BOSNIA’S REFORM EXPERIENCE TO DATE PUBLIC EXPENDITURE MANAGEMENT CHALLENGES IN ECA/PRSP COUNTRIES BOSNIA’S REFORM EXPERIENCE TO DATE Ljerka Marić, Minster of Finance and Treasury - BiH International conference on Strenghtening Public Expenditure Management Warsaw, Poland, February 6- 9, 2005.

In the first half of this year BiH Council of Ministers together with FBiH Government and RS Government adopted Mid-Term Development Strategy BiH (PRSP) for period 2004-2007. It is a first strategic document agreed and approved by the BiH authorities without involvement of the international community. Prior to the approval of the PRSP, wide consultation process was organized with participation of NGOs, youth, private sector, trade unions, academics, donors, and ordinary citizens. 2

BASIC GOALS OF MEDIUM-TERM DEVELOPMENT STRATEGY ARE: by end – 2007, achieve 70% of GDP from 1991 by end – 2007, restore a partial creditworthiness on the international capital markets create economic preconditions for faster integration of BiH into EU 3

CRITERIONS FOR SUCCESS OF MEDIUM TERM DEVELOPMENT STRATEGY (PRSP) ARE DEFINED AS: Reduction of unemployment rate by 20% relative to the current unemployment rate Reduction of poverty rate by 20% relative to the current poverty rate Signing Stabilization and Association Agreement with the EU 4

IMPLEMENTATION OF MEDIUM TERM DEVELOPMENT STRATEGY REQUIRES REALIZATION OF THE FOLLOWING PRIORITIES: Preservation of macro-economic stability; Implementation of fiscal reform; Faster growth of private sector; Implementation of anti-corruption strategy; Strengthening of financial sector; Implementation of labor market reforms; Implementation of public administration reform; Implementation of several sectoral reforms, among them the most important being: 5

6 Liberalization of electricity market To continue liberalization of telecom market To implement reform of higher education To implement reform of health system financing To establish adequate system of social protection To start reform of pension system To adopt and implement new legal and institutional framework for forestry management To provide adequate support for agricultural production To define industrial policy of the country To introduce system of electronic relations with citizens (e-government) To implement National Environment Protection Plan To improve road construction management and road maintenance management To continue reconstruction of railways 6

REAL GDP GROWTH TARGETS 7 Source: BiH Medium-Term Development Strategy - PRSP

CPI PROJECTION 8 Source: BiH Medium-Term Development Strategy - PRSP

FISCAL DEFICIT PROJECTIONS 9 Source: BiH Medium Term Development Strategy - PRSP

REDUCTION OF PUBLIC EXPENDITURE SHARE OF GDP 10 Source: BiH Medium-Term Development Strategy – PRSP (Data for 2002)

PUBLIC EXPENDITURE PROJECTIONS 11 Source: BiH Medium Term Development Strategy - PRSP

PUBLIC EXPENDITURES REDUCTION PLAN 1 12 Source: BiH Medium-Term Development Strategy - PRSP

DEFENSE EXPENDITURES AS % OF GDP 13 Source: SOR FBiH and RS

PUBLIC SECURITY EXPENDITURES AS % OF GDP 14 Source: SOR FBiH and RS

PUBLIC EXPENDITURES REDUCTION PLAN 2 15 Source: BiH Medium-Term Development Strategy - PRSP

Apart from rationalization of public expenditures, important areas of fiscal reform will be: Establishing of Indirect Taxation Introduction of VAT; Establishing of common framework of public procurements; Reform of direct taxes; Strengthening of budget planning system; Strengthening of public revision system. 16

PROJECTION OF PUBLIC REVENUE GROWTH 17 Source: Mid-Term Development Strategy BiH - PRSP

CURRENT ACCOUNT BALANCE PROJECTIONS 18 Source: BiH Medium Term Development Strategy - PRSP

INCREASE EXPORTS – REDUCE IMPORTS 19 Source: BiH Medium-Term Development Strategy - PRSP

PRIVATE SAVINGS GROWTH PROJECTION 20 Source: BiH Medium-Term Development Strategy - PRSP

FDI PROJECTION GROWTH 21 Source: Mid-Term Development Strategy BiH - PRSP

PRIVATE INVESTMENT PROJECTION 22 Source: BiH Medium Term Development Strategy - PRSP

REDUCTION OF PUBLIC DEBT 23 Source: BiH Medium Term Development Strategy - PRSP

EXTERNAL DEBT SERVICING PROJECTIONS 24 Source: BiH Medium Term Development Strategy - PRSP

25 Realization of Medium Term Development Strategy is underway. The implementation rate of the planned measures to date is around 84 percent Positive trends in terms of inflow of foreign investments greater than expected, high levels of exports, higher level of lending to corporates, give reasons for optimism that in this year planned economic growth rates will be achieved. 25

In order to realize goals from Miedium Term Development Strategy of BiH (PRSP), it will be necessary for the period of 2004-2007 to get around €1.5 billion of foreign aid in form of favorable credits and grants. The largest part of this aid would be used for realization of BiH Public Investment Program, which will be presented to you tomorrow, as well as for realization of structural reforms in the area of: Corporate restructuring Public administration External financing gap will be presented by the end of the conference. 26