Debt Management Facility Stakeholders Forum Brussels, April 3-4 2014 Recent changes in the debt sustainability framework and non- concessional borrowing Case of

Structure of presentation

• Introduction/Outline • Fiscal architecture of BiH • Debt situation and structure • Life under the IMF SBA • Challenges • Concluding remarks Outline • Fiscal coordination between different levels of government in debt managment is the key challenge • BiH is decentralized, with national government not borrowing directly to finance its (limited) activities • Failed attempt to centralize debt managment left mismatch between de iure and defacto debt managment • More flexible approache in DSF is welcomed:DSA should go beyond the central goverment and focus on SNG BOSNIA AND HERZEGOVINA - POLITICAL STRUCTURE

BOSNIAK SERB CROAT OTHER

BiH PARLIMENTARY ASSEMBLY BiH TRIPARTITE PRESIDENCY FBIH BASED PARTIES RS BASED PARTIES Chairman rotation every 8 months Mandated: 4 years / Chairman rotation every 8 months ALLIANCE OF INDEPENDENT SOCIAL-DEMOCRATIC PARTY BiH SDP SNSD SOCIAL-DEMOCRATS (Zlatko Lagumdžija) () PARTY OF DEMOCRATIC ACTION SERBIAN DEMOCRATIC PARTY HOUSE OF MEMBER MEMBER CHAIRMAN SDA SDS HOUSE OF PEOPLES (Sulejman Tihić) (Mladen Bosić) REPRESENTATIVES CROATIAN PARTY OF RIGHTS SOCIALISTIC PARTY Approves Nominates HSP SP ŽELJKO NEBOJŠA BAKIR (Zvonko Jurišić) (Petar Đokić) SDP SNSD SDA PEOPLE’S DEMOCRATIC 15 DELEGATES: 5 CROAT, 5 KOMŠIĆ RADMANOVIĆ IZETBEGOVIĆ PEOPLE’S PARTY 42 DELEGATES: 28 FBiH, 14 RS NSRB DNS ALLIANCE BOSNIAK, 5 SERBS (Mladen Ivanković Lijanović) (Marko Pavić) DENIS BEČIREVIĆ OGNJEN TADIĆ CROAT. DEMOCRATIC UNION ’90 PEOPLE’S DEMOCRATIC PARTY SDP SDS HDZ90 NDS Chairman Chairman BiH COUNCIL OF MINISTERS (Božo Ljubić) (Krsto Jandrić) (Constitutional requirement-2/3 ministers from FBiH & 1/3 CROATIAN DEMOCRATIC UNION HDZ MILORAD ŽIVKOVIĆ DRAGAN ČOVIĆ ministers from RS) (Dragan Čović) SNSD HDZ ALLIANCE FOR BETTER FUTURE Deputy Deputy SBB Delegated by FBiH House of Peoples (Fahrudin Radončić) (Croats & Bosniaks) & RS National CHAIRMAN LIBERAL DEMOCRATIC PARTY BOŽO LJUBIĆ SULEJMAN TIHIĆ Assembly(Serbs) LDS HDZ90 SDA (Amir Husarić) Deputy Deputy BiH Patriotic Party HDZ BPS (Sefer Halilović)

FEDERATION BiH FINANCE & FOREIGN TRADE FOREIGN COMMUNICATION & MINISTRY TREASURY (DEPUTY) CIVIL AFFAIRS HRs & REFUGEES & ECONOMIC SECURITY DEFENCE JUSTICE AFFAIRS (DEPUTY) TRANSPORTATION RELATIONS

ZLATKO SREDOJE DAMIR MIRKO SADIK MUHAMED BARIŠA MINISTER SDP NIKOLA SPIRIĆ SNSD SNSD HDZ90 DAMIR HADŽIĆ SDP SDS SDA SDA HDZ LAGUMĐIJA NOVIĆ LJUBIĆ ŠAROVIĆ AHMETOVIĆ IBRAHIMOVIĆ ČOLAK

DENISA ERMINA MIRKO OKOLIĆ SDS FUAD RADMILA MLADEN SRĐAN DEPUTY ANA TRIŠIĆ-BABIĆ SNSD SDA SARAJLIĆ- SDP SDS RUDO VIDOVIĆ HDZ SALKIČEVIĆ SDP SDP DNS KASUMOVIĆ MITROVIC ĆAVAR RADULJ MAGLIĆ -DIZDAREVIĆ MARTINA PENDEŠ HDZ

FBIH TRIPARTITE PRESIDENCY FBiH GOVERNMENT RS GOVERNMENT RS TRIPARTITE PRESIDENCY Nominates (Constitutional requirement - 8 Bosniak-ministers, 5 Croat- (Constitutional requirement - 8 Serb-ministers, 5 Bosniak-ministers 3 Constitute Peoples / No rotation ministers & 3 Serb-ministers) & 3 Croat-ministers) 3 Constitute Peoples / No rotation / Directly elected

PRIME MINISTER PRIME MINISTER Nominates ŽIVKO BUDIMIR NERMIN NIKŠIĆ SDP ALEKSANDAR DŽOMBIĆ SNSD MILORAD DODIK HSP SNSD President President MINISTRY OF INTERIOR STANISLAV ČAĐO SNSD SVETOZAR PUDARIĆ MINISTRY OF INTERIOR PREDRAG KURTEŠ SDP Elects SDP EMIL VLAJKIN Vice-president NDS MINISTRY OF JUSTICE TBA (DPM) SNSD Vice-president MINISTRY OF JUSTICE ZORAN MIKULIĆ SDP MIRSAD KEBO SDA MINISTRY OF FINANCE ZORAN TEGELTIJA SNSD Vice-president Approves MINISTRY OF FINANCE ANTE KRAJINA HSP Approves ENES SULJKANOVIĆ MINISTRY OF ENERGY, MINING & SDP ŽELJKO KOVAČEVIĆ SNSD Vice-president MINISTRY OF ENERGY, MINING & INDUSTRY ERDAL TRHULJ SDA INDUSTRY MINISTRY OF TRANSPORT & NEDELJKO ČUBRILOVIĆ DNS MINISTRY OF TRANSPORT & COMMUNICATIONS ENVER BIJEDIĆ SDP COMMUNICATIONS MINISTRY OF LABOR & VETERANS- PETAR ĐOKIĆ SP RS PARLIMENTARY ASSEMBLY MINISTRY OF LABOR & SOCIAL DISABLED PROTECTION FBiH PARLIMENTARY ASSEMBLY VJEKOSLAV ČAMBER HSP No chairing rotation POLICY MINISTRY OF REFUGEES & DISPLACED DAVOR ČORDAŠ HDZ No chairing rotation MINISTRY OF DISPLACED PERSONS & PERSONS ADIL OSMANOVIĆ SDA REFUGEES MINISTRY OF ADMINISTRATION & LEJLA REŠIĆ DNS LOCAL SELF-GOVERNANCE MINISTRY OF ISSUES OF VETERANS ZUKAN HELEZ SDP NATIONAL ASSEMBLY MINISTRY OF HEALTH & SOCIAL COUNCIL OF PEOPLES RANKO ŠKRBIĆ SNSD Directly elected HOUSE OF REPRESENTATIVES PROTECTION HOUSE OF PEOPLES MINISTRY OF HEALTH RUSMIR MESIHOVIĆ SDP Directly elected MINISTRY OF EDUCATION AND 28 DELEGATES: 8 SERBS, 8 MINISTRY OF EDUCATION AND ANTON KASIPOVIĆ (DPM) SNSD DAMIR MAŠIĆ SDP CULTURE 83 DELEGATES BOSNIAKS, 8 CROATS, 4 SCIENCE OTHERS 58 DELEGATES: 17 CROATS, 17 MINISTRY OF SCIENCE & TECHNOLOGY JASMIN KOMIĆ N/A MINISTRY OF CULTURE AND SPORTS SALMIR KAPLAN SDA 98 DELEGATES BOSNIAKS, 17 SERBS, 7 IGOR RADOJIČIĆ MOMIR MALIĆ MINISTRY OF ECONOMIC RELATIONS & SNSD SNSD OTHERS ŽELJKA CVIJANOVIĆ SNSD Chairman Chairman MINISTRY OF TRADE MILORAD BAHILJ NSRB REG. COOPERATION DENIS ZVIZDIĆ KAROLINA PAVLOVIĆ MINISTRY OF SPATIAL PLANNING, SDA NSRB DESNICA RADIVOJEVIĆ SREBRENKA GOLIĆ SNSD SNJEŽANA BOŽIĆ TBA Chairman Chairman MINISTRY OF SPATIAL PLANNING SDA ENGINEERING & ECOLOGY SDS N/A (DPM) Delegated by MINSTRY OF AGRICULTURE, WATER Deputy Deputy Delegated MINSTRY OF AGRICULTURE, WATER JERKO IVANKOVIĆ MIROSLAV MILOVANOVIĆ SNSD the respective NSRB MANAGEMENT AND FORESTRY Delegates Clubs MIRA GRGIĆ JASMIN SMAILBEGOVIĆ proportionally MANAGEMENT AND FORESTRY LIJANOVIĆ (DPM) SDP SDP by Cantonal of National RAMIZ SALKIĆ MIROSLAV MIKEŠ Deputy Deputy MINISTRY OF DEVELOPMENT, MINISTRY OF FAMILIES, YOUT & SPORTS GORANA ZLATKOVIĆ SP SDA SNSD Assemblies SANJIN HALIMOVIĆ SDA Assembly Deputy Deputy ENTREPRENEURSHIP & CRAFTS MINISTRY OF TRADE AND TOURISM NADA TEŠANOVIĆ SNSD PREDRAG STANKO PRIMORAC TBD MINISTRY OF TOURISM AND TBA HSP BRANKA ĐURIĆ SDP GLUHAKOVIĆ SP Deputy Deputy ENVIRONMENT Deputy Deputy Fiscal Arhitecture

• Indirect taxes: shared between national and subnational level • Direct taxes:subnational goverments • Borrowing control: SNG • Fiscal rules:SNG • Debt managment: strategy still not there • Country specificty: not only interest rate growth differential matters but revenue allocation/sharing mechanism The crisis has contributed to the increase in debt to gdp, but (even realistic) projections are promising:

General government debt: comparison with the neighbors (source IMF, WEO, Oct.2013, estimates after 2012)

80.00

70.00

60.00

50.00

Bosnia and Herzegovina 40.00 Croatia Montenegro 30.00 Serbia

20.00

10.00

0.00 2008 2009 2010 2011 2012 2013 2014 2015 Lowest rating in comparison to neighboring countries is not due to the debt situation but other (mostly political) factors

Credit rating agency rankings

Country Moodys S&P

Bosnia and Herzegovina B3/stable B/stable

Croatia Ba1/negative BB/stable

Montenegro Ba3/stable BB-/negative

Serbia B1/stable BB-/negative

Source: CBBH, data as of March 24 2014 From a national macroeconomic perspective, DSA may not triger a concern but debt burden may be different across subnational governments

Debt as share of entity BDP (source: Directorate for Economic Planning, 2013)

60.00

50.00

40.00

Federation BiH 30.00 Republika Srpska BiH (total consolidated)

20.00

10.00

0.00 2007 2008 2009 2010 2011 2012 Life under the SBA

• Cooperation with the IMF 2009-2011, 2012- 2015 • Several big and small structural improvements • Fairly reasonable fiscal position (primary surpluses) • Limited short term non-concessional financing-not relevant since sufficent financing provided

Immediate Challenges

• Studying DeMPA findings (ongoing) • 2014 election year • Towards the broad recognition of the need for the public debt managment strategy • IDA graduation • Likely changes in the debt structure (higher interest rate, shorter maturity)

Conclusion

• „Implicit“ debt managment strategy, namely cooperation with IFIs as well as not accessing international markets rendered non-concessional borrowing not an issue for the time being but changes in the debt composition are inevitable and pose a challenge • More flexible approache in DSF allows for deeper analyses of country specific risks and is welcomed:DSA should go beyond the central goverment and focus on SNG • At least in theory, maximum sustainable debt could be different accros the SNGs