CCI deems BiH's Reform Agenda a failure!

SARAJEVO, (Patria) - The Centers for Civil Initiatives (CCI) presented the seventh report „State of the Nation“ which provides a precise overview of the effects of reforms in BiH since the adoption of the Reform Agenda, broken down by its areas: public finances, business climate, labor market, social and pension policy, public administration and rule of law, and the impact of all the above on the standard of living of citizens.

The implementation of the Reform Agenda measures has not been fulfilled, so by the end of August 2018, 73% was realized at the state level, only 48% in the Federation of BiH, while the situation is better in the Republic of Srpska where 80% of the agenda has been adopted.

This means that cumulatively, only two-thirds of the action plans have been adopted, which is not a good result. Some of the positive indicators that can be noted are GDP growth, a reduction in debt which currently stands at 36% of GDP, a 6% drop in unemployment since the adoption of the agenda, a 5% increase in import coverage by exports, and continued growth in industrial production. Other indicators are not positive.

In the area of public finances, the situation regarding public debt has shown that although debt amounts to 36%, public debt in the RS is almost double that of the FBiH, and is still close to the EU limit of 60% of GDP, thereby undermining the fiscal sustainability of the entities, as well as the entire state.

- Debt to commercial banks, incurred by entity governments, at the end of 2017 amounted to two billion and 225 million KM, which is an increase in indebtedness of 70 million KM since the adoption of the Reform Agenda. Total indebtedness per capita amounts to 3,214 KM, with per capita indebtedness in the Republic of Srpska being about 50% higher compared to the other entity - stated Ismar Hota, project manager.

According to the latest global rankings of the World Economic Forum (Competitiveness Index) and the World Bank (Ease of Doing Business), there have been no significant changes in the business environment in BiH over the past two years. The country ranks 103rd (World Economic Forum) and 86th (World Bank) out of 150 ranked countries in the world, which is the worst position of any European country. Although one of the main promises of entity prime ministers was precisely improvement on these scales, it is clear that the past mandate had a wrong approach, and the Action Plans themselves did not have enough measures to accelerate business start-ups or strengthen property rights. This is supported by data on foreign direct investment, which over the past three years has fluctuated between 537 and 780 million KM, a very modest result compared to regional countries.

The gray economy continues to be a huge problem in BiH and according to the latest relevant estimates amounts to about 25% of GDP or 7.5 billion KM, so, in addition to other social losses, tax losses due to the gray economy alone are between 1.1 and 3 billion KM.

Since the adoption of the agenda, the negative trend in the labor market has been halted, and the unemployment rate has been reduced by 6%. In absolute numbers, since the adoption of the Agenda, the number of registered employed persons in the whole of BiH has increased by 93,678, while the number of registered unemployed has decreased by about 77,151 people. However, this significant increase in employment is a reflection of a change in the methodology for monitoring the labor market, so in January 2018, due to a methodological change by the statistics agencies, the number of employed persons rose from 753,302 to 790,943.

Tax burdens on labor and business have not been reduced, despite this being one of the main intentions of the Reform Agenda. Over three years, net salaries increased by 3.93%, and pensions in 2018 recorded growth after nearly a decade of stagnation. However, nearly two average salaries or four average pensions are needed for one consumer basket, which paints a completely clear social picture of society.

The pension system in both entities is permanently destabilized and unsustainable without budget subsidies or borrowing. Over the last 5 years, the ratio of pensioners to employed persons has remained almost the same in the last three years.

The percentage of employees in public administration in the FBiH decreased by only 2.85%, and in the RS by 1.05%, which is insignificant in both cases, as it does not indicate the success of government measures such as a moratorium on new employment in the civil service or broader public administration. More than a quarter of employees are on the budget, and more than a quarter of all budgets are spent on salaries. The percentage of employees in public administration is the highest in Europe, with this share being 23.66% in the FBiH and 24.49% in the RS.

The value of tax debt in BiH amounts to an incredible 3.96 billion KM! The value of debt based on indirect taxes (VAT, customs, excise) amounts to 782 million KM. The value of debt based on direct taxes in the Federation of BiH (payroll tax, contributions, fees, etc.) amounts to two billion and 429 million KM, and in the Republic of Srpska 774 million KM. The largest debtors in terms of unpaid public revenues are public enterprises or companies with state (co-)ownership, and public institutions. Tax debt, primarily of public enterprises, threatens the pension and health system, and creates a deficit.

The fight against corruption was almost non-existent, although it was announced that the rule of law was supposed to be one of the more important areas of the Reform Agenda. BiH's ranking in Transparency International's Corruption Perceptions Index has further deteriorated over the past year by 8 positions (from 83rd to 91st place), making BiH by far the worst-ranked country in the region.

- Because of all the above, reforms must be approached much more responsibly, transparently, comprehensively, and targeted at the standard of living of citizens, not at selectively fulfilling conditions. Reforms must be aimed at curbing the gray economy, enormous public spending and borrowing, establishing an independent and efficient judiciary, and finally reforming public administration. The focus of reforms must shift to strengthening institutions, equality before the law, and depoliticization of the public sector, it was concluded at the presentation of the State of the Nation report - added Hota.