World Bank wrote to BiH authorities, transfer of competencies creates financial insecurity

SARAJEVO, (Patria) - The World Bank warned authorities of negative economic consequences if part of the competencies is transferred from state to Republika Srpska authorities.

This was done through a letter addressed to the Chairman of the Council of Ministers of Bosnia and Herzegovina Zoran Tegeltija (SNSD), Minister of Foreign Affairs Bisera Turković (SDA), Minister of Finance and Treasury Vjekoslav Bevanda (HDZ), Federal Prime Minister Fadil Novalić (SDA), Federal Minister of Finance Jelka Milićević (HDZ), Prime Minister of Republika Srpska Radovan Višković (SNSD), and Minister of Finance of Republika Srpska Zora Vidović (SNSD).

The letter included a memo outlining possible negative consequences for all citizens of Bosnia and Herzegovina.

The memo stated that Republika Srpska's withdrawal from the state indirect taxation system would mean lower tax collection and uncertainty regarding the timely repayment of external public debt. The risks to entity budgets were also highlighted.

"Republika Srpska's withdrawal from such a revenue distribution system could lead to instability of the Republika Srpska budget, through transmission mechanisms, and lead to uncertainty among foreign and domestic creditors," it was stated.

"Access to domestic and foreign financing could be significantly hindered, and available funds could become more expensive, until creditors are convinced of the functioning of the new system and assess the new risks;

In the short term, tax revenues could significantly decrease, and as a consequence of establishing a new revenue collection system, an increase in tax evasion may occur;

The new tax revenue collection system requires institutional changes, which could lead to a reduction in tax rates between entities;

Unharmonized legislation between entities and Brčko District could result in legal instability," the World Bank warned.

Furthermore, it was assessed that the Currency Board and confidence in the exchange rate could be negatively affected by a potential economic crisis.

As emphasized, if Republika Srpska were to withdraw from the Indirect Taxation Authority of Bosnia and Herzegovina (ITA BiH), any resulting economic crisis could negatively impact the Central Bank and the Currency Board, with the possibility of undermining confidence in the domestic currency, which could result in the withdrawal of savings and capital flight.