European Commission publishes report on BiH's Economic Reform Programme

(Patria) - In mid-April, the European Commission sent a report to the Council of the European Union on the progress of the Economic Reform Programme in BiH (2019-2021), which was recently published on the official website of the European Union.

The European Commission, in this report, as reported by the Patria News Agency, predicts a slight momentum in economic activity in BiH with an increase in results from 3.3% in 2018 to 3.8% in 2021. The increase will be mainly based on the growth of individual consumption thanks to an increase in employment and a low inflation rate. An increase in investments compared to previous years is also expected.

The report emphasizes the lack of adequate government policies that would boost the country's growth potential through stronger public and private investment. Some of the key risks include significant deteriorations in the external environment and delays and postponements in the implementation of reform measures.

An increase in budget surpluses is projected, based on significant consolidation of expenditures. As in previous programs, revenues and expenditures are expected to fall significantly as a percentage of GDP.

The European Commission believes that the program lacks a more convincing approach to improve the quality of public spending by focusing on investments and education, addressing the issue of an oversized public sector, and reforming state-owned enterprises.

Thanks to fiscal surpluses and solid nominal growth in results, public debt is projected to fall from 33% of GDP to below 30% in 2021.

The report also outlines the main challenges that BiH needs to overcome for the Economic Reform Programme to start achieving more significant results:

- Fiscal policy that does not give enough importance to improving the quality of public spending, neglecting medium-term needs in education and infrastructure;

- The quality of short-term and medium-term fiscal planning suffers from weak statistical foundations and short-term orientation in decision-making. Limited administrative capacities and frequent political stalemates are the main obstacles. Necessary reforms are often postponed due to fragmented responsibilities and insufficient cooperation between participants in the process.

- BiH's competitiveness is threatened by layered public administration and a fragmented economic space, which is a major obstacle to the business environment. BiH's fragmented administrative structure is an additional burden on businesses due to excessive regulations, taxes, and fees. Starting a business in BiH remains difficult and complex, according to the European Commission's report. Solutions and strategies to help private businesses are delayed and relate to quality infrastructure, reform of public financial management, reduction of para-fiscal charges, policies for small and medium-sized enterprises, as well as reform of building permit processes.

The report also addresses state-owned enterprises, calling them 'oversized,' 'nontransparent,' and 'inefficient,' with significant debts. The inefficiency of state-owned enterprises means that significant state support is necessary for them to survive, resulting in 'major distortions and misallocation of factors of production (labor, capital, land). '

The commission's working document also states that BiH has low labor force participation and a high unemployment rate, causing young people and the workforce to leave the country.

Employer contributions for labor are high, especially for low wages, which encourages the grey economy, according to the European Commission's working document on the progress of the Economic Reform Programme in BiH, among other things.