WASHINGTON, March 23, 2017 — The World Bank Board of Directors today approved a EUR74.50 million (US$80 million equivalent) IBRD loan to Bosnia and Herzegovina (BiH) for the Public Finances Development Policy Operation. The program will provide budget support to underpin policy efforts by BiH authorities to improve transparency of public finances and lower fiscal pressures over the medium-term.
BiH has one of the world’s largest public sectors relative to the size of its economy, with general government expenditures nearly 44 percent of GDP in 2016, and public enterprises adding even more to the public footprint in the economy. Much scope exists to rightsize and enhance the effectiveness of the public sector. The Public Finances Development Policy Operation supports measures to reduce public spending by as much as 2.3 percent of GDP in the medium term and lays the groundwork for further structural reforms for a more effective public sector.
Reform measures under this program reduce rigidities in the labor market and in pharmaceutical procurement, and pave the way for clearance of public sector arrears and deeper structural reforms in public financial management, health sector financing and delivery, and state-owned enterprise restructuring. The program is anchored in the Reform Agenda, a comprehensive structural transformation agenda that is supported by all BiH governments and by all development partners, including the European Commission, the International Monetary Fund, and the World Bank Group.
“The approved program recognizes the efforts of BiH authorities to make public spending more sustainable in the medium-term,” said Ellen Goldstein, World Bank Director for the Western Balkans. “Tackling the legacy of an unwieldy and ineffective public sector is one of the most important aspects of the country’s Reform Agenda, which is designed to transform the economy in line with European Union criteria and to accelerate growth and job creation.”
The program is anchored in reforms envisioned under the public finance section of the Reform Agenda which aims to ensure fiscal sustainability amidst recovering economic growth. It is central to the World Bank Group’s Country Partnership Framework for Bosnia and Herzegovina approved in December 2015. The framework envisions around US$750 million in new lending from the World Bank for the period 2016-2020, depending on the scope and pace of reform implementation.
The World Bank portfolio of active projects in BiH includes 11 operations totaling US$ 497 million. Areas of support include transportation, employment, energy efficiency, local infrastructure, environment, forestry, water management.