FBiH Government Program: Reducing Burden on Economy, Increasing Minimum Wages, Restructuring Healthcare

SARAJEVO, (Patria) – The FBiH Government adopted the Program for Economic Stabilization and Recovery of the Federation of Bosnia and Herzegovina 2020 — 2021, which will be the prerequisite for sustainable and accelerated growth in 2022.

As stated in the program, it is necessary to adopt fiscal laws (Law on Contributions and Law on Income Tax) as soon as possible. The new Law on Contributions envisages a combined contribution rate on gross wages amounting to 32.5% (pension and disability insurance contribution — 18%, health insurance contribution — 13.5%, and unemployment insurance contribution — 1%). As for the Law on Income Tax, the non-taxable amount (mandatory deduction) is raised to 800 KM per month, and everything above that amount will be taxed at a rate of 13%.

The adoption of these legal regulations will enable an increase in the minimum wage in FBiH, which currently stands at 407 KM, and should realistically be significantly higher. These laws would apply from January 1, 2021.

By adopting the aforementioned laws, qualified labor in key industrial sectors will represent our great comparative advantage, based on reduced business costs and thus increased cost competitiveness.

It is an opportune moment to begin financial consolidation and restructuring of the healthcare sector (Law on Financial Consolidation and Restructuring of Public Health Institutions in FBiH). It is necessary to shorten the consolidation period, and funds will be provided through the World Bank (through the Development Policy Loan - DPL instrument). Consolidation would last until the end of 2022, and thus an additional 300 million KM would be "injected" into the healthcare sector in a relatively short period.

When it comes to the economy, an initiative will be launched towards the Indirect Taxation Authority to amend the VAT law, in order to reduce the default interest on indirect taxes to 0.03% per day (10.95% annually) from the current 0.04% per day (14.6% annually), as we are aware that companies that fail to meet their obligations on time, due to the excessively high interest rate, do not have a great chance of survival.

Combating the grey economy and reforming public enterprises, with the aim of improving their operations, remains high on the list of priorities.

Regarding the banking sector, the Program states that if banks need additional funds, they have surpluses held above the level of mandatory reserves with the Central Bank. These surpluses amount to approximately 2.8 billion KM and represent a solid potential of the banking sector, which will be necessary for the economic recovery.

It was emphasized that the appointment of the FBiH Securities Commission needs to be urgently completed to enable new capital investments, i.e., recapitalization of banks and other joint-stock companies, and to ensure conditions for the smooth functioning of the capital market.

"Until this process is completed, no entity in FBiH, except for the FBiH Government, can issue bonds (in this situation, this particularly affects certain cantons, cities, and municipalities that will be forced to take on new debt due to falling revenues), nor can any joint-stock company be approved for merger or acquisition, approval of securities issuance, appointment of a supervisory board, and other obligations arising from relevant legal solutions," it is stated.

The Guarantee Fund, which the FBiH Government is establishing at the FBiH Development Bank, will play a very significant role in the entire economic recovery process. With a total guarantee potential of 500 million KM, banks will be encouraged to increase lending to the economy with a credit potential of one billion KM.

"This potential will not be possible to utilize in 2020, but could be utilized by the end of 2021. Since the Guarantee Fund will operate on a revolving principle (as loans are repaid, the guarantee potential will be renewed), it will become a long-term instrument of the FBiH Government for supporting the economy and economic development. In order to maintain the Guarantee Fund's potential at an optimal level of 500 million KM and reduce pressure on the liquidity of the FBiH budget, a special stand-by credit line of 50 million EUR will be secured from international financial institutions, which will be used exclusively to cover potential credit losses of the fund and its capital strengthening," it is stated.

The Government also envisaged in its program the adoption of the Law on Forests (with a defined priority for final processing) as soon as possible, but also to introduce a special tax on the export of unprocessed timber.

"The goal is to provide domestic producers with the necessary raw materials and conditions for creating new jobs in the furniture industry as a strategically important activity. It is also necessary to adopt an Action Plan for the implementation of the Development Strategy of the Wood Industry of FBiH, which defines the priorities, measures, and activities for the implementation of the Development Strategy of the Wood Industry of FBiH," it is planned.

Significant public works, construction of road infrastructure, and restructuring of mines are also planned.

"The potential we have available gives us the opportunity, through JP Autoceste, to "inject" 800 million KM into the FBiH economy by the end of this year and next year through works. With a fair credit scheme, JP Ceste could also invest an additional 100 — 150 million KM in road infrastructure in the next 18 months. The construction of road infrastructure is accompanied by the highest multiplier for economic growth, given that all inputs in the production process are domestic," it is stated in the Program.