(Not translated) Prelimina i zakljucci Medunarodnog moneta og fonda (MMF-a)
Misija Medunarodnog monetarnog fonda(MMF), predvodena izvršnim direktorom Dimitri Demekasom, boravila je u BiH od 9. do 22. maja 2007. godine radi godišnjih konsultacija po clanu IV Statuta MMF-a. Misija MMF-a je predsjedavajucem Vijeća ministara dr. Nikoli Špiriću 22. maja 2007. godine dostavila Prelimina e zakljucke o konsultacijama po clanu IV za 2007. godinu, koji su preneseni u cjelini: MEdUNARODNI MONETARNI FOND BOSNA I HERCEGOVINA Konsultacije po clanu IV za 2007. godinu Prelimina i zakljucci Ekonomija je u 2006. godini ostvarila dobre rezultate. Realni rast bruto domaceg proizvoda se procjenjuje na 6 posto. Cijene su naglo skocile nakon uvodenja PDV-a prošle godine, dovodeci inflaciju na godišnjem nivou na 7,5%, no osnovni pritisak cijena je bio nizak i inflacija se pocetkom 2007. vratila na godišnju stopu od oko 1 posto. PDV je donio visoke prihode - od cega je veliki dio jednokratnih prihoda - što je dovelo do suficita konsolidovane generalne vlade (ukljucujuci projekte koji se finansiraju iz stranih izvora) od 3 posto BDP-a. Iako problemi sa statistikom ne dozvoljavaju precizne procjene, jak rast izvoza i smanjenje uvoza je prošle godine dovelo do smanjenja deficita vanjskog tekuceg racuna na oko 11 do 12 procenata BDP-a. Ovako dobri rezultati su odraz povoljnog vanjskog okruženja i efekata ranijih ekonomskih reformi. Trgovacki partneri Bosne i Hercegovine su iskusili snažan rast, stvarajuci mogucnosti za izvoz. Cijene metala, kljucnog izvoznog artikla, na svjetskim tržištima su i dalje rasle. Niske kamatne stope u svijetu su olakšale finansiranje deficita tekuceg racuna platnog bilansa. Na industrijsku proizvodnju i izvoz kljucnih proizvoda, poput celika i aluminija, je povoljno uticala ranija privatizacija i strane investicije u ovom sektoru. A uspješno uvodenje i primjena PDV-a su doveli do pozitivnog finansijskog ishoda. Ekonomski ucinak u 2007. ce i dalje biti pozitivan, ali neke stare dugorocne slabosti ekonomije u Bosni i Hercegovini ce se ponovo pojaviti. Projekcija je da ce medunarodna ekonomska klima i dalje biti povoljna. Inflacioni pritisci ce biti ograniceni a rast ce se nastaviti u trecoj uzastopnoj godini, iako ce sadržaj rasta biti drugaciji: izvoz, iako i dalje znacajan, ce usporiti, a doci ce do porasta domace potrošnje i investicija. U suprotnosti sa ovim pozitivnim trendovima: • Vjerovatno je da ce se deficit vanjskog tekuceg racuna platnog bilansa ove godine produbiti, jer ce se veca potrošnja i investicije ogledati u povecanju uvoza, što je vec ocigledno iz podataka za prva cetiri mjeseca. • Nije vjerovatno da ce ekonomski rast dovesti do pada broja nezaposlenih, niti ce od njega jednake koristi imati svi sektori i regioni u zemlji. Narocito zbog ogranicene mobilnosti radne snage, nezaposlenost u siromašnijim krajevima ce vjerovatno i dalje ostati visoka. • Neuspjeh vlade da se odupre troškovnim pritiscima ce se odraziti u naglom pogoršanju vladinog balansa. Jednokratni efekti PDV-a ce nestati, a na red ce ove godine doci placanje racuna za populisticka predizbo a obecanja o vecim davanjima, narocito u Federaciji i kantonima. Stoga, kao što smo upozoravali tokom konsultacija po clanu IV u 2006. godini, ako se ne preduzmu ozbiljne mjere s ciljem kontrole potrošnje, akumulirani suficit iz 2006. godine ce ispariti i generalna vlada ce zabilježiti deficit od 1 do 1,5 posto BDP-a u 2007. Sada je trenutak da se pocnu rješavati te dugotrajne slabosti, dok je vanjska sredina još uvijek povoljna, a rast se snažno nastavlja. Prošle godine je ta prilika propuštena zbog izbora i fokusiranosti donositelja odluka na domacu politiku. Ali nove vlade imaju novi mandat i dovoljno vremena pred sobom i ne bi trebali dozvoliti da se opet propusti ovakva prilika. Poboljšanje statistickih podataka je preduslov za uspješno upravljanje ekonomijom. Saradnja izmedu institucija za statistiku i drugih prikupljaca podataka je neadekvatna. Dugorocno, rješenje je u ujedinjavanju odvojenih statistickih institucija. U meduvremenu, treba ojacati koordinacijsku ulogu Vijeća za statistiku a uprave tri institucije za statistiku trebaju ojacati medusobnu saradnju. Poboljšanje statistike nacionalnih racuna i cijena, koje se priprema vec izvjesno vrijeme, treba što prije provesti. Usprkos odredenom napretku, upo o opstaju veliki problemi u smislu pravovremenosti i obuhvacanja statistike generalne vlade. U oblasti statistike platnog bilansa nije bilo osjetnog napretka, i mi ponovo apeliramo na Centralnu banku BiH da poboljša ove podatke, narocito u vezi doznaka iz inostranstva. Uvesti red u javne finansije Fiskalna politika je jedini instrument makroekonomske politike u sistemu valutnog odbora. Tokom naših razgovora postalo je jasno da mnogi naši sagovo ici na budžet gledaju iskljucivo kao na instrument ispunjenja socijalnih ciljeva vlade. Budžet naravno to i jeste, ali je takode i sredstvo makroekonomske politike--i to jedino takvo sredstvo koje Bosna i Hercegovina ima na raspolaganju. A uzimajuci u obzir visoki deficit tekuceg racuna, fiskalna politika za svoj prima i cilj treba imati osiguravanje makroekonomske stabilnosti. • Tokom ove godine, vlade trebaju hitno djelovati da na najmanju mogucu mjeru svedu pogoršanje balansa opšte vlade iz 2006. godine. Za to bi bilo potrebno (1) da oba entiteta ispoštuju plan rashoda u svojim prvobitnim budžetima; i (2) da Vlada Federacije poduzme mjere u pravcu kompenziranja deficita do kojih ce vjerovatno doci u kantonalnim budžetima, a koji bi mogli iznosti 130 miliona KM. Mi podržavamo konsolidaciju razlicitih zakona koji tretiraju prava demobiliziranih vojnika i boraca u Federaciji, ali to možda nece biti dovoljno da se ostvare neophodne uštede. • Generalna vlada treba srednjorocno održavati balans. Održavanje izbalansiranog budžeta (ukljucujuci i investicijske projekte koji se finansiraju iz vanjskih izvora) uz istovremeno smanjenje poreskih tereta i omogucavanje prioritetnih investicija u infrastrukturu ce zahtijevati znacajno smanjenje rashoda na svim nivoima vlasti. Ima dosta mogucnosti za uštede u socijalnim transferima, javnoj upravi i subvencijama, kao što je navedeno u novom Pregledu javne potrošnje koji je objavila Svjetska banka. • Održavanje dobre fiskalne pozicije ce biti još teže ako se prihod od PDV-a smanji. • Rokovi rješavanja unutrašnjih potraživanja od vlade bi trebali biti u skladu sa fiskalnom održivošcu. Predloženi amandmani na zakon koji se odnosi na staru deviznu štednju bi se trebali odbaciti, proces verifikacije ubrzati, a potencijalne obaveze koje proisticu iz pravosnažnih presuda ocijeniti. Zakon o restituciji bi trebalo usvojiti da bi finansijsku nadoknadu uskladio sa dugorocnom mogucnošcu otplate iz budžeta. Prihodi od privatizacije su i mogucnost i izazov. RS i—nadajuci se uskoro—Federacija ce dobiti velike iznose prihoda od privatizacije. Ta sredstva bi se trebala koristiti za dugorocnu ekonomsku korist. Obje entitetske vlade nas uvjeravaju da nemaju namjeru finansirati tekuce rashode iz sredstava privatizacije. Za što bi ih trebali koristiti? • Prva najbolja upotreba bi bila finansiranje uvodenja potpuno finansiranih penzijskih stupova, kako je planirano u RS. • Koristiti ih za investiranje u infrastrukturu je druga najbolja opcija, koja je podložna i riziku: nije jasno da li entiteti imaju upravne kapacitete neophodne da bi se osiguralo mudro investiranje tih sredstava. • Korištenje za finansiranje razvoja privatnih preduzeca u “strateškim sektorima” nije dobra opcija: ako se poslovno okruženje poboljša, privatni sektor bi trebao biti u mogucnosti da to postigne bez vladine potpore; ako ne, vladina potpora nece puno znaciti a novac ce se potrošiti uzalud. Pored toga, ogromni prihodi od privatizacije mogu komplicirati upravljanje likvidnošcu u finansijskom sistemu i ugroziti makroekonomsku stabilnost. Da bi se to izbjeglo, entitetske vlade bi trebale deponovati te prihode izvan zemlje ili u CBBiH dok ne dode vrijeme da se potroše, a njihovo korištenje rasporediti tokom vremena. Angažiranje privatnog sektora u izgradnji puteva bi trebalo ohrabriti, ali to nosi i rizike. Koncesije i partnerstvo izmedu javnog i privatnog sektora su dobar nacin poboljšavanja putne infrastrukture korištenjem resursa iz privatnog sektora. Ali ovi sporazumi mogu rezultirati znacajnim buducim finansijskim obavezama za vladu. Mi preporucujemo oprez i —kao i drugdje u regiji—spremni smo pomoci Bosni i Hercegovini sa našom tehnickom ekspertizom u izgradnji odgovarajuceg racunovodstvenog i institucionalnog okvira za partnerstva izmedu javnog i privatnog sektora. Fiskalna politika nece postici svoje ciljeve ako se institucije i upravljanje ne poboljšaju. Fiskalne institucije u Bosni i Hercegovini su rascjepkane i ne promoviraju politiku koordinacije. Zakoni o zaduživanju, dugu i garancijama su dobrodošli kao korak naprijed, ali postoji veliki dio nezavršenog posla u toj oblasti. • Osigurati cvrste zakonske osnove za Fiskalno vijece. Usvajanje nacrta zakona izgleda da je odloženo proceduralnim nesporazumima. Pozivamo vlade da riješe nedostatke nacrta (proširiti definiciju prima og balansa radi ukljucenja kapitalnih rashoda i pooštriti kazne u slucaju nepoštivanja), razriješiti proceduralna pitanja, i usvojiti zakon što je prije moguce. • Postici sporazum o formuli za raspodjelu prihoda koja uvažava tri principa koja je predložio Predsjedavajuci Upravnog odbora Uprave za indirektno oporezivanje: jednostavnost, jasnost i pravednost (variranje u poreskim prihodima bi svi trebali podjednako dijeliti). Nedavna odluka OHR-a u vezi udjela u prihodima za Distrikt Brcko nije u skladu sa ovim principima. • Zaustaviti širenje vanbudžetskih fondova i vanbudžetskih agencija. Planovi entitetskih vlada da prošire postojece ili osnuju nove fondove ili agencije van budžeta bi smanjili transparentnost i odgovornost u njihovom poslovanju, kao i kontrolu vlade nad upotrebom novca poreskih obveznika. U svakom slucaju, aktivnosti tih agencija bi se trebale ukljuciti u statistiku opceg vladinog sektora. Ojacati finansijsku održivost Iako tempo ekspanzije kredita sam po sebi nije posebno zabrinjavajuci, neki aspekti ovog fenomena zaslužuju vecu pažnju odgovornih za donošenje politika. Proširenje registra kredita na fizicka lica je za svaku pohvalu. Ali pod pritiskom konkurencije, komercijalne banke se mogu izložiti vecem kreditnom riziku. Iako još uvijek izgleda da je rizik relativno nizak, postoje visoke koncentracije istog u nekim bankama. cinjenica da se neke velike banke više puta novcano kažnjavaju za kršenje prudencijalnih pravila takoder sugerira da su kazne preniske. Štaviše, tekuci propisi stvaraju pristrasnost u korist banaka koje se zadužuju vani da bi finansirale kreditnu ekspanziju. Da bi se riješila ova pitanja, predlažemo dvjema entitetskim agencijama za superviziju da: • Pooštre klasifikaciju kredita stavljanjem kredita koji kasne sa otplatom više od 30 dana u kategoriju C, u skladu sa najboljom medunarodnom praksom. Ova mjera bi se trebala uvesti postepeno tokom sljedecih 12-18 mjeseci da bi se osiguralo dovoljno vremena komercijalnim bankama da prilagode svoje poslovanje. • Povecaju novcane kazne za nepoštivanje prudencijalnih propisa. • Postepeno olakšati uslove za rocnu uskladenost izmedu aktive i pasive banaka da bi se oslabila veza izmedu ekspanzije kredita i inostranog zaduživanja omogucujuci bankama da financiraju kreditnu ekspanziju kratkorocnim domacim depozitima. Neophodna je jedinstvena agencija za superviziju banaka. Svi u u Bosni i Hercegovini se slažu da je ujedinjene supervizije potrebno za rastuci bankarski sistem u zemlji. Jedinstvena, neovisna i efikasna supervizija, bilo u CBBiH ili u posebnoj agenciji, bi ojacala finansijski sektor i bila od koristi za ekonomiju u oba entiteta. To bi takoder omogucilo zakljucivanje memoranduma o razumijevanju sa kljucnim inostranim supervizorima. No, poput drugih mjera ekonomske politike, i ova odluka je talac domace politike. Mi pozivamo organe vlasti da razmotre ovo pitanje prima o sa tehnickog i ekonomskog aspekta. Kako smo naveli u zakljucku prošlogodišnjih konsultacija po clanu IV, mi cemo nastaviti pružati pomoc koja je potrebna da bi se nacinio napredak u ovoj oblasti. Sve dok nadzor nad bankarskim sistemom ne bude ujedinjen, mi apeliramo na CBBiH da preuzme aktivniju ulogu u smislu koordinacije supervizije banaka. CBBiH, uz pomoc MMF i Evropske centralne banke, poboljšava svoje mehanizme monitoringa i analize finansijskog sektora. Zajedno sa supervizorima, trebala bi uspostaviti sistematski nacin razmjene informacija i organizovati redovan dijalog na nivou odgovornih zvanicnika. Takoder, CBBiH bi trebalo da koristi ove poboljšane analiticke kapacitete, kao i svoje ovlasti, da bi obavještavala organe vlasti, banke i javnost o pitanjima finansijske stabilnosti. Mada su ovi koraci neophodni, oni ne eliminiraju potrebu za jedinstvenom supervizijom banaka. Dovršiti stvaranje jedinstvenog ekonomskog prostora Nekoliko posljednjih godina došlo je do znacajnog ekonomskog približavanja izmedu dva entiteta ali postoji vrlo malo stva e integracije. Ekonomija u RS je opcenito dostigla nivo Federacije u smislu prihoda po glavi stanovnika, cijena za osnovne robe, i placa. Dok je ovo približavanje jedan prirodan tok dogadjaja, ipak, samo mali broj znakova ukazuje na ekonomsku integraciju izmedu dva Entiteta, pa cak i izmedu kantona u Federaciji. Mobilnost radne snage je vrlo ogranicena, što dovodi do postojanih razlicitih stopa nezaposlenosti medu regijama, a tu su i bezbrojne regulato e i administrativne barijere koje sprijecavaju mobilnost preduzeca i usluga širom zemlje. Ovo ne samo da obnavlja razlike izmedu regija vec i koci razvoj zemlje u cjelini. Da bi se situacija popravila, organi vlasti bi trebali: • Harmonizirati poreze na dobit preduzeca i poreze na prihod gradana. Porez na dobit preduzeca je 10 procenata u RS a 30 procenata u Federaciji, poreska osnovica je razlicita. Ovo otežava poslovanje u oba entiteta. • Harmonizirati osnovicu za doprinose na place koje placaju poslodavci te strogo nadzirati poštivanje tih odredbi u oba entiteta. • Olakšati mobilnost radne snage time što ce: (1) usvojiti amandmane na zakone o radu kako bi se zaustavila akumulacija potraživanja po osnovu placa u slucajevima gdje radnici nisu efektivno zaposleni od strane preduzeca, te kako bi se omogucilo radnicima da promjene poslodavca bez prvobitnog poravnanja postojecih potraživanja; i (2) harmonizirati i osigurati prenosivost penzionog i zdravstvenog osiguranja. U toku ovog procesa, treba provesti reformu kako penzionog tako i zdravstvenog sistema kako bi se obezbjedila dugorocna održivost istih. • Poboljšati poslovni ambijent time što ce pojednostaviti procedure za dobijanje dozvola, smanjiti regulato a opterecenja, i pojednostaviti inspekcijski rad. Ovo je glavna prepreka razvoju privatnog sektora i otvaranju novih radnih mjesta, koja potiskuje poslovne aktivnosti u neformalni sektor. RS je vec pocela ostvarivati napredak u ovoj oblasti uz pomoc USAID-a. • Harmonizirati zakone o hartijama od vrijednosti i preduzecima, kako bi se olakšala mobilnost kapitala i razvoj tržišta kapitala. * * * * * Noviji pozitivni ekonomski trendovi govore u prilog žilavosti privatnog sektora u Bosni i Hercegovini. Kako bi se održao ovaj razvoj te kako bi se pomoglo da privreda ostvari svoj puni potencijal, oni koji odlucuju o politikama bi trebali iskoristiti svoj novi mandat koji su dobili od biraca i zapoceti sa rješavnjem neuskladenosti i slabosti u javnom sektoru. Gore navedene smje ice bi mogle predstavljati osnovu za ekonomski program vlada. Sarajevo, 22. maj 2007.godine INTERNATIONAL MONETARY FUND BOSNIA AND HERZEGOVINA 2007 Article IV Consultation Preliminary Conclusions The economy performed strongly in 2006. Real GDP growth is estimated at 6 percent. Prices surged following the introduction of the VAT, bringing average annual inflation to 7½ percent last year, but underlying price pressures were low and inflation retu ed to an annual rate of about 1 percent in early 2007. The VAT yielded high revenues—a large part of which was one-off—leading to a consolidated general gove ment surplus (including foreign-financed projects) of 3 percent of GDP. And although problems with statistics preclude an accurate assessment, strong export growth and subdued imports reduced the exte al current account deficit last year to an estimated 11 12 percent of GDP. This strong performance reflected a benign exte al environment and the effects of past economic reforms. Growth in Bosnia & Herzegovina’s trading partners was strong, creating opportunities for exports. World prices of metals—a key export—rose further. Low world interest rates facilitated the financing of the current account deficit. Industrial production and exports of key products, such as steel and alumina, benefited from past privatization and foreign investment in these sectors. And the successful introduction and administration of the VAT led to the good fiscal outcome. Economic performance in 2007 will continue to be good, but some long-standing weaknesses of the economy of Bosnia & Herzegovina will re-surface. The international economic environment is projected to remain favorable. Inflation pressures will remain contained and the recent growth will continue for the third year in a row, although the composition of growth will be different: exports, though still strong, will slow down, while domestic consumption and investment will rise. In contrast to these positive trends: • The exte al current account deficit is likely to widen somewhat this year, as higher consumption and investment will translate into higher imports, as is already evident in the data for the first four months. • Economic growth is not likely to make a significant dent in unemployment and will not benefit all sectors and regions of the country equally. In particular, because labor mobility is limited, unemployment in depressed areas is likely to remain high. • The gove ment’s failure to resist spending pressures will be reflected in a sharp deterioration of the gove ment balance. The one-off effects of the VAT will disappear while the bill for populist pre-election spending increases—most notably by the Federation and cantonal gove ments—will come due this year. Therefore, as we had wa ed at the time of the 2006 Article IV consultation, unless bold measures are taken to control spending, the accumulated surpluses from 2006 will evaporate and the general gove ment will register a deficit of 1 1½ percent of GDP in 2007. Now is the time to start addressing these long-standing weaknesses, while the exte al environment is still positive and growth continues to be strong. Last year, this opportunity was missed because of the elections and the absorption of decision-makers with domestic politics. But the new gove ments have a fresh mandate and a long time horizon and should not let this opportunity slip again. Improving statistical data is a prerequisite for successful economic management. Cooperation among statistical agencies and other data providers is inadequate. In the long run, the answer lies in unifying the separate agencies. In the meantime, the coordinating role of the Statistical Council should be strengthened and the managements of the three agencies should enhance cooperation. Improvements in national accounts and price statistics, under preparation for some time now, should be implemented as quickly as possible. Despite some progress, major problems in the timeliness and coverage of general gove ment statistics persist. There has been very little progress in the area of balance of payments statistics, and we again urge the CBBH to improve these data, particularly for remittances. Put order in the public finances Fiscal policy is the only macroeconomic policy instrument under the currency board. During our discussions, it became clear that many of our counterparts see the budget mainly as an instrument for pursuing the gove ment’s social goals. The budget is, of course, all this, but it is also a macroeconomic policy tool—indeed the only such tool available to Bosnia & Herzegovina. And given the high exte al current account deficit, fiscal policy should be primarily aimed at ensuring macroeconomic stability. • In the rest of this year, the gove ments should act urgently to minimize the deterioration in the general gove ment balance from 2006. This would require (1) both Entities to stick to the spending plans in their original budgets; and (2) the Federation gove ment to take measures to offset the deficits likely to arise in cantonal budgets, which could amount to KM 130 million. We support the consolidation of the various laws dealing with demobilized soldiers’ and veterans’ benefits in the Federation, but this may not be sufficient to yield the required savings. • The general gove ment should maintain a balance over the medium term. Keeping a balanced budget (including foreign financed investment projects) while reducing the tax burden and making room for priority infrastructure investment will require significant cuts in expenditures at all levels of gove ment. There is ample scope for savings in social transfers, public administration, and subsidies, as identified in the recent World Bank Public Expenditure Review. • Maintaining a prudent fiscal position will be all the more difficult if the VAT revenue is eroded. • The terms of settling domestic claims against the gove ment should be consistent with fiscal sustainability. The proposed amendments to the law dealing with frozen foreign currency deposits should be rejected, the verification process accelerated, and the potential liability from enforceable judgments assessed. And a law on restitution should be adopted to limit financial compensation in line with the budget’s long-term ability to pay. Privatization receipts are both an opportunity and a challenge. The RS and—hopefully soon—the Federation will receive large amounts of privatization revenue. These funds should be used for the long-term benefit of the economy. Both Entity gove ments assured us they do not intend to use them to finance current spending. What should they use them for? • The first best would be to use them to finance the introduction of fully-funded pension pillars, as planned in the RS. • Using them for investment in infrastructure is a second best option and has risks: it is not clear that the Entities have the administrative capacity to ensure that these funds are invested wisely. • Using them to finance private business development in “strategic sectors” is not a good option: if the business environment is improved, the private sector should be able to accomplish this without gove ment support; if not, gove ment support will make little difference and the money will be wasted. In addition, sizeable privatization revenue may complicate liquidity management in the financial system and jeopardize macroeconomic stability. To avoid this, the Entity gove ments should deposit these receipts abroad or with the CBBH until it is time to spend them, and spread out their use over time. Private sector involvement in road building should be encouraged but has risks. Concessions and public-private partnerships are a good way to improve the road infrastructure utilizing private sector resources. But these agreements can result in significant future liabilities for the gove ment. We recommend caution and—as elsewhere in the region—are ready to assist Bosnia & Herzegovina with our technical expertise in building the appropriate accounting and institutional framework for public-private partnerships. Fiscal policy will not achieve its goals unless institutions and management are improved. Fiscal institutions in Bosnia & Herzegovina are fragmented and do not promote policy coordination. The laws on gove ment debt and borrowing are a welcome step forward, but there is major unfinished business in this area. • Provide a firm legal basis for the Fiscal Council. Adoption of the draft law seems to be delayed by procedural disagreements. We urge the gove ments to address the shortcomings of the draft (expand the definition of the primary balance to cover capital spending, and strengthen the penalties in case of noncompliance), resolve procedural issues, and adopt the law as quickly as possible. • Agree on a revenue allocation formula that respects the three principles put forward by the Chairman of the Gove ing Board of the Indirect Tax Authority: simplicity, clarity, and fai ess (upside and downside fluctuations in tax revenue should be shared equally by all). The recent OHR decision on the revenue share of the District of Brcko is not consistent with these principles. • Stop the proliferation of extra-budgetary funds and off-budget agencies. Entity gove ments’ plans to expand or create new funds or agencies off-budget would reduce the transparency and accountability of these operations, as well as the gove ment’s control over the use of taxpayers’ money. In any event, the activities of these agencies should be included in the statistics of the general gove ment sector. Strengthen financial stability While the pace of credit expansion per se is not a major conce , certain aspects of this phenomenon need the close attention of policy-makers. The extension of the credit registry to individuals is a welcome step. But under the pressure of competition, commercial banks may be taking on higher credit risk. While this risk still appears to be relatively small, it may be concentrated in some banks. The fact that some large banks are repeatedly fined for violations of prudential rules also suggests that the fines are too low. Moreover, current regulations create a bias in favor of bank borrowing from abroad to finance credit expansion. To address these conce s, we recommend the two Entity supervisory agencies to: • Tighten loan classification by moving loans with payments overdue more than 30 days to category C, in line with best international practice. This measure should be introduced gradually over the next 12-18 months to provide sufficient time to commercial banks to adjust their practices. • Raise the fines for noncompliance with prudential regulations. • Relax gradually the maturity matching requirement between banks’ assets and liabilities in order to weaken the link between credit expansion and foreign borrowing by allowing banks to finance the former with shorter-term domestic deposits. A unified bank supervision agency is necessary. No-one in Bosnia & Herzegovina disagrees with the principle that unifying supervision is needed for what is increasingly a country-wide banking system. A single, independent, and effective supervisor, either at the CBBH or in a separate agency, would strengthen the financial sector and benefit the economy of each Entity. It would also allow the conclusion of Memoranda of Understanding with key foreign supervisors. But like other economic policy measures, this decision is hostage to domestic politics. We urge the authorities to consider this issue primarily on technical and economic grounds. As we noted at the conclusion of last year’s Article IV consultation, we will continue providing assistance as needed to make progress in this area. Until supervision is unified, we encourage the CBBH to play a more active role in coordinating supervision. The CBBH, with assistance from the IMF and the European Central Bank, is upgrading its monitoring and analysis of the financial sector. Together with the supervisors, it should set up a systematic way to share information and establish regular dialogue at a senior level. It should also use this upgraded analytical capacity, as well as its authority, to inform the authorities, the banks, and the public about issues of financial stability. While these steps are necessary, they do not remove the need for unified bank supervision. Complete the creation of a single economic space The last few years have seen significant economic convergence between the two Entities but little real integration. The economy of the RS has broadly caught up with that of the Federation in terms of income per capita, prices for basic goods, and wages. While this convergence is a natural development, there are few signs of economic integration between the two Entities, and even across the cantons of the Federation. Labor mobility is very limited, leading to persistent unemployment differentials between regions, and there is a myriad of regulatory and administrative barriers to the mobility of companies and services across the country. This not only perpetuates the differences between regions but also holds back the development of the country as a whole. To redress this, the authorities should: • Harmonize corporate and personal income taxes. Corporate income taxes are 10 percent in the RS but 30 percent in the Federation, and the tax base is different. This makes it hard to do business in both Entities. • Harmonize the base for employers’ contributions on wages and enforce vigorously compliance in both Entities. • Facilitate labor mobility by (1) amending labor legislation to stop the accumulation of wage claims in cases where workers are not effectively employed by the company and allow workers to switch employers without first having to settle existing claims; and (2) harmonizing and ensuring the portability of pension and health benefits. In the process, reform the pension and health systems to ensure their long-term viability. • Improve the business environment by streamlining the processes for obtaining permits, reducing the regulatory burden, and simplifying inspections. This is a major obstacle to private sector development and job creation, and pushes activity into the informal sector. The RS has started making progress in this area assisted by USAID. • Harmonize the laws on securities and companies to facilitate capital mobility and capital market development. * * * * * The recent positive economic trends highlight the resilience of the private sector in Bosnia & Herzegovina. To sustain this development and help the economy realize its full potential, policy-makers should take advantage of their new mandate from the electorate to start addressing the imbalances and inefficiencies in the public sector. The policies outlined above could form the basis of the gove ments’ economic program. Sarajevo, 22 May 2007
