Joint statement of the European commission and Bosnia and Herzegovina

Representatives of the European Commission and Bosnia and Herzegovina institutions met in Brussels to discuss the level of approximation and transposition of the EU rules in the fields of Economic and Financial Issues and Statistics.

Progress of Bosnia and Herzegovina in its European Integration process depends on the country’s fulfilment of the requirements of the Stabilisation and Association Agreement (SAA) with the EU.

The delegations of the European Commission and of Bosnia and Herzegovina reached the following conclusions:

Although there is evidence to suggest an ongoing trend of economic recovery, the recovery is still weak and not broad-based, driven to a large extent by external developments. The incomplete structural reform agenda and the low quality of public finances act as an impediment towards laying the foundation for sustainable and more domestic-driven growth in Bosnia and Herzegovina.

The Commission welcomed the updated medium-term macroeconomic scenario that was presented during the meeting but stressed downside risks related to it. The Commission encouraged BiH to undertake further efforts in its structural reforms to improve the business environment and to enhance domestic sources of growth. This includes reforms increasing labour market participation, pension reforms and the continuation of reforms of the system of social benefits to increase the propensity to work.

The Commission expressed its concern that no agreement had been found for the adoption of the Global Fiscal Framework 2011-2013. This situation seriously hampers transparency, sustainability and reliability of public finances in BiH. The Commission urged all parties involved to take all necessary steps to adopt this year’s Global Fiscal Framework for the period 2012-2014.

The Commission recalled that the adoption of the Global Fiscal Framework was also one of the main conditions to release the Commission’s Macro Financial Assistance. Linked to this political lack of agreement, Bosnia and Herzegovina may risk losing a €100 million loan of the European Union which would help the country to effectively deal with the economic problems and alleviate budgetary pressures.

The Commission was also worried about the implications of the political deadlock after the 3rd October elections on the country’s public finances and its business environment. BiH needs to continue fiscal consolidation on all levels of the government to put public finances on more solid feet and to improve the quality of public finances by reducing the currently large public sector and by shifting public funds to more growth-enhancing activities.

The Commission urged BiH to find a sustainable solution to the current mechanism setting coefficients for the distribution of indirect tax revenues. Fiscal stability is a key element of the Copenhagen Economic criteria. The Commission stands ready to provide support and funding for a macroeconomic and fiscal review of this mechanism, based also on best practice within EU Member States. This is  particularly urgent since the current setup for the Brcko District is expiring on 31 December 2011. The Commission called upon the Fiscal Council to take a leading role in the process of finding an agreement between all relevant stakeholders. BiH agreed to report at the Interim Committee on the planned steps on this and for Brcko, in particular.

The Commission expressed its regret that no representative from the Federation Ministry of Finance was available for the discussions on the second day of the meeting.

Only limited progress has been made regarding the cooperation between the Statistical Offices and with the Indirect Taxation Authority. Although no progress has been achieved regarding the adoption of the Census Law, preparatory activities are well advanced. BiH has committed itself to submit by 1 July 2013 its GDP per capita figures harmonised at NUTS II level to the Commission. In this respect the Commission welcomed the establishment of the Inter-departmental Working Group for Drafting Proposed Classification of Territorial Units for Statistics and encouraged BiH to intensify its dialogue to come up with a first proposal as soon as possible. This work is crucial for any future EU funding.

Limited progress has been made regarding the proper establishment of national accounts and of business statistics.

Progress has been slow regarding the drafting of secondary legislation for Public Internal Audit and legislation on the Financial Management and Control part of governments. The Co-ordination Board of the three Central Harmonization Units (CHU) provides for a single platform for Public Internal Financial Control (PIFC) in BiH. The Commission urged BiH to provide sufficient human resources to the CHUs, in particular in the Federation, to implement PIFC.

The Commission expressed its concern that since the entry into force of the Law on Ministries, the external Audit Office has been classified as an autonomous state body, having to report to the executive. This is interfering with the independence of the Audit Office. This issue was raised already in 2010 in the same Sub-committee. BiH agreed to report about the state of play and the current situation in detail at the Interim Committee.