Roadmap FY19-20 41 Annex 5: World Bank Active Portfolio 42 ANNEX 6: Statement of IFC’s Held and Disbursed Portfolio As of December 20, 2018 (in US$ millions) 43 ANNEX 7: Statement of MIGA’s Outstanding Exposure As of December 25, 2018 (in US$) Note: Exposure data incorporates changes in the US$ - Euro exchange rate 44