Muhamed Pilav: We need a 'Marshall Plan'

By Muhamed Pilav

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The Great Depression of 1929-1933 left millions of workers unemployed, and brought Nazism and World War II to the political scene.

Serious politicians, along with serious economists, devised the Marshall Plan, and the world was pulled out of an economic and political cataclysm. The economic consequences caused by the Covid-19 virus will be catastrophic, especially for small and fragile economies like ours. I am sure that many countries around the world have already prepared plans for the recovery of the real sector, as it is the basis for the functioning of all other sectors of the economy.

At least 500,000 young, ambitious, and educated workers have left BiH in the last 15 years. That is about 1/6 of the total population that is currently developing other people's economies, not ours. Our state and private companies have invested billions in their education and training.

So, we have been in some kind of crisis for years, with the difference that the whole world is now in crisis with us. Millions of workers in developed countries have lost their jobs. If we compare our public sector, including state-owned companies, with the countries where our people are going, it is twice as large and very unproductive.

At least 50% of public sector employees do nothing, yet they receive significantly higher salaries than workers in the real sector. To avoid disaster, we must urgently invest 10 to 15 billion marks in:

1. A self-sustaining real sector, i.e., the production of goods and services for export and import substitution;
2. Education;
3. Healthcare;
4. Agriculture;
5. Production of cheap energy for the real sector and households.

We have a specific and inefficient political system, and therefore we are unable to finance development by printing money without coverage, i.e., through inflation. Also, although not perfect, we must not endanger the banking sector, as it holds the savings of our citizens. Therefore, we must borrow on the capital market, and creditors will assess whether we have secured sources for loan repayment.

Since we have the lowest VAT rate in the region, one way to finance our "Marshall Plan", and perhaps the only way, is to increase VAT by 3 to 5%. This source is acceptable to international creditors, as the repayment of international loans is the first priority in budget disbursements.

If we compare the expected VAT revenues with the revenues from 2018 and 2019, we could then borrow 10 to 15 billion KM, and if we invest this money wisely, revenues could be significantly higher in the coming years. VAT, after profit and dividend taxes, is the fairest tax, because those who spend more also contribute more to VAT payments. The state, under maximally favorable conditions through local banks, would disburse the money: to start-ups, small, medium, and large companies. People with knowledge, ideas, and good business plans would use these funds for the development of the entire society.

In parallel with the VAT increase, we must implement several important measures:

1. Protect the most vulnerable categories of the population, such as pensioners, social assistance recipients, etc., by increasing their income. Their income must be immediately increased to cover the new VAT cost, plus recognized legally stipulated increases.

2. We must increase productivity and freeze total costs in the public sector for a limited time.

3. We must restructure the education and healthcare sectors, as well as the entire public sector. The education system, together with parents and the media, must instill key values in all citizens of BiH: honesty, knowledge, and diligence.

4. We must fully implement the fiscalization system, meaning that every scanned receipt is registered in the tax administration in real-time, not at the end of the day.

5. In order to reduce the departure of young people from BiH, we must increase wages in the real sector by at least 50-90%, and we must understand that pensions, healthcare, police, and the army, and everything else in this country depend on the real sector. Wages in the real sector must actually be higher than in state administration.

6. We must not allow new VAT revenue to be spent on administration and investments that cannot secure loan repayment.

If we do not implement the above, disaster awaits us.
If, however, we urgently implement all of this:

1. Fewer people will leave BiH;

2. Foreigners will open factories in our country, or we will produce for them in our factories;

3. If we improve education (from kindergarten to university), we will export knowledge and final products with high added value (not planks, beams, reinforcing steel, raw hides, and coal);

4. We will prevent a decline in tax revenues and ensure their growth; 

5. We will give every citizen the chance for an excellent education and to show and realize their entrepreneurial spirit;

6. Domestic production and production for export will be more competitive than today.

(The author is a long-time entrepreneur, director of the company Unipromet d.d. Sarajevo)