Bosnia and Herzegovina Country Program Snapshot
World Bank – Bosnia and Herzegovina Partnership
Country Program Snapshot
October 2012 Bosnia and Herzegovina Country Program Snapshot
RECENT ECONOMIC AND sector (-6.5 percent) and mining industry (-2.0 SECTORAL DEVELOPMENTS percent).
Real Sector Performance Since inflation developments tend to mirror those of real economic activity, inflation In 2011, the Bosnia and Herzegovina (BH) continued to fall in the first half of 2012, economy (GDP) grew by 1.2 percent in real recording a growth of 1.9 percent (year-on- terms. As in other emerging economies, external year) in June 2012. Following the recession in demand (net exports) pulled BH out of the 2009, the weakness in domestic demand kept recession in 2010. However, the composition of inflation in check in the first half of 2010. growth has since shifted, with domestic However, in the second half of 2010 and first half consumption playing a greater role in 2011. of 2011, the consumer price index (CPI) edged up, Growth in 2012 is forecasted at 0.5 percent, due largely on the back of increased food prices, which mainly to the continued weakening of external peaked in May 2011. However, these pressures demand, especially in the Eurozone, where a abated in the second half of 2011 and the first half contraction is expected in 2012 as a result of the of 2012, with food and energy inflation growing at prolonged sovereign debt crisis. Given the weak 3.9 percent (year-on-year) and 1.1 percent year-on- growth outlook in 2012, BH is not expected to year in June respectively. Underlying core inflation attain its 2008 precrisis real GDP level until 2013, has remained stable and low at 0.5 percent year-on- in effect losing half a decade. year in June 2012.
No quarterly GDP is produced for BH. However, External Performance proxy data (on imports, credit, industrial production) indicate a weakening of both domestic The current account deficit (CAD) widened in and external demand in the first half of 2012: the first quarter of 2012 on the back of slowing external demand. The CAD widened to 9.4 Consumption appears to have moderated, as percent of GDP in the four quarters ending March imports of consumer goods in the first half of 2012, up from 6.4 percent in the four quarters 2012 grew by a mere 0.2 percent compared to ending March 2011. The widening trade deficit was the same period in 2011, while bank credit to the main contributor, as the exports turned households is holding up, although at a slightly negative (-10.6 percent compared to the first decelerating rate of 5.8 percent growth (year-on- quarter of 2011) while imports remained flat (0.2 year) in June. percent compared to the first quarter of 2011), reflecting the worsening external demand for BH Investments appear to have slowed as imports exports. After recovering in 2011, foreign direct of capital goods in the first half of 2012 grew by investment (FDI) slowed again in the beginning of 0.4 percent compared to same period in 2011, 2012 and stood at 1.8 percent of GDP during the while long-term bank credit to private four quarters ending March 2012. The biggest enterprises contracted for the seventh straight contributors to the financing of the CAD are other month in June (-4.9 percent year-on-year). investments (assets and liabilities of residents), Industrial production dropped sharply in which amounted to 5.5 percent of GDP in the four the first half of 2012. The contraction rate reached quarters ending March 2012, up from 2.1 percent 5.4 percent in June (year-on-year), or 6.7 percent in the four quarters ending March 2011. for the first six months of 2012 compared to the same period in 2011. This was a result of harsh Foreign exchange reserves were on a gradual winter conditions as well as weaker external slide in 2012, after recovering in 2011. Foreign demand. The sharpest decline has been in the exchange reserves held by the Central Bank export-oriented branches, reflecting the weakened declined from KM 6.4 billion in December 2011 to external demand. The manufacturing industry about KM 5.8 billion in June 2012 (from 5 to 4.6 experienced a 7.6 percent cumulative output months of imports). This foreign reserve trend was decline in 2012, followed by the energy and utility reversed in 2012, as there were no disbursements
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Bosnia and Herzegovina Country Program Snapshot from official external creditors and there was a sought a new arrangement with the IMF. As of widening of the trade deficit. July 20, 2012, the International Monetary Fund (IMF) staff and BH authorities had reached an Financial Sector agreement on a new 24-month Stand-By Arrangement (September 2012–September 2014) Although the banking sector remained stable to support economic reforms in BH. The IMF throughout the downturn, banks have seen Board approved this program on September 26, nonperforming loans rise, which has curtailed 2012. The new arrangement with the IMF has lending. The share of nonperforming loans prompted the authorities to seek additional budget (NPLs) in commercial banks deteriorated slightly in support from the World Bank, and also prompted the second quarter of 2012 and profitability the Bank to begin a preliminary discussion with weakened. At the end of this quarter, NPLs stood BH authorities to assess the prospects for resuming at 12.1 percent of the total loans compared to 11.8 a budget support operation to the country. Under at the end of the first quarter of 2012. The banks’ the program, in light of slowing growth and falling profitability weakened, while capital adequacy revenues, the deficit is expected to be limited to 3 improved in the same period. The return on percent of GDP in 2012, with further reductions in average equity dropped from 5.9 percent (in the 2013 to 2.5 percent. first quarter of 2012) to 1.8 percent (in the same quarter). Stress tests show an adequate level of Figure 2: Growth and General Government Fiscal capitalization, with Tier 1 Capital/Risk Weighted Balance Assets at 14.3 percent (in second quarter of 2012), up from 13.6 percent (in the first quarter), but if the situation deteriorates, additional capital could be needed by some banks. At the same time, credit growth to the private sector slowed, and year-on- year credit growth as of June 2012 was only 2.9 percent (compared to 4.2 percent in 2011), with credit to companies recording barely positive growth at 0.2 percent (year-on-year) and credit to households is holding steady at 5.8 percent (year- on-year). Bank deleveraging in high-income Europe could further weaken this sluggish credit Private Sector Development growth in BH.
Figure 1: Banking Sector Performance Uncertainty about the Eurozone crisis remains one of the key issues for BH’s economy. The uncertainty about the debt crisis and weaker prospects for growth are likely to significantly affect the domestic economy in the coming period. The declining credit growth of previous years impacted investment across a number of sectors of the economy, as enterprises face a reduced access to credit and higher interest rates. As credit growth slowed, it brought a sharp decline in short-term lending. Small and medium enterprises (SMEs) were particularly hit by the insufficient amount of available working capital, medium-term investment financing, and liquidity after 2008–09. The World Fiscal Performance Bank responded to these difficulties by providing funds (a financial intermediary loan of US$70 The consolidated budget deficit continued to million) to enhance access to finance for SMEs in narrow in 2011 to an estimated 3 percent of BH and an additional US$120 million once the GDP, up from 4.2 percent in 2010, and BH has funds from the initial project had been spent. 3
Bosnia and Herzegovina Country Program Snapshot
The enterprise sector has also been hit by an remittances and almost 40 percent report receiving unfavorable regulatory environment and reduced wages. increased costs and risks of doing business. The business environment in BH is likely the least Spending on social protection schemes in BH friendly in the region, as it is burdened by a large is high by international standards. Public and complex public administration system and spending on pensions is also high by regional layers of administrative approval authorities. The standards, while spending on active labor market maze of authorizations and approvals needed, the programs is low, resulting in limited opportunities overlapping competencies among the approving for employment support for disadvantaged groups authorities, and the lack of harmonization among in the labor market. the relevant laws give rise to the increased costs and risks of doing business. The Bank’s global BH used to spend 4 percent of its GDP through Doing Business report for 2012 ranks BH as the 2008, 3.33 percent in 2009, and 3.9 percent in 2010 125th country out of 183 on the ease of doing and 2011 on noncontributory cash transfers. This business. makes the country one of the highest spenders in the Europe and Central Asia (ECA) region.
The World Bank and the Swedish International Figure 3: Public Spending on Social Assistance Development Cooperation Agency (SIDA) (% of GDP, 2008) recognized this problem and have set up an Improving Investment Climate and Institutional Strengthening Single-Donor Trust Fund (US$5 million) aiming to (i) reduce the costs and risks of doing business by improving inspection services, business operations, and exit processes; (ii) improve the information and data exchange system among institutions in BH in order to comply with respective European Union (EU) processes; and (iii) promote capacity building within institutions.
The global financial crisis highlighted the importance of consumer protection and The main performance indicators of the social financial capability as medium-term measures assistance system in BH are poor by the supporting financial sector development. standards of middle-income countries in Following initial diagnostic work, the World Bank Europe. The targeting accuracy is low, while the (via the Financial Sector Reform and Strengthening leakage of resources to the rich is significant. Only (FIRST) Initiative) designed a project to improve a small proportion of the poor receive social financial consumer protection and financial literacy benefits. Indeed, if these transfers were to be in the banking and microfinance sectors of BH. eliminated, the poverty headcount would increase by only 1.2 percent. In contrast, the poverty impact Poverty and Social Protection of social insurance benefits (pensions) is much higher; without these transfers, poverty would Despite progress in poverty reduction earlier in increase to 25.8 percent of the population. the decade, poverty was estimated at 14 percent in 2007. While more recent poverty For historical reasons, social benefits in BH estimates are not available, other indicators, such as have been heavily dominated by “rights- unemployment, which grew by 3.1 percentage based” programs designed to protect war veterans points between 2009 and 2010, suggest that the last or their surviving dependents (―veteran-related year saw a deterioration in living standards due to benefits‖). Veteran-related benefits absorb close to the crisis, and as expected, a reversal in poverty three-quarters of total spending on reduction. More than 50 percent of the noncontributory cash transfers. Both Entities, the population now report receiving reduced Federation of BH (FBH) and the Republika Srpska
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Bosnia and Herzegovina Country Program Snapshot
(RS), also operate a number of civilian benefits The delivery of PHC has been transformed as that account for the last one-quarter of spending, well, as patients are now registered with family such as last-resort social assistance, a child and medicine teams, although improvements are still family protection allowance, and benefits for needed in service delivery, particularly delivering civilian victims of war and people with a non-war- more preventive care such as noncommunicable related disability. disease screening and smoking prevention. A pay- for-performance mechanism pilot is being The opportunity cost of public spending on implemented in the FBH to promote both of these generally regressive transfers is also high. objectives. Public expenditures on noncontributory cash transfers absorb a huge share of the Entities’ Picture 1: The introduction of the “family respective budgets (roughly 40 percent in the FBH medicine” model supports the development of a and 14 percent in the RS). This level of spending sustainable primary health care network has the effect of crowding out resources that could be devoted to public investments.
The World Bank supported the legislative reform of the cash benefits system that has been in place since the war through the US$111 million Public Expenditure Development Policy Operation (2010). The implementation of a new legal framework should result in more affordable social programs that better target the most vulnerable in BH. A US$15 million Social Safety Net and Employment Support Project currently under implementation will support the ongoing reform of the social Drugs are one of the largest out-of-pocket protection sector in the country by strengthening payments for households, and drug lists need to institutional capacity. A substantial portion of the be revised so that the drug expenditures are credit (US$8 million) will be used to provide sustainable for the Health Insurance Funds (HIFs). employment services to active job seekers among Currently in the FBH, cantonal HIFs have legal vulnerable groups, such as people with disabilities arrangements to contract with public and private and demobilized soldiers. As of April 2012, the health providers, thereby reducing the ability to project already supported the provision of job- create efficiencies in the health system. brokerage services to over 4,000 active job seekers among hard-to-employ categories such as Education demobilized soldiers, the disabled, youth, and so forth. The project is expected to cover about The amount of public spending on education 10,000 such beneficiaries over the next four years. (as a percentage of GDP) in BH is in line with comparable countries. The RS and Brčko Health Development District spend approximately 4 percent of GDP on education, while the FBH spends 6 percent. In recent years, investing in the family However, the extent of decentralization of medicine model of primary health care (PHC) education administration and finance in the FBH has been the single largest reform leads to some cost duplication and inefficiencies. implemented in the health sector by the Overall, BH spent 4.5 percent of GDP on Government. BH has focused on upgrading the education in 2009. clinical skills of its family medicine teams. Family Primary school enrollment and completion medicine specializations (five years of education rates are satisfactory. However, enrollment in and training) are now provided in both Entities, secondary education is well below European and a comprehensive one-year skills upgrade standards and shows biases towards enrolling training for most existing doctors and nurses has females and wealthier, urban residents, versus been implemented. males, the poor, and rural residents. The upper secondary enrollment rate (2005) is 77 percent (76 5
Bosnia and Herzegovina Country Program Snapshot percent for males and 78 percent for females), addenda to diplomas in order to promote which is well below the average rate in European employment, improvement of the freedom of countries of 93 percent, where secondary education mobility of students and teachers, recognition of is often compulsory, but above that of lower study periods spent at other universities or in other middle-income countries globally (62 percent). In countries, and promotion of European cooperation addition to low enrollment in BH, there are a in quality assurance and curricula development. significant number of dropouts. The completion rate in secondary schools is estimated at 61 percent Even though reform legislation has been overall, and is lower for the poorest 40 percent of adopted, the implementation of reforms in the population (39 percent), for males (55.6 tertiary education has been very slow. The percent), and for rural residents (49.8 percent). framework law left critical aspects of higher education development unresolved, particularly its International comparisons of BH primary public financing. Accelerating tertiary-level reform education suggests that the quality of primary is critical if BH is to address the problem of skills education in BH may be below average. The quality erosion and face the competitive challenges of the of secondary education also remains a key issue, globalized economy. although efforts are being made to align the system with the EU, especially with regard to vocational Agriculture Development education. Additionally, BH is experiencing worrisome cases of ethnic segregation in the Agriculture’s share in BH’s economy delivery of the curriculum. For example, in some decreased from 15.1 percent in 1999 to 9.8 areas of the country, Croatian and Bosnian children percent in 2007. Although the agro-food sector attend classes in the same building but are growth has been positive, it has lagged in physically separated from each other. comparison to overall economic growth. Agricultural GDP grew by 0.8 percent per year on Figure 4: Public Spending on Education in Selected average between 2000 and 2007, compared to Countries (% of GDP) overall GDP growth of 5.4 percent.
7 Picture 2: The agro-food sector has good growth 6 potential due to growing demand and a number of 5 comparative advantages 4 3 2 1 0
The tertiary education system has also undergone very little reform thus far. The most significant step towards reform was the adoption of the Framework Law on Higher Education in 2007. Favorable climate conditions and relatively low This law provides a legal basis for (i) the prices give the agriculture sector in BH some establishment of two new state-level institutions to comparative advantages. The agricultural season coordinate and support higher education in BH begins earlier than in most EU countries, development, and (ii) the integration of the shipping costs are relatively low, and land and labor autonomous faculties. The law also confirms BH’s prices are favorable compared to the commitment to the Bologna objectives, which Mediterranean EU countries. include moving towards EU standards through the standardization of degrees, establishment of quality With about 20 percent of all those employed in assurance mechanisms, the maintenance of BH working in agriculture, the sector remains 6
Bosnia and Herzegovina Country Program Snapshot important for employment and as a Institutional constraints prevent BH’s agro- socioeconomic buffer, despite a decline in the food sector from reaching its full potential. BH working-age population in rural areas. Yet the has access to EU markets through preferential value of the agro-food sector is shrinking as a share trade agreements, yet a broad range of products of GDP, and BH’s agro-food trade deficit has been remain banned from them due to the absence of growing in recent years. EU-compliant food safety institutions and a regulatory framework. A state-level Food Safety Changing consumer preferences have Agency, a Plant Health and Phytosanitary Agency, contributed to the development of new market and a Veterinary Office have been established and segments that BH’s domestic producers have regulations developed; however, an agreement on been unable to capture. The agro-food sector in the precise roles and responsibilities of the various BH represented 15.1 percent of GDP in 1999, actors, the link to entity inspections services, and dropping to 9.8 percent in 2007. The drop signals various other laws and regulations have yet to be that foreign products are taking an increasing share finally agreed on or adopted and then implemented of the domestic market. Both exports and imports across the country. These institutional of agro-food products have risen, with imports arrangements and the effective implementation of growing faster than exports. As a result, the agro- legislation at each administrative level are food trade deficit increased by over 10 percent becoming increasingly urgent with the expected between 2003 and 2007. accession of Croatia into the EU in January, at which time producers and traders from BH will no Figure 5: BH Agro-Food Imports longer be able to access this important market.
Processed fruit and vegetables Vegetables Public spending in BH’s agriculture sector is Processed meat 2008 relatively low, and funds are not attuned to the Fruit challenges the sector faces. On average, Dairy 2007 agricultural spending is roughly 6–8 percent of Sugar based products 2006 Tobacco total public spending in developed countries, and Wheat based products 2005 3–5 percent in developing countries; in BH, Animals and animal products … 2004 agricultural spending amounts to only about 2–3 Beverage and alch. drinks percent of total public spending. In addition, these 0 50 100 150 200 mil € relatively modest resources in large part (around 60
percent) go toward direct payments that often provide little incentive for farmers to modernize BH’s agriculture sector faces a broad range of and become more efficient. Experience from other constraints in input and output markets. Farms countries shows that investment in public goods— are for the most part small and fragmented, and such as research and extension services, market supply chains remain weak. Consequently, farmers infrastructure, and natural resource management— in BH pay more for their inputs and receive less yield much higher returns than do subsidies, for their outputs relative to their peers in especially direct production subsidies. A substantial neighboring markets. Low output prices are a increase in resources for agricultural administration result of market failures such as weak bargaining at all levels will be needed to build capacities in line power, a lack of post-harvest facilities for storage with EU requirements. and packaging, fragmented supply chains, costly logistics, and the limited access to affordable Climate change is expected to have an finance. High input prices result largely from a increasingly intense impact on agriculture in reliance on a few dominant input traders in BH, and the current institutional set-up is not combination with highly regulated import markets. prepared to support the sector in adapting to these This situation dampens productivity as well as changes. While some irrigation infrastructure was competitiveness, as the limited access to modern part of the former agro-kombinats (the state- inputs makes it more difficult for farmers to export owned enterprises), these systems have suffered their produce and to participate in modern supply from significant dilapidation. In addition, their chains. layout makes them often ineffective in delivering
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Bosnia and Herzegovina Country Program Snapshot water to the numerous small parcels of land of the European transport corridor (Vc). In addition, private farmers. Finally, there remains a lack of there are limitations in ballast on curves, weak clarity as to the operational responsibility of sleepers, and inadequate fastenings. Another existing irrigation schemes, and there is a need for significant problem is the length of the crossing closer user participation in their management and a sidings in stations, leading to restrictions on train discussion on their expansion. length (550 meters) and train weight (1,500 tons).
The World Bank supports the agriculture In the prewar period, navigation on the Sava sector in BH through the Agriculture and Rural River, BH’s most important river, was possible Development Project and a recently approved Irrigation almost 250 days per year, excluding the Development Project. summer months. Current navigation conditions along the Sava River are difficult, as it has a Transport strongly fluctuating discharge that results in wide variations in water levels and depths during the The BH road network totals approximately year. Heavy sedimentation in certain areas, together 22,615 kilometers. The density of the entire BH with a lack of maintenance of the riverbed, have road network is broadly comparable to its led to a reduction in the width and depth of the immediate neighbors. About half the road network fairway (navigable channel). The result is a large in BH is in good condition, with the remaining half drop in traffic volumes carried via the river. in either fair or poor condition. The condition of structures (bridges and tunnels) in the network is Picture 3: About half of the road network in BH is poor due to the extended period of neglect after in good condition, with the remaining half in either the hostilities, insufficient funds for maintenance, a fair or poor condition continued lack of enforcement of axle-load limits, and a significant increase in traffic volumes.
The Bank has been supporting the rehabilitation of magisterial and regional roads through the Road Infrastructure and Safety Project since 2008. The project, which recently closed, had built on the results of the earlier Road Management and Safety Project (RMSP), which closed in June 2007. The implementation of the RMSP led the European Investment Bank (EIB) and the European Bank for Reconstruction and The Bank is currently preparing the Sava Development (EBRD) to contribute significant Waterways Rehabilitation Project, which aims parallel financing to the US$220 million program to improve the operational performance and safety to clear the maintenance backlog on the road of commercial and leisure vessels on the Sava network (excluding structures), out of which the River, thereby contributing to improved utilization Bank project provided US$25 million. of the river ports and broader economic development in the hinterland. The project is an The railway network in BH extends for some important one from a regional perspective, and will 1,017 kilometers, of which 92 percent is single occur in parallel with rehabilitation efforts in track. Despite the rehabilitation efforts, the overall Croatia and Serbia. condition of the railway network in BH remains poor and operational speeds low, due to the Energy existence of temporary speed restrictions, poor tunnel, track, and track alignment conditions, and The destruction of BH’s power grid had the number and inadequate functioning of the crossings. Train operating speeds are limited to a not only left BH citizens without a power range of between 30 and 70 kilometers per hour on supply, it had also disconnected the South around 80 of the railway lines along the future East Europe power grid from the rest of 8
Bosnia and Herzegovina Country Program Snapshot
Western Europe. Hundreds of kilometers of utility company (EPHZHB), while similar systems power lines, transmission stations, and thermo are being piloted at the other two power utilities and hydropower plants have been rehabilitated (EPBH and EPRS). since 1996 through four power projects financed by the World Bank, in cooperation Municipal Services with the EU, EBRD, EIB, the U.S. Agency for In BH, local service delivery outcomes are International Development (USAID), and the extremely uneven across municipalities and German Development Bank (KfW). At all sectors, access to services is poor, and overall three power supply companies user satisfaction is low. Fifteen years after the (Elektroprivredas), efficiency has significantly Dayton Peace Agreement, it is evident that among improved, technical losses have been reduced, the services provided at the municipal level, water and the billing and collection system has been and waste collection have the most room for enhanced. These improvements have helped improvement and are a problem for many the companies become profitable, even while households. Almost 1.4 million BH citizens have keeping consumer tariffs relatively low. The no public water supply or waste removal. Waste power companies are also increasing their collection coverage is inadequate and its quality and investment in renewable energy projects. reliability decline with lower per capita municipal revenue. Today, BH is one of the few countries in the region with excess generation and export Municipalities lack resources and need to potential. increase fiscal space to expand access to basic services. This is especially true for rural areas and Picture 4: The basic sources of primary energy in among municipalities with low per capita revenues. BH are coal and hydropower, which cover over 62 Furthermore, both the road and water sectors have percent of the total consumption of primary energy capital-intensive network infrastructures, and service outcome improvements depend heavily on the financial arrangements in both sectors. Expanding and rehabilitating roads and water pipelines require funding that municipalities alone cannot provide.
The World Bank is providing support to improve the availability, quality, and reliability of basic municipal services, in particular, water supply, sanitation, and solid waste management through the following projects: (i) Second Solid Waste Management; (ii) Sarajevo Wastewater; and (iii) Water Quality Protection.
The environmental performance of the coal- Forestry fired power plants is being improved through investments supported by the World Bank and Forest resources in BH are among the richest development partners. An air emission control in Europe in terms of their extent and variety system installed at Kakanj thermal power plant is relative to the size of the country, covering the first of its kind in the Western Balkans and has almost 50 percent of land area. The war between significantly improved air quality in the area. The 1992 and 1995 caused heavy damage to natural Bank is also financing improvements in the safety resources—the direct damage to forests and of water storage dams in partnership with the EIB. associated sectors is estimated at US$2 billion. A To improve corporate governance and financial minimum of 200,000 hectares became and management controls, an enterprise-wide, contaminated by landmines, which resulted in the network-based financial management information overexploitation of some rural areas and the system has been installed at one public power abandonment of others. Subsequent to the conflict, 9
Bosnia and Herzegovina Country Program Snapshot unsustainable land-use practices and habitat change inadequate governance in state-owned enterprises were common due to poverty, inadequate land-use (SOEs), and widespread corruption. planning, the limited capacity of local institutions, and a lack of awareness of conservation issues. BH has made some progress in government budget transparency. The budget execution About 2 million people (54 percent of BH’s process has been steadily strengthened. The population) live in rural areas and rely on Ministry of Finance and Treasury (MoFT) has forest and mountain ecosystems as an introduced a Treasury Single Account (TSA). important source of subsistence, employment, Although the system is in place, there is still room energy, and recreation. The forestry sector to further benefit from the existence of the TSA. currently contributes 2–2.5 percent of GDP; For example, currently there is no functioning cash however, with the proper investments in management covering both the state level and the infrastructure and improvements in the Entities; moreover, according to the Law on competitiveness of the wood processing and Financing the Institutions of Bosnia and Herzegovina, all manufacturing industries, this sector has the budget users may request the MoFT to open a potential to contribute a much larger proportion to supplementary account for the collection and use the economy. Furthermore, since BH has a lower of donations as well as for their own revenues. rural population density (43 persons per square According to the same law, the MoFT is required kilometers) than any of the other Balkan countries, to record budget revenues and expenditures by the sound management of its ―production using the modified accrual basis of accounting and landscape‖ values (forest and grassland to promulgate a rulebook on accounting and management) can provide income for local people financial reporting that is to include a chart of while also maximizing environmental services. accounts and a budget classification framework in accordance with internationally recognized The World Bank has been continuously standards. involved in the natural resources/environment sector since 1998. From 1998 to 2003, a Forestry Supreme audit institutions are independent of Project financed by the International Development the legislature and the executive. The three Association (IDA), the EU, and the Italian and Supreme Audit Institutions of BH have achieved Norwegian governments focused on the recovery significant results in a complicated environment and protection of forest ecosystems. A follow-up and with very limited resources. Public project, the Forest Development and Conservation Project procurement continues to be weak despite a (FDCP), supported the implementation of reforms common public procurement law based on in forest organization and management. The State international best practice. Several discrepancies Forest Inventory (SFI), the single largest project and deviations remain in the legislation, mainly due activity, is fully completed with 100 percent of the to the fact that the law was drafted on the basis of country’s forests surveyed. Initial findings show the European Commission’s (EC) Public that forests and growing stock have increased and Procurement Directives in force prior to 2004. that forests are in a much better condition than is generally recognized. THE WORLD BANK PROGRAM IN BOSNIA AND HERZEGOVINA Public Financial Management BH joined the World Bank and the IDA in BH has made good progress on establishing 1996, with membership retroactive to 1993. modern public financial management Over the last 15 years since the end of the conflict, institutions and systems. Further progress is the World Bank has approved 67 projects in the needed to ensure that budget discipline is uniform total amount of about US$1.72 billion (interest- and consistent across the entire system of public free: IDA Credits, US$1.39 billion; IDA grants, resource management. It is also needed to counter US$25 million; Global Environment Facility the weak compliance with procurement laws and (GEF) grants, US$18.3 million; and International internal controls, low capacity of internal audit, Bank for Reconstruction and Development (IBRD) loans, US$295 million).
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Bosnia and Herzegovina Country Program Snapshot
The World Bank engaged early and extensively Analytical And Advisory (AAA) Program: The in the postwar reconstruction of BH. During World Bank’s analytical work contributed the period of intensive postconflict reconstruction significantly to the policy dialogue in BH in several (1996–2002), the World Bank supported repairs to key sectors, with a focus on social inclusion and over 20,000 public apartment units and about economic competitiveness. For example, a World 2,000 private houses. Hundreds of kilometers of Bank study on social safety nets provided the power and water lines, transmission stations, and analytical underpinning to the important reforms thermo and hydropower plants were rehabilitated. of the social protection system initiated in 2010. Roughly 2,300 kilometers of roads, 41 bridges, The Poverty Report again put emphasis on the three tunnels, and Sarajevo’s International Airport urgency of these reforms. It warned that recent were rebuilt. Eighty-two primary schools were gains in poverty reduction were threatened by the reconstructed, and 24 medical facilities equipped. economic downturn and that the reform of the New trees were planted on 550 hectares of land, safety nets had become urgent and unavoidable in and 210 kilometers of forest roads were order to protect the vulnerable and ensure fiscal reconstructed. About 200,000 jobs were created or stability. The 2012 Public Expenditure and sustained under the two microfinance projects. A Institutional Review (PEIR) found that public 2004 review carried out by the Independent expenditure reforms remain a high priority for BH, Operations Evaluation Department (OED) found especially in the context of the post-2008–09 crisis that the role played by the World Bank in BH’s and recovery. This edition of the PEIR identified reconstruction program was an example of ―the four broad recommendations for BH on improving Bank at its best.‖ its public expenditure and revenue system: 1. reshape public expenditures (which at present are With BH now set on joining the EU, excessively concentrated on current spending, supporting the EU integration process has including wages, pensions, and social transfers); 2. become the overarching theme of the World improve the structure of the revenue system; 3. Bank’s Country Partnership Strategy, along with reverse the excessive growth of the public sector; strengthening competitiveness, environmentally and 4. complete the overall fiscal architecture in the sustainable growth, and social inclusion. Expected country by strengthening the BH Fiscal Council. outcomes of the new Country Partnership Strategy The PEIR also analyzed overall fiscal (2012–15) include: continued macroeconomic developments as well as wages in the public sector, stability, an improved business environment and social assistance, pensions, health, education, investment climate, an enhanced competitiveness forestry, and energy. It offers detailed, short- and in key sectors, strengthened infrastructure and long-term recommendations for improvements. basic services, a more equitable distribution of social benefits and employment services for vulnerable job seekers, the sustainable development of infrastructure, the reduced pollution of rivers (Neretva, Bosna, and Miljacka), and the improved management of wastewaters. The World Bank currently supports 10 operations. The total value of these projects, which are in various stages of implementation, is US$386.3 million, about 30 percent of which has been disbursed to date.
Portfolio quality: The implementation of projects has accelerated over the last three years as evidenced by strong disbursement performance that has been among the best in the ECA region. This was not achieved at the expense of quality, as the current portfolio remains healthy.
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Bosnia and Herzegovina Country Program Snapshot
MAP OF BOSNIA AND HERZEGOVINA
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Bosnia and Herzegovina Country Program Snapshot
PROJECT BRIEFS
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: AGRICULTURE AND RURAL DEVELOPMENT PROJECT
Key Dates: Approved: June 19, 2007 Effective: February 26, 2008 Closing: June 30, 2013 Financing in million US Dollars:* Financier Financing IDA Credit 21.0 SIDA TF 070858 6.2 Total Project Cost 27.2 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IDA Credit 21.0 10.5 10.5 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations.
The agriculture sector is a small but important part of the Bosnia and Herzegovina (BH) economy. Agriculture’s share in BH’s economy decreased from 15.1 percent in 1999 to 9.8 percent in 2007, while the services and industry sectors now make up 63.9 percent and 26.2 percent of the economy, respectively. Institutional constraints prevent BH’s agro-food sector from reaching its full potential. BH’s comparative advantages in agriculture, especially for niche products, are due to its close proximity to the EU, moderate continental climate, fairly rich and cultivable soils, clean and abundant natural water resources, natural upland pastures, and good availability of labor. There is a long tradition of small-scale farming and organic production. Despite access to the EU market through preferential trade agreements, BH is not reaping the full benefits of this favorable treatment due to the absence of EU-compliant food safety institutions and an EU-compliant regulatory framework.
The Project Development Objective is to assist BH in strengthening the capacity of its state-level and Entity-level institutions to deliver more efficient and effective agricultural services and support programs, and to make a substantial contribution to an acceleration of BH’s eligibility to access support under the EU Instrument for Pre-Accession Assistance for Rural Development (IPARD). A project restructuring was conducted in response to: (i) changes in country priorities in the pre-EU accession context; (ii) implementation issues identified as part of the Bank’s implementation support activities; and (iii) damage rehabilitation needs pertaining to rural infrastructure and assets following the severe floods that hit the country during the 2010–11 winter season.
Results achieved: To date, substantial efforts have gone towards strengthening the state-level agencies for veterinary services, plant health and phytosanitary services, and food safety. In parallel, inspection services have been strengthened and information systems are under development for the deployment of an eventual Agricultural Information System. Substantial progress has been made in the implementation of a farm and client register and a livestock identification and registration system, as well as the identification and rehabilitation of reference laboratories for the handling of plant material and food safety. In addition, several pest species are being regularly surveyed in order to start the process of adopting EU requirements. Finally, the distribution of flood rehabilitation grants is underway to assist farmers in the areas that were most affected during the recent floods. Key Partners: The Bank team is working closely with the Ministry of Foreign Trade and Economic Relations, Ministry of Agriculture, Water Management and Forestry in the Federation BH (FBH), Ministry of Agriculture, Forestry and Water Resources in Republika Srpska (RS), Food Safety of BH, Plant Health Administration, State Veterinary Office of BH, and Inspection Services in both Entities. Key Development Partners: Swedish International Development Cooperation Agency (SIDA), European Commission (EC), and U.S. Agency for International Development (USAID).
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: FOREST AND MOUNTAIN PROTECTED AREAS PROJECT
Key Dates: Approved: May 29, 2008 Effective: April 16, 2009 Closing: April 30, 2013 Financing in million US Dollars:* Financier Financing Global Environment Facility 3.4
Total Project Cost 3.4 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed Global Environment 3.4 1.5 1.9 Facility *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations.
Bosnia and Herzegovina covers three globally significant ecosystems and several smaller scale globally important sites. It is estimated that BH has the highest proportion of threatened plant species of any European country, and yet by the mid- 2000s, it had only 0.55 percent of land set aside as protected areas—the lowest level in Europe. Protected areas were generally underfunded, relying heavily on resource extraction for revenues. Additionally, staff working in protected areas had little or no experience in applied management approaches for ecosystems-based management and new management fields, such as sustainable tourism and participatory conservation. Broad consensus on expanding the protected area network existed in both Entities, to protect key biodiversity and cultural assets, as well as to provide new income opportunities for local residents.
The Project Development Objective is to strengthen the institutional and technical capacity for sustainable protected area management, and expand the BH network of forest and mountain protected areas.
The Project addresses key issues through support to: i) protected area development, including planning, monitoring, and building facilities; ii) enhanced capacity and support for biodiversity conservation; and iii) local initiatives in biodiversity conservation.
Results achieved: In spite of delays in project implementation, recent progress has been encouraging. In the FBH Entity, protected area management plans have been completed and adopted for the Una National Park and Blidinje Nature Park. In the RS, all management plans and related protected area baseline ecological assessments for the national parks and forest reserves have been finalized. Overall, protected areas now make up about 2.6 percent of the land area, compared with only 0.55 percent at the time of Board approval.
Key Partners: The Bank team is working closely with: the BH Ministry of Foreign Trade and Economic Relations, the Ministry of Tourism and Environment in the FBH; and the Ministry of Spatial Planning, Civil Engineering and Ecology in the RS. They are also collaborating with the Ministries of Agriculture, Water Management, and Forestry in both Entities along with cantonal and municipal institutions.
Key Development Partners: USAID
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: HEALTH SECTOR ENHANCEMENT PROJECT
Key Dates: Original IDA Credit (U$ 17 million) approved: March 31, 2005 Effective: April 3, 2006 Additional Financing IDA Credit (US$ 10 million) Approved: March 22, 2011 Effective: December 27, 2011 Closing: December 31, 2014 Financing from all cofinanciers, million US Dollars: Financier Financing IDA Credit 27.0 Government of Bosnia and Herzegovina 8.9 Council of Europe 14.0
Total Project Cost 39.9 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 27.0 18.2 8.8 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. While BH experiences some communicable disease challenges (such as the need to increase vaccination rates for measles and diphtheria, pertussis, and tetanus [DPT]), the BH epidemiological profile is largely dominated by noncommunicable diseases (NCDs) such as heart disease, diabetes, and cancer, with some indicators (i.e., ischemic heart disease) estimated to be the highest in the South East Europe region. Road accidents, injuries, and suicides are also at high levels. With a rapidly aging population, the burden of NCDs will continue to increase. The historic organization and financing of the health system in BH, which was based on a fragmented primary health care (PHC) system and an increasing bias towards curative services, is not oriented to meet the challenge of the ongoing and increasing NCD epidemic. The Project Development Objective is to (i) expand and enhance the family medicine (FM) model of PHC; (ii) build management capacity in the sector; and (iii) strengthen the policy-making process through the development and implementation of a system for monitoring and evaluating sector performance. Results achieved: The expansion and restructuring of the PHC system based on the FM model is on track. BH PHC reform is most successful in the area of human resources, and more PHC is being delivered by well-educated FM specialists. Nationally, more than 1,100 practicing physicians and more than 1,580 nurses have gone through a rigorous retraining program to provide FM care, and nearly 600 physicians have earned a Family Medicine Specialization. Almost 800 FM offices (in municipal health centers or more rural ambulantas) have been rehabilitated or reconstructed, equipped, and furnished. There are 1,185 FM teams operating in the country (FBH: 652 RS: 533). By project end (2014), 70 percent of the BH population will be covered through FM teams. The project has supported the development and implementation of standard procedures and trained family medicine teams, and has also strengthened the quality control of FM services. In the FBH, significant progress has been made on designing a pilot to test a results-based financed model (payment incentives) to support the prevention of risk factors for NCDs. In the RS, activities are on track in accordance with the updated Procurement Plan. In some municipalities, the construction/reconstruction of PHC facilities will be delayed because the necessary counterpart funds were not included in the municipal budgets for 2012. Work is rescheduled for 2013. Key Partners: Ministries of Health in the FBH and the RS are leading efforts, supported by various donors and agencies, notably the EU, World Health Organization (WHO), and the World Bank. Agencies such as the Canadian International Development Agency (CIDA) and the Swiss Agency for Development and Cooperation (SDC) have provided considerable support. The project is cofinanced by the Council of Europe Development Bank, which contributes a significant percentage of total project costs (32 percent) toward the financing of civil works and equipment. In addition, the EU is financing a number of complementary activities designed in close collaboration with the Bank in the areas of: (i) public health; (ii) accreditation and quality assurance; (iii) pharmaceuticals; (iv) hospital provider payment mechanisms; (v) hospital modernization; and (vi) functional review of health institutions.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: NERETVA AND TREBISNJICA MANAGEMENT PROJECT Key Dates: Approved: May 29, 2008 Effective: March 6, 2009 Closing: December 31, 2013 Financing from all cofinanciers, million US Dollars: Financier Financing Global Environment. Facility 8.00 Recipients (Bosnia and Herzegovina and Croatia) 8.45 Bilateral Agencies 3.92
Total Project Cost 21.37 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed Global Env. Facility 6.00** 3.2 2.8 *as of August 2012 ** US$ 6 million is portion of GEF financing for BH. Note: Disbursements may differ from financing due to exchange rate fluctuations. BH and Croatia have identified the need for improved water resources management and biodiversity conservation as key environmental issues in their National Environmental Action Plans. The water resources of the Neretva and Trebisnjica river basins (NTRB), and the ecosystems dependent upon them, play an important part in the economies of both countries and the livelihoods of over 430,000 people living in the area. Taken together, these two rivers comprise most of the Adriatic watershed of BH and Croatia, and both are crucial for energy production, recreation, fisheries, drinking water, and irrigation. They carry the (generally untreated) wastewater of the municipalities and many industries in the basins. The approach to improving the water resources management and biodiversity of the NTRB called for a joint effort of the two countries, resulting in the regional, transboundary project the ―Neretva and Trebisnjica Management Project (NTMP),‖ supported by the Global Environment Facility (GEF) through a US$8 million grant, out of which US$6 million has been granted to BH and US$2 million to Croatia.
The project aims to provide a mechanism for efficient and equitable water allocation among the users of the NTRB at the transboundary level, and for enhancing the basin ecosystem and biodiversity through: (i) improved transboundary water resource management; (ii) improved management and use of wetlands ecosystems and biodiversity; (iii) high-priority investments for water pollution and two industrial sector investments; and iv) public participation in and management of project implementation.
Results achieved: BH and Croatia are cooperating effectively and regularly hold joint bilateral meetings. The rehabilitation of the wastewater treatment plant in Trebinje was completed, and the new advanced treatment plant in Blieca was put into operation. The latter could become a best practice showcase for municipal wastewater treatment. The activities currently underway include the wastewater treatment plants in Konjic and Ljubuski in BH, and the finalization of construction work on the reception center and the six kilometer long hike and bike trail at the Bacina Lakes in Croatia. By the end of the project, the following results will be achieved: a reduction of nutrients and other pollution from municipal and industrial sources in the selected municipalities in the basin; the improved maintenance of environmental flows and improved ecosystem health and biodiversity in the basin; and a reduction of saltwater intrusion as a result of the implementation of the pilot program in the Neretva Delta. Key Partners: The Ministry of Agriculture, Water Management and Forestry in the FBH, and the Ministry of Agriculture, Forestry and Water Management in the RS, under the coordination of the Ministry of Foreign Trade and Economic Relations of BH; the five participating municipalities in BH; and in Croatia, the Ministry of Regional Development, Forestry and Water Management through Croatian Waters (HV).
Key donors: the EC, and the Governments of Spain and the Netherlands.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: SARAJEVO WASTEWATER PROJECT Key Dates: Approved: December 22, 2009 Effective: July 15, 2010 Closing: November 30, 2015 Financing in million US Dollars:* Financier Financing IBRD Loan 35.0 Government of Bosnia and Herzegovina 2.0
Total Project Cost 37.0 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IBRD Loan 35.0 4.9 30.1 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Service delivery problems in BH are prevalent due to the lingering after-effects of the conflict that left vast portions of the basic infrastructure destroyed or severely damaged. A case that vividly illustrates the problem is wastewater collection and treatment in the city of Sarajevo. A Wastewater Treatment Plant (WWTP) was built close to the confluence of the Miljacka and Bosna Rivers in the early 1980s on the occasion of the 1984 Winter Olympics. Construction of the plant was supported by the World Bank-financed Sarajevo Water Supply and Sewerage Project (Loan 1263-YU), which closed in December 1982. However, the plant was extensively damaged in the spring of 1992 at the outset of the conflict, during which time the sewer network was also destroyed in various places. Since the end of the conflict in 1995, the WWTP has been largely out of commission, with only minimal conservation works carried out to prevent further deterioration. As a result, virtually all of the city’s wastewater is discharged into the Miljacka and Bosna Rivers without any treatment, causing severe pollution of the rivers and impacting the communities downstream.
The Project Development Objective is to improve the living conditions of populations in the areas covered by the Sarajevo Water and Wastewater Company and in downstream riverside communities by: (i) reducing the population’s exposure to and reliance on highly polluted water from the Miljacka and Bosna Rivers; and (ii) improving the efficiency of the wastewater collection network in the Sarajevo Canton. As of August 2011, the first civil works contracts have been signed for the rehabilitation of priority sewage networks in the city.
Results achieved: Substantial progress has been made in rehabilitating the city’s sewage network, including separating stormwater drainage connections from the sewage network, thereby reducing the grit and sediment that undermine the treatment plant. Overall, 15 contracts with an aggregate contract value of US$5.5 million are under implementation. Of these, 13 contracts for priority investments to improve and rehabilitate the primary and secondary wastewater networks of Sarajevo are currently under implementation. In total, these contracts cover 9.9 kilometers of the sewer network, which is approaching the end-of-project target value of 16 kilometers, and 2.8 kilometers of the network have been repaired or rehabilitated to date. Delivery of high-powered sewage network cleaning and maintenance vehicles took place in November 2011. Since commissioning the new vehicles, the number of sewer blockages in the network has already been reduced by 20 percent. Key Partners: The Bank team is working closely with the BH Ministry of Foreign Trade and Economic Relations, Sarajevo Cantonal and Municipal Institutions, as well as with ―VIK,‖ the Sarajevo Water Utility. Key Development Partners: Close coordination has been established with the EC (which is providing project cofinancing in the amount of US$10.5 million) and the EBRD.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: ENHANCING SMALL AND MEDIUM ENTERPRISES ACCESS TO FINANCE PROJECT Key Dates: Original IBRD loan approved: December 15, 2009 Effective: August 16, 2010 Additional financing IBRD loan approved: May 17, 2012 Closing: July 31, 2016 Financing from all cofinanciers, million US Dollars: Financier Financing IBRD Loan 190.0
Total Project Cost 190.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 190.0 69.6 120.4 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations. Since late 2008, BH has felt the impact of the international financial and economic crises via three transmission mechanisms: the slow-down of foreign direct investment (FDI) and capital inflows, a reduced demand for exports, and lower commodity prices. The 2008–09 financial crisis led to a sharp decline in credit growth. Despite the importance of small and medium enterprises (SMEs) in contributing to economic development, employment, and GDP, access to finance remains a key constraint for their growth and development. With almost 90 percent of the banking sector in BH foreign owned, concerns of a credit squeeze remain, as foreign parent banks come under increasing pressure to deleverage. The slower credit growth is impacting investments across the economy, as enterprises face decreased access to credit and higher interest rates. While there are long-term structural issues that need to be addressed to improve the business environment and competitiveness of the enterprise sector, the current European sovereign debt crisis requires a continued focus on dealing with access to term finance as the most critical short-term vulnerability for the SME sector.
The Project Development Objective is to enhance access to finance for SMEs in BH in the context of the global financial crisis and the generally constrained conditions for SMEs. Primary beneficiaries of the project are SMEs with growth and export potential that would benefit from improved access to finance. The project will also help the banking sector in BH to withstand the global economic downturn that has triggered financing difficulties for the enterprise sector. Results achieved: As of July 2012, as many as 112 companies have been supported to help ease the impact of the economic downturn and contribute to the recovery. The loans are geographically well distributed, covering all 10 cantons in the FBH and over 15 municipalities in the RS, and support a wide range of sectors, including food production and processing, wood processing and furniture manufacture, metal fabrication, and livestock food production. It is estimated that 4,000 jobs were saved and 1,120 new jobs created between August 2010 and February 2012 when the figures were reviewed last. Key Partners: The project was designed in close cooperation with the BH, FBH, and RS Ministries of Finance and the BH Central Bank. The Central Bank provided statistical data and analysis on demand throughout the project preparation period; the data available through the Central Bank’s Central Credit Registry will be used to improve and strengthen the monitoring and evaluation (M&E) process. The BH Employers’ Association and the Foreign Trade Chamber were consulted in the project design and will remain involved, both in the promotion of the project and in the monitoring of its effects. Key Development Partners: The Bank is coordinating its work on this project with other donors in BH such as EBRD, KfW, and USAID.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: SOCIAL SAFETY NETS AND EMPLOYMENT SUPPORT PROJECT Key Dates: Approved: February 25, 2010 Effective: October 7, 2010 Closing: October 31, 2014 Financing from all cofinanciers, million US Dollars: Financier Financing IDA Credit 15.0 Government of Bosnia and Herzegovina 7.0
Total Project Cost 22.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 15.0 3.3 11.7 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations.
BH spends around 3.3 percent of GDP on social assistance, which is more than two times the average for Eastern and Central Europe. For historic reasons, ―rights-based‖ cash transfers for war veterans or their surviving dependents (which absorb three-quarters of the total benefit budget) heavily dominate social assistance spending. At the same time, social benefit allocations for those with very low incomes, those receiving child benefits, and those with non-war-related disabilities are very small or nonexistent. Moreover, the cash transfers are not well targeted to the poor and most vulnerable. On the contrary, in the FBH and RS, over 27 percent of budget allocations are ―captured‖ by the richest 20 percent of the population. Many poor are excluded from the benefit system entirely. In fact, only 5 percent of the poorest 20 percent of the BH population receive some kind of cash assistance provided by the Centers for Social Work, and this support is tiny, even when compared to their own limited consumption. BH needs reform to improve the efficiency of social spending, the quality of social services, and the antipoverty impact of cash transfers.
The Project Development Objectives are to: (i) support noncontributory cash transfers in reaching the eligible poor and disabled; (ii) improve the efficiency and transparency of benefit administration; and (iii) support job brokerage services for those active job seekers who become ineligible to receive cash transfers or who are vulnerable (e.g., poor, disabled but able to work, hard-to-serve, demobilized soldiers, etc.).
Results achieved: A number of project activities have been initiated and the procurement process has been underway or implementation has already started. The hiring of a consulting firm for the development and testing of new cash benefits targeting methodologies is being finalized. Technical assistance (gap analysis and process mapping of the existent ICT systems) was provided for designing functional registries for the administration of noncontributory cash benefits. The refurbishment of the premises of selected municipal social welfare centers is currently being procured. Over 4,000 unemployed individuals from the hard-to-employ target group received job-brokerage support services.
Key Partners: The Bank team is working closely with the Ministry of Social Affairs and Labor FBH; the Ministry of Health and Social Affairs, the RS; the Ministry of Labor and Veteran Affairs; and the Public Employment Funds in the two Entities.
Key Development Partners: Close coordination has been established with the EC and UNICEF.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: SECOND SOLID WASTE MANAGEMENT PROJECT Key Dates: Approved: November 25, 2008 Effective: October 23, 2009 Closing: February 28, 2014 Financing from all cofinanciers, million US Dollars: Financier Financing IBRD Loan 25.0 IDA Credit 15.0 Government of Bosnia and Herzegovina 3.5 EU IPA Grant Fund 12.8 Total Project Cost 56.3 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IBRD Loan 25.0 2.2 22.8 IDA Credit 15.0 4.4 10.6 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations. Since the end of the war, BH has made tremendous progress in improving its solid waste management (SWM) system. Only a few years ago, there were no functioning regional sanitary landfills and almost all waste was discarded in unofficial sites such as wild dumps, roadsides, small village dumps, rivers, and mines, which posed a direct risk to public health. During implementation of the first Solid Waste Management Project (SWMP-1), which closed in 2010, several municipalities had set up and jointly operated regional sanitary landfills, and an increasing amount of waste was being managed in compliance with high EU standards. Nevertheless, numerous illegal dump sites can still be found in many municipalities and their clean-up and closure remains a high priority that will require setting up functioning sanitary landfills to provide a viable alternative for disposal. At the same time, advanced regional landfills will start moving to the next level of integrated SWM by introducing advanced separation and recycling facilities, and improving the financial viability of their services. The Second Solid Waste Management Project (SWMP-2) will support both: new regions that will establish an additional six sanitary landfills by the end of 2014, and the rehabilitation of existing landfills.
The Project Development Objectives are to: (i) improve public health and quality of life by reducing exposure to pollutants and disease vectors from solid waste; (ii) improve municipal institutional capacity by establishing up-to-date technical and financial solutions for SWM; (iii) enhance environmental policy by improving the scope and depth of SWM strategies and facilitating recycling and waste-reduction programs nationwide; and (iv) improve local governance by enhancing cooperation among municipalities. Results achieved under (SWMP-1): Results to be achieved under (SWMP-2): Six regional sanitary landfills operational; 12 regional sanitary landfills operational (now six); Eight multimunicipal waste management districts established 12 inter-municipal districts established (now eight); through the cooperation of multiple municipalities; 60 percent reduction in share of waste not disposed of Collection rate in the project region increased from 40 to 70 in sanitary landfills; percent; 25 percent of estimated 1,200 wild dumpsites closed; Over 50 percent of solid waste now disposed of in a sanitary higher citizen satisfaction with waste management landfill or in another environmentally sound facility; services; 15 percent reduction in wild dumpsites. increased cost recovery rate of participating utilities. Key Partners: The (i) Ministry for Environment and Tourism (FMET) in the FBH; and (ii) the Ministry of Physical Planning, Construction, and Ecology (MPPCE) in the RS; (iii) FBH and RS solid waste utilities.
Key Development Partners: The EU and the Government of Sweden (SIDA) are cofinancing this project.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: WATER QUALITY PROTECTION PROJECT Key Dates: Approved: June 7, 2005 Effective: November 18, 2005 Closing: August 31, 2013 Financing from all cofinanciers, million US Dollars: Financier Financing Government of Bosnia and Herzegovina 6.19 Global Environment Facility 8.90 Global Environment-Associated IDA Fund 4.00 Government of Spain 1.18 EU IPA Grant Fund 1.90 Government of Sweden Grant Fund 3.50 Total Project Cost 25.67 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed Global Environment Facility 8.90 6.70 2.20 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations.
The Water Quality Protection Project focuses on the Neretva and Bosna Rivers. The Neretva River originates in BH and flows through Croatia before entering into the Adriatic Sea, and has a strong impact on the water quality of the Bay of Mali Ston. It is an important source of hydropower, drinking water, and irrigation, but also a source of pollutants for the Adriatic and Mediterranean. The Neretva Delta is a Mediterranean wetland of international importance and designated as a Ramsar Wetlands site. The Bosna River Basin covers the largest and most developed area of BH. The Bosna River also originates in BH and is about 260 kilometers long—BH’s most developed and industrialized regions are found along this river. Wastewater from communities and industrial facilities—the concentrated polluters—discharges directly into the river, most of it without any treatment, and is the major source of pollutants in the Danube.
The Project Development Objective is to further strengthen the capacity of local utilities and to reduce pollution from municipal sources into the Neretva and Bosna Rivers. The global objective is to reduce municipal pollution and nutrients in the Adriatic Sea and the Danube Basin.
Results achieved: Water Information System (WIS) installed in water agencies in both Entities; Two saste water treatment plants(WWTP) rehabilitated and fully operational; construction of 2 WWTPs underway; 8 percent of municipal wastewater is treated and discharged according to new BH water-environment standards; Country adoption of the affordable water/environmental standards for municipal-based pollution; Feasibility study of natural low-cost/low-energy wastewater treatment solutions for small towns and settlements has been completed and three pilot projects identified; and Improved cooperation of BH with institutions in Croatia, Montenegro, and Serbia, leading to an agreement on most aspects of the Wastewater Improvement Plan requiring cross-border cooperation.
Key Partners: The FBH Ministry of Agriculture, Water Management and Forestry.
Key Development Partners: The EU; the Governments of Spain and Sweden are cofinancing this project.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: IRRIGATION DEVELOPMENT PROJECT Key Dates: Approved: May 3, 2012 Effective: not yet effective Closing: December 31, 2017 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 40.0 Government of Bosnia and Herzegovina 7.0
Total Project Cost 47.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 40.0 0.0 40.0 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations.
The agriculture sector is and will remain economically important for BH and is an integral part of the rural economy, providing important sources of employment for rural inhabitants and having significant backward and forward linkages to the rest of the economy. According to official statistics, the primary agriculture sector still accounts for approximately 9 percent of GDP and employs more than one-fifth of the total labor force. Crop yields and potential options for growing high-value crops and double-cropping are restricted without irrigation, primarily due to prolonged dry spells during the summer season. Typical yield losses are estimated to be in the order of 30–40 percent in the southwest, while in the northern areas along the Sava river plain, typical yield losses amount to 20–30 percent, with less in the central and mountain areas. In addition, in many of the plains and valleys, productivity also regularly suffers from water logging and inundation. Thus, drainage is as important as irrigation.
The Project Development Objective is to improve the performance of the irrigation systems and institutions to support agricultural producers in the project areas.
Expected results: Rehabilitation of irrigation and drainage infrastructure, including construction, reconstruction, upgrading, and modernization on existing agricultural land; Introduction of new technologies in irrigated agriculture; Institutional development, strengthening of water resources management institutions, and introduction of a participatory approach to water management.
The project would support better water resources planning and management for the sustainable use of water resources in irrigation and drainage and the mitigation of the impact of droughts and floods, and in general help prepare more suitable adaptation strategies to also cope with climate change. Key Partners: The Bank team is working closely with the Ministry of Foreign Trade and Economic Relations, Ministry of Agriculture, Water Management and Forestry in the FBH, Ministry of Agriculture, Forestry and Water Resources in the RS.
Key Development Partner: EC.
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Bosnia and Herzegovina Country Program Snapshot
RECENTLY CLOSED PROJECTS
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: ENERGY COMMUNITY OF SOUTH EAST EUROPE – ECSEE APL3-BH Key Dates: Approved: June 16, 2006 Effective: April 13, 2007; October 2008 (delay of 27 months) Closing: June 30, 2012 Financing in million US Dollars*: Financier Financing IDA Credit 36.00 Government of Bosnia and Herzegovina 8.64 Co-financers (EBRD, EIB, KfW) 250.00
Total Project Cost 294.64 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IDA Credit 36.00 36.73 1.44 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations. The countries of South East Europe, including BH, the European Commission, bilaterals such as USAID and CIDA, and IFIs cooperated to develop a regional energy market—the Energy Community of South East Europe (ECSEE, now called the ―Energy Community‖)—and integrate it into the internal energy market of the European Union.
Project Objective: This project facilitated BH’s participation in the regional energy market through investments to improve dam safety; reduce adverse environmental impacts at thermal power stations; replace aging existing facilities and equipment at hydropower and thermal power stations; and rehabilitate distribution systems.
The Project maintained electricity generation in BH at or above base levels. Environmental compliance improved at Kakanj, Tuzla, Ugljevik, and Gacko Thermal Power Plants. Dam safety measures recommended at Grabovica, Salakovac, Jablanica, Rama, Trebinje II, Visegrad, and Bocac hydropower plants. A previous project (Power III) started a pilot activity for the implementation of a Financial Management Information System, which has since been scaled up throughout the enterprise by EPHZHB; the other two power utilities (EPBH and EPRS) are also scaling it up. This system would help improve management control, governance, transparency in power trade and accounting, and the commercial integration of the BH power system with the regional energy market. Results achieved: Environmental compliance improved at Kakanj, Tuzla, Ugljevik, and Gacko Thermal Power Plants. Electrostatic Precipitator (ESP) at Kakanj is functioning better than the contracted performance levels and has helped improve air quality in the vicinity as registered by the project-supported environmental monitoring system, which is fully operational; Wastewater treatment, water cooling system rehabilitation, and ash handling at Ugljevik and Gacko has also helped improve environmental performance, through decreasing the overall environmental impact (emissions) into the environment and through the improved and more rational use of natural resources (primarily water). Better coal handling in Tuzla indirectly helps improve environmental performance through improved combustion of a more homogeneous coal mix. Key Partners: BH Ministry of Foreign Trade and Economic Relations; Ministries of Energy of FBH and RS; EPBiH (Elektroprivreda of Bosnia and Herzegovina), EPHZHB (Elektroprivreda of the Croatian Community of Herzeg-Bosnia), and EPRS (Elektroprivreda of Republika Srpska). Key Development Partners: The EU supported power sector reform and restructuring under its technical assistance operations in the region and through its Phase program, in large part cofinanced with EIB, EBRD, and German KfW.
Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: LAND REGISTRATION PROJECT Key Dates: Approved: April 27, 2006 Effective: April 13, 2007 Closing: June 30, 2012 Financing in million US Dollars:* Financier Financing IDA Credit 15.87 Government of Bosnia and Herzegovina 2.96 Total Project Cost 18.83 World Bank Disbursements, million US Dollars*: Total Disbursed Undisbursed IDA Credit 15.87 14.19 1.68 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Property registration systems in BH have been in disarray since World War II, when many of the records and documents relating to property were destroyed. The situation was made worse during the 1992–95 war, when more records were lost and people were displaced, sometimes permanently, and legal records often no longer matched up. The informal development of large areas occurred because of the difficulty in getting permission to build or occupy property. The breakdown in institutional capacity and the deterioration of land and property records make it very difficult to complete basic real estate transactions, develop property, or borrow money based on property as collateral. Property development in urban areas is also restricted because of inadequate urban planning documentation and the uncertainty caused by a real property restitution initiative. The Project Development Objective was to facilitate the orderly development of transparent land markets through the registration of real estate rights and complimentary policies that enable transactions to be made with security and efficiency. The Project has addressed the issue of building effective registration and cadastre systems by (i) improving the transparency, speed, and accuracy of registering property transactions; (ii) improving the efficiency and speed of providing data on property units for clients wishing to register their property rights; and (iii) developing the strategies and draft legislation required for removing the impediments to business development and economic growth that exist in the land administration sector. Results achieved: New service standards developed and adopted. Registration took many months prior to commencement of the project in 2007, but now there are backlogs in only two courts: Banja Luka and Mostar. In FBH, booklets explaining the service standards have been distributed to all courts for the public to review or take copies. A customer survey conducted in February 2010 across the country identified an increased quality of services and timeliness, the improved professionalism of staff, and better access to information; 97 percent of property folios digitized in the RS and 96 percent in the FBH. 1.9 million hectares of cadastre maps have been digitized, exceeding the project target of 1.4 million hectares; Over 18,000 cases from the backlog have been resolved since 2007, at a time when new registration requests have increased by almost 100 percent. Improvements were made in service delivery and to the physical infrastructure of 37 offices, and opportunities for corruption have been largely eliminated. Requests can be processed in a matter of minutes. New legislation covering land registration, spatial planning, cadastre, property taxation, and regularization of informal developments have been drafted and some enacted during the period of the project.
Key Partners: At the state level (BH), the project works with (i) the Advisory Board, with the participation of each entity and the state government; (ii) the Ministry of Justice at the entity level; (iii) the Geodetic Administration (GA) in RS and municipal and cantonal governments in FBH; (iv) Ministry of Finance at the state, entity, and cantonal level; and (v) Ministry of Spatial Planning (at various levels). Key Development Partners: SIDA, and Austria’s ADA, GTZ, USAID, EU.
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Bosnia and Herzegovina Country Program Snapshot
BOSNIA AND HERZEGOVINA: ROAD INFRASTRUCTURE AND SAFETY PROJECT Key Dates: Approved: December 13, 2007 Effective: September 19, 2008 Closing: June 30, 2012 Financing from all co-financiers, million US Dollars: Financier Financing IDA Credit 25.0 Government of Bosnia and Herzegovina 5.0
Total Project Cost 30.0 World Bank Disbursements, million US Dollars *: Total Disbursed Undisbursed IDA Credit 25.00 24.66 0.25 *as of August 2012 Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Road traffic in and around major urban areas in BH was growing 5 percent per year, however, the quality of the road network was inadequate despite a decade of substantial expenditures. Large expenditure needs that reflected a legacy of conflict and neglect were not fully met. Road safety remains a serious social and public health issue in BH. The state of the road network, driver behavior and limited driver education, poor or nonexistent traffic law enforcement, and significant growth in vehicle ownership and use have increased traffic accidents—there were 436 fatalities and 8,470 injuries in 2004. The 2008 rates declined slightly to 5.3 fatalities per 10,000 vehicles, but the rate is still nearly three times higher than the EU27 average. Hence, road safety was a significant and growing concern that required a comprehensive response.
The Project Development Objectives were to reduce user costs on the priority sections of the trunk and regional roads, improve road safety, and modernize road maintenance practices.
The Project addressed a range of interconnected sector issues by (i) the financing of main and regional road and bridge rehabilitation; (ii) the financing of technical assistance to implement the recommendations of the 2007 Road Safety Management Capacity Review; and (iii) technical assistance for the introduction of output and performance-based road maintenance contracts on a pilot basis in each Entity. Results achieved: Out of 241 kilometers of roads to be rehabilitated by the project and financed from the IDA credit, 121 kilometers were rehabilitated in the FBH and 172 in the RS, which has reduced project road user costs by 11 percent in both the RS over 2007–12 and by 18 percent in the FBH between 2004 and 2012. There was significant progress on the development of the institutional framework for road safety, with the approval of entity-level road safety strategies, and the establishment of a road safety agency in the RS. Modernization of road maintenance was progressing more slowly, with a pilot-output and performance-based maintenance contract signed in March 2010 in the FBH and in June 2012 in the RS. It is still too early to ascertain with accuracy the efficacy of the new maintenance method in the Federation. Key Partners: The (i) Federation Road Directorate and the Republika Srpska Road Directorate; (ii) RS Ministry of Transport and Communications; and (iii) state and Entity Ministries of Transport and Communications. Key Development Partners included EBRD and EIB, which provided parallel financing as part of a program of US$210 million of magisterial and regional roads rehabilitation, with the former providing US$75 million and the latter €80 million (US$105 million). The EBRD contributed to the introduction of output and performance-based maintenance contracts, while the EIB financed preparation and design for rehabilitation work.
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Bosnia and Herzegovina Country Program Snapshot
The World Bank Country Office Bosnia and Herzegovina Fra Anđela Zvizdovića 1/B/17 71 000 Sarajevo, Bosnia and Herzegovina Tel: (387-33) 251 500 Fax: (387-33) 226 945 http://www.worldbank.ba
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