Joint Statement of the European Commission and Bosnia and Herzegovina following the sub-committee meeting on economic and financial issues and statistics

Representatives of the European Commission and the institutions of Bosnia and Herzegovina (BiH) met in Brussels to discuss recent economic developments and prospects as well as the country’s economic policy agenda. The following conclusions have been reached:


The Commission regretted that the discussion and exchange of views on BiH economic strategy could only be very limited as the quality of the submitted material did not meet previous years’ standards and  the authorities were not in a position to provide necessary clarifications on the state of play in important policy issues and reforms during the meeting. . It was agreed that by April 30, the authorities will send additional information in a number of areas, including fiscal developments and budget execution at consolidated level in 2012 and in early 2013, the outcome of the special working group on tax wedge in the Federation of Bosnia and Herzegovina (FBiH), a clear timetable for the adoption of the draft law on FBiH pension system reform, information regarding the economic programme of FBiH which was planned -according to information provided at the previous sub-committee meeting- to be adopted in June 2012, detailed results of the stress-tests of the banking system conducted by the central bank and the entity banking agencies, the state of play with regard to the fulfilment of the structural reform criteria for the second tranche of the EU Macro-financial Assistance (and the adoption of the draft FBiH fiscal responsibility law, in particular), etc.


The Commission praised the functioning of the currency board and its contribution to macro-financial stability. The Commission took note of the recent downward revision of the medium-term macroeconomic scenario but stressed that there were still significant downside risks related to it. It was reiterated that BiH needs to improve the quality of public finances by reducing the currently large public sector as well as by shifting public funds to more growth-enhancing activities. The generous system of social benefits and privileged pensions still lacks adequate targeting. The Commission acknowledged that some steps into the right direction were taken, such as the parliamentary adoption of the FBiH privileged pensions law, albeit its entry into force could be questioned due to the need for Constitutional Court ruling. The FBiH authorities were urged to finalise rapidly the pension system reform. The Commission noted that preparations had been launched for the Global Framework for Fiscal Policies 2014-2016 -which was expected to be adopted before the end of May- and urged the authorities to develop further the medium-term fiscal strategy at the country level in order to strengthen its role of a fiscal coordination tool.


The Commission raised its concerns about the political difficulties -and the continuing government crisis in the Federation of Bosnia and Herzegovina in particular-, which threaten to adversely affect Bosnia and Herzegovina’s economic policy.


The Commission reiterated its findings of last year that the incomplete structural reform agenda act as an impediment for laying the foundation for sustainable and more export and investment-driven growth in Bosnia and Herzegovina. The authorities were encouraged again to undertake further efforts in its structural reforms and give higher political priority to the improvement of the business environment and of the labour market conditions to enhance domestic sources of growth. The Commission noted that the functioning of the labour market has further deteriorated in 2012 and encouraged authorities again to undertake or commission a comprehensive study analysing the structural causes of market rigidities and the reasons for the low level of job-creation. It was noted that such a study might be financed by EU funding.
The Commission recalled the disbursement of the first tranche of the EU Macro-Financial Assistance in February and encouraged the authorities to fulfil in a timely manner the remaining conditions for disbursement of the second tranche. It was stressed that, according to the Loan Agreement, the request for the disbursement of the Macro-Financial Assistance funds expires in early August. Thus, considering that the Commission’s procedures -involving several consultations, including that of the Member States- have to be finalised beforehand, the authorities should demonstrate the fulfilment of the conditions and send to this effect a Compliance Report to the Commission by early-June, at the latest. The Commission encouraged authorities to pursue a smooth implementation of the programme with the International Monetary Fund, to anchor macroeconomic and financial stability. It was reminded that a satisfactory track record in the implementation of the Stand-By Arrangement remains a precondition for the disbursement of the Macro-Financial Assistance.


The Commission welcomed that some progress was made in adopting secondary legislation for Public Internal Financial Control, while taking note that the administrative capacity in the Federation in this area needs to be strengthened as a matter of urgency. The Commission emphasised that the Co-ordination Board of the three Central Harmonization Units (CHU) providing for a single platform for Public Internal Financial Control (PIFC) in BiH needs to increase its activities.


The Commission reiterated its concern that the external Audit Offices remain subordinated to the executive and no steps are envisaged to anchor them independently in the constitutional order. This is interfering with the independence of the Audit Offices. This issue was raised already in 2010 and 2011 in the same Sub-committee.


The Commission welcomed the adoption of the Financial Plan for the Census and encouraged further progress in fulfilling all the technical requirements and recommendations set out by the International Monitoring Operation in order to allow for the Census to be conducted in October 2013. The Commission urged the statistical authorities to develop a functioning co-ordination mechanism and expressed concerns vis-à-vis delays in the adoption of the final Census Questionnaire form while noting substantial progress on agreeing this basic document.


The Commission reminded BiH of the deadline of 1 July 2013, laid down in the Interim Agreement by which statistical data on the GDP per capita at the so-called NUTS II level shall be submitted to the Commission.

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