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EBRD remains committed to Bosnia and Herzegovina
But new Bank strategy expresses concern at the country's slow economic development
Bosnia and Herzegovina (BiH) must take urgent steps to speed up market reforms or risk indefinite dependence on international aid, said the European Bank for Reconstruction and Development (EBRD) in its new BiH country strategy paper published on its web site today. The paper analyses the current economic climate and outlines the EBRD's priorities in BiH over the next few years.
In its review of the economy, the strategy paper says that there has been some progress on privatisation and the strengthening of state institutions, such as the Communications Regulatory Authority. But economic growth, which was 10 per cent in 2000, continues to be driven by donor finance. The budget deficit continues to be high. Without taking action to create a more sustainable economy driven by investment, the Bank warns that the economy may suffer a decline over the medium term, when the current flows of international donor support are expected to decrease.
Speaking in Sarajevo, Olivier Descamps, Business Group Director for South Eastern Europe, said the EBRD stands ready to support the country's efforts to promote economic reform and create a stronger investment climate. He said that the EBRD has outlined a number of private and public sector projects where it can promote inward investment, crucial to diverting the economy from its current reliance on donor funds. "The long-term sustainability of the economy will depend on private capital," he said. "Policies that accelerate privatisation and facilitate foreign investment, which together create private sector-led economic growth, are a priority."
Mr Descamps is in Sarajevo to meet with senior state and entity level officials in the new Government, including Bozidar Matic, state-level Prime Minister of the Council of Ministers, Karlo Filipovic, the President of the Federation, Alija Behmen, Federation Prime Minister and Mladen Ivanic, Republika Srpska Prime Minister. Mr Descamps will travel tomorrow to Banja Luka, the capital of Republika Srpska, where he will meet with President Mirko Sarovic and Vice President Dragan Cavic.
Speaking on the relationship between the Federation of BiH and the Republika Srpska, Mr Descamps encouraged both entities towards a common approach to economic development. He said: "Bosnia and Herzegovina will create a stronger market economy if it can create a single economic space where trade and investment flow freely between the entities."
To date, the EBRD has signed 15 projects totalling €143 million, mobilising altogether €582 million. These include projects in both the private and public sectors. The Bank has played a particularly crucial role in the banking sector, where it has attracted strategic investors to both Market banka (now Raiffeisen Bank) and Hrvatska banka (now Zagrebacka banka), two of the EBRD's earliest equity investments. Moreover, the EBRD's investment in Micro Enterprise Bank Bosnia (MEB) made solid progress in 2000. During the year, MEB disbursed over 3,000 loans worth over €12.8 million through a network of offices throughout the Federation. Moreover, MEB became the first bank (in November 2000) and Raiffeisen the second bank (in March 2001) registered in the Federation to open a branch in Banja Luka in Republika Srpska. In this context, the EBRD applauds the recent dismantling of the payment bureau's and the transfer of their function to commercial banks.
Looking ahead, the EBRD expects to focus on four areas:
The Bank will extend its participation in the re-launched tender privatisation process and support new or existing private companies.
The Bank's financial sector activities will increasingly focus on bank privatisation and consolidation, strengthening the micro, small and medium-sized enterprise (SME) sector and introducing new products, such as trade finance and leasing.
The Bank will finance infrastructure projects, which will support state-wide operational or regulatory institutions, and/or create regional linkages with neighbouring countries - such as last year's power reconstruction project, part of a World Bank initiative, in which the EBRD invested €50 million. The project will link BiH to the European power grid.
The Bank will continue an active policy dialogue with the state and entity governments in Bosnia and Herzegovina and with the international community. The Bank will be an advocate for economic and commercial incentives for greater integration between the entities and among the countries of the region.
The strategy paper says that the key transition challenges facing BiH include: launching of privatisation of enterprises and banks, progress in the enforcement of new commercial legislation to improve the investment climate, the liberalisation and commercialisation of infrastructure sectors and the strengthening of state institutions.
"The challenges are big but the solutions not impossible. Success will require determination and cooperation at every level," said Mr Descamps.
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