Reforms slow down in Bosnia, growth still high

SARAJEVO – The Bosnian economy is doing well, but reforms that need to be speeded up in order to maintain strong growth and slash unemployment and poverty have instead slowed, a World Bank official said. «The surgery failed, but the patient is doing better every day,» the World Bank’s outgoing manager for Bosnia Dirk Reinermann told reporters late on Thursday. «The structural reforms have not been done but the economy is growing. Growth remains pretty robust at 5 to 6 percent,» said Reinermann, who will leave the post in April. Bosnia successfully introduced value-added tax (VAT) last year which filled government coffers. Inflation has returned to a normal level of 1.2 percent after a VAT-linked spike and macroeconomic stability has been maintained, he said. But Moody’s ratings agency has ruled out a further foreign currency credit rating upgrade from last year’s B2, citing the unstable situation following a general election in October and Bosnia’s failure to secure its first political and trade agreement with the European Union. The main stumbling block is the failure by Muslim, Serb and Croat leaders to unite the country’s ethnically separate police forces and clear the way for signing a Stabilization and Association Agreement with the EU. On the economic front, Reinermann said, authorities have done little to improve social welfare and the business environment or the selloff of state assets, particularly in the country’s Muslim-Croat Federation. Assistance program Postwar Bosnia is made up of the federation and the Serb Republic – two autonomous regions linked by a weak central government which has a limited role in coordinating policies. The trade deficit, despite reaching a record five-year low of about 6 billion marka ($4.1 billion) last year, is still very high and fuels a current account deficit of 11.4 percent of gross domestic product (GDP), Reinermann said. «Government spending is also very large, over 50 percent of GDP, and when we sum it all up we see very little progress in reducing poverty and unemployment,» he said. Poverty hits hard About one-fifth of Bosnians live below the poverty line and a further 30 percent are close to the line, while the official unemployment rate is about 40 percent. «So the patient actually only looks a little better but is not getting healthier,» Reinermann said. «There is a progress but it is not fast enough.» Bosnia’s new governments need to improve the efficiency of the spending on education, health and welfare, which is among the highest in the region but yields poor results, he said. «They are spending a lot but not getting a lot.» They need to strengthen public administration, relax job regulation and slash labor costs, restructure and privatize state enterprises and ease «state capture,» the elites’ control of state assets that hinders growth, he said. Reinermann said the World Bank is preparing a new five-year Country Assistance Strategy under which it plans to invest at least $30-35 million per year.

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