OHR: Economic Newsletter, Vol. 1, No. 5, July 1998
Newsletter
Economic Reform and Reconstruction
in Bosnia and Herzegovina (BiH)
Sarajevo, July 1998, Vol. 1, Issue 5 Economic Task Force Secretariat
OHR in co-operation with IMG International Management Group
Economic Indicators BiH
Federation of BiH (Federation)| Annualized growth rates* (excl. net wage) | Feb-98 | Mar-98 | Apr-98 | May-98 |
| Average net wage (DM) | 314 | 307 | 324 | n/a |
| Retail price growth | 9.5% | 10.7% | 7.7% | 5.6% |
| Cost-of-living growth | 8.4% | 9.5% | 8.5% | 6.1% |
| Real wage growth | 18.4% | 11.6% | 15.7% | n/a |
| Industrial Production growth | 24.6% | 12.4% | 26.5% | 35.8% |
| Real effective exchange rate | -7.2% | |||
(Source: Federation Statistical Institute & OHR Estimates)
* Growth rate over 12 preceding months.
Republika Srpska (RS)
| Annualized growth rates (excl. net wage) | Dec-97 | Jan-98 | Feb-98 | Mar-98 |
| Average net wage (DM) | 112 | 84 | 126 | 147 |
| Retail price growth | 12.8% | 9.5% | 13.4% | 12.2% |
| Cost-of-living growth | 18.7% | 16.0% | 18.5% | 14.4% |
| Real wage growth | 84.6% | 64.2% | 111.1% | 150.6% |
| Industrial Production growth | 21.9% | 26.0% | 45.8% | 34.0% |
Retail price inflation continues to fall in the Federation, reaching roughly half of the March rate in May. Cost-of-living inflation also continues to fall. Growth in the real wage and industrial production remains strong. Economic performance has been quite good in the RS during the first quarter of 1998. The real wage grew at an extraordinary rate, although one has to consider that payments of salaries in the RS have been irregularly and that in many areas they have been in arrears for months. The Feb. and March wage indexes have also been effected by the late IC’s budget support.
Industrial production growth is accelerating whilst price inflation remains substantially higher than in the Federation.
(More information on this subject can be obtained by: the OHR Economic Department, Mr. B. Roberts,Tel:447275 or at the IMG Economic Section,
Mr. P. Hulshoff, Tel: 666273)
Economic Policy and Reform
KM Introduced on 22 June The convertible marka (KM) has been in circulation since 22 June. Due to delays in shipping, the original date of 15 June was postponed for one week. Introduction is so far limited to certain bank notes; in the Federation: 0.5, 1, 5, and 10 KM; in the RS 0.5, 5, and 10 KM. The 1 KM bank note for the RS has not been circulated because of a misspelling on the note.More than KM 50 million has been distributed in the Bosniak area. KM has also started to be used in the RS and in some Croat areas. KM 4.8 million has been paid as salaries in the RS by the OHR as part of budgetary support to the RS. The introduction of the 20, 50 , and 100 KM notes is expected to take place at the end of July.
Actions are currently being taken to improve the opportunity of the public to convert KM into DM at commercial banks. Difficulties in such conversion are of a short-run nature and should be resolved soon.
Cantonal Economic Data Tables 1 and 2 of the insert to this newsletter summarize a variety of economic data for cantons of the Federation. Table 1 shows the sectoral composition of industrial production in 1997 across the 10 cantons. Many cantons are heavily dependent on one or two sectors, which is not particularly unusual at the regional level in an economy as small as that of BiH. Table 2 gives the average net nominal wage and inflation in retail prices and the cost of living. The lowest average wage (Zenicko-Doboj) is 51% of the highest average wage (Posavski), a quite substantial difference. Inflation does not seem to vary much across cantons, but data on inflation is available for only 3 cantons, so nothing can be said with any confidence.Indeed, the cantonal statistical bulletins are noteworthy for the fact that various data are available for some cantons but not others. The lack of data on production of electricity, gas and water for 5 cantons, and inflation data for 7 cantons, raises an important question as to the quality of the base from which Federation-level statistics are derived.
Source of information: Statistical bulletins of the Federation Institute of Statistics.
Unemployment in the Federation The insert also presents data on unemployment at the cantonal level for the Federation that have been developed by the World Bank (see insert, reverse side). These data were collected in a survey of approximately 2,000 households in the spring of 1997 conducted by the World Bank. The survey data suggest several things. First, there is substantial variation in unemployment rates across cantons. The lowest rate is 19% (Zapadno-Hercegovacki), and the highest 64% (Posavski). Second, the estimated participation rate of 60% of working-age population suggests that many more people are working (580,000) than is officially recorded (347,000). Third, the actual unemployment rate may be significantly less than official estimates: the survey’s unemployment rate is 33%, while official numbers suggest a rate of 39%. 33% is nonetheless, of course, a very high rate of unemployment. Finally, there is no clear relation between the unemployment rate and the average net nominal wage across cantons. The figure on the insert graphs these two variables against each other. Although the canton with the highest unemployment rate also has the highest wage rate (Posavski), once this canton is dropped, there is no statistically-significant relationship between the two variables. Unemployment Rate in the Federation: Spring 1997| Canton | Unemployment Rate |
| Sarajevo | 34% |
| Unsko-Sanski | 47% |
| Zenicko-Dobojski | 24% |
| Tuzlansko-Podrinjski | 28% |
| Srednjebosanski | 33% |
| Gornjedrinski | 39% |
| Posavski | 64% |
| Zapadno-Hercegovacki | 19% |
| Neretvanski | 34% |
| Hercegbosanski | 35% |
| FEDERATION | 33% |
Source of information: World Bank Survey, Spring 1997 (as cited in “Economic Brief for Bosnia and Herzegovina”, April 1 1998).
RS Adopts Privatization Laws
The RS Parliament passed the whole package of privatization and capital market laws ahead of schedule on 26 June 1998, together with the bank privatization laws.There are a number of differences between the RS and the Federation privatization programs. In order to receive general claims for instance, beneficiaries in the Federation have to be older than 18 years old, the RS does not have such a requirement. The dates recognizing the eligibility (citizen of BiH and permanent residence in the privatizing entity) also differ. The reconciliation of the eligibility criteria is of importance in order to avoid discrimination of a large number of people (DP’s and refugees) who have changed their residence in recent years. Contrary to the Federation privatization legislation the RS-program includes the transfer of funds to the Pension-Disabled Fund (10%) and the Restitution Fund (5%) and the exclusion of apartments and municipal business premises from being sold by general claims. The final adoption of the so-called Framework Law will set the basis for bringing the legislation of both Entities in line.
Negotiations with Paris Club to Begin BiH is preparing to begin negotiations with the Paris Club to achieve reduction in the stock of outstanding debt to official creditors (the non-commercial sector). The London Club agreement reached in 1997 substantially reduced the value of historical debt to commercial banks inherited by BiH from the former Yugoslavia by app. 85%. It is essential to achieve another successful negotiation with the Paris Club to ensure renewed access of BiH to international credit markets.Organization of Public Services
Commission on Public Corporations Re-activated After a period of non-activity, the Commission on Public Corporations (CPC) has been re-activated again by the appointment of two successors for the previous CPC members Mr. Kozulj and Mr. Skoko. The CPC in its current setting consists of the following members: Mr. A. Behemen (Fed), Mr. Z. Perkovic (Fed), Mr. O. Kremenovic (RS), Mr. R. O’Sullivan (WB) an the Chairman Mr. P. Monnory (EBRD).The CPC will meet on 6 July to discuss the draft agreement on the creation of a BiH Power Transmission Public Corporation (EPK-BH), the first Joint Corporation to be established in the Electricity sector.
Reconstruction Update
Credit Lines in BiH At present, six main credit lines are operational in BiH, two of which are providing loans in both Entities (see page 4). Total outstanding funds currently amount to DM 273 million, including revolving funds.In addition, five new credit lines are about to start operating in the next few months: KfW Housing Credit Line of ECU 15 million (DM 30), KfW Small and Medium Enterprise Credit Line of DM 1 million, WB Revolving Credit Line RS of $10.5 million, including $2.7 million technical assistance (DM 19 and DM 4.9 respectively), IFC Forestry Companies Credit Line of DM 25 million, Saudi Fund Revolving Credit Line (amount unknown), and the Kuwait Revolving Fund Credit Line (amount unknown).
The actual distribution of loans will be executed as has been done so far, i.e. through the local banking system or through selected NGO’s operating as intermediaries. International organizations and countries funding the various credit schemes (both existing and new) include: the WB, IFC, IDA, EBRD, UNHCR, USAID, Austria, Germany, Italy, Japan, Kuwait, Malaysia, the Netherlands, Saoudi Arabia, Sweden, Switzerland, Turkey and the United Kingdom.
For further information concerning this publication please contact:
Paul Hulshoff, IMG – tel.: 666273 / 666020
Clement van de Coevering OHR – tel: 447275
| Overview of all non-reconstruction sectors as per June 1998 [figures in DM] | ||
| Sector | Completed | In Implementation* |
| Agriculture | 0 | 60,103,384 |
| External Debt Service | 0 | 0 |
| Finance & Trade | 869,058 | 19,170,073 |
| Government Institution Building | 44,000,000 | 57,198,067 |
| Industry & Industrial Finance | 0 | 252,378,898 |
| Landmine Clearing | 0 | 10,545,103 |
| Peace Implementation Activities | 0 | 710,499 |
| Social Support | 12,574 | 46,853,212 |
| Total | 44,881,633 | 455,959,239 |
| Completed 97 and before | 400,000,312 | |
| Grand Total | 900,841,185 | |
Source of information: RCM Database
| Reconstruction Update per sector as per June 1998 [figures in DM] | ||
| Sector | In Implementation | Completed 98 |
| Education | 46,255,075 | 11,540,130 |
| Energy | 275,157,333 | 114,615,500 |
| Health | 40,004,452 | 13,327,774 |
| Housing | 163,786,178 | 69,095,800 |
| Mixed | 24,509,680 | 1,000,425 |
| Other | 750,214 | 340,897 |
| Telecommunications | 52,543,960 | 2,465,000 |
| Transport | 318,282,531 | 7,287,511 |
| Water | 217,457,660 | 16,706,614 |
| Total | 1,138,747,082 | 236,379,651 |
| Completed 97 and before | 1,106,760,348 | |
| Grand Total | 2,481,887,082 | |
| Reconstruction Update per geographical area as per June 1998 [figures in DM] | ||
| Canton | In Implementation | Completed 98 |
| Unsko-Sanski | 118,109,230 | 17,714,310 |
| Posavski | 30,612,560 | 2,825,000 |
| Tuzlansko-Podrinjski | 74,874,520 | 24,972,770 |
| Zenicko-Dobojski | 53,587,500 | 23,636,510 |
| Bosansko-Podrinjski | 12,386,795 | 4,487500 |
| Srednjebosanski | 57,238,330 | 7,832,220 |
| Hercegovacko-Neretvljanski | 86,437,570 | 21,392,440 |
| Zapadnohercegovacki | 8,036,490 | 1,111,400 |
| Sarajevo | 216,890,180 | 35,990,590 |
| Zapadnobosanski | 8,363,720 | 998,600 |
| Multi-Canton | 52,817,260 | 3,538,000 |
| Federation | 48,403,740 | 5,100,000 |
| TOTAL FEDERATION | 767,757,895 | 149,599,340 |
| BanjaLuka | 111,043,168 | 6,275,788 |
| Doboj | 39,023,620 | 1,136,379 |
| Bijeljina | 75,846,230 | 1,914,464 |
| Vlasenica | 6,280,280 | 2,672,000 |
| Sokolac | 5,532,124 | 2,768,180 |
| Srbinje | 19,689,616 | 0 |
| Trebinje | 8,762,839 | 10,710,000 |
| Multi-Region | 20,787,580 | 0 |
| Serb Republic | 10,423,600 | 14,437,500 |
| TOTAL RS | 297,389,058 | 39,914,311 |
| Multi-Canton/Region | 34,896,130 | 3,240,000 |
| B&H | 32,604,000 | 43,626,000 |
| Unknown | 6,100,000 | 0 |
| Total | 1,138,747,083 | 236,379,651 |
| Completed 97 and before | 1,106,760,348 | |
| Grand Total | 2,481,887,082 | |
Geographical Overview of Credit Lines in BiH as per June 1998
| Canton Name | Implementing Agency | Loans | Amount (DM) |
| 1. Unsko-Sanski | 64 | 14 922 969 | |
| BOR BiH | 16 | 5 256 269 | |
| Federal Ministry of Finance | 25 | 4 310 000 | |
| Investment Bank of the F BiH | 22 | 4 448 000 | |
| PIU Local Initiatives Project | 1 | 908 700 | |
| 10. Zapadnobosanski | 13 | 3 669 429 | |
| BOR BiH | 1 | 207 429 | |
| Federal Ministry of Finance | 5 | 2 120 000 | |
| Investment Bank of the F BiH | 7 | 1 342 000 | |
| 2. Posavina | 8 | 4 012 979 | |
| BOR BiH | 1 | 1 643 979 | |
| Federal Ministry of Finance | 2 | 1 000 000 | |
| Investment Bank of the F BiH | 3 | 570 000 | |
| PIU Local Initiatives Project | 1 | 449 000 | |
| USAID | 1 | 350 000 | |
| 3. Tuzlansko-Podrinjski | 165 | 65 577 903 | |
| BOR BiH | 18 | 4 591 015 | |
| Federal Ministry of Finance | 20 | 7 150 000 | |
| Investment Bank of the F BiH | 70 | 12 911 000 | |
| PIU Local Initiatives Project | 2 | 1 794 488 | |
| USAID | 55 | 39 131 400 | |
| 4. Zenicko-Dobojski | 133 | 41 385 285 | |
| BOR BiH | 43 | 9 445 244 | |
| Federal Ministry of Finance | 19 | 6 785 000 | |
| Investment Bank of the F BiH | 39 | 7 053 692 | |
| PIU Local Initiatives Project | 2 | 947 237 | |
| USAID | 30 | 17 154 112 | |
| 5. Bosansko-Podrinjski | 10 | 2 330 268 | |
| BOR BiH | 5 | 190 268 | |
| Federal Ministry of Finance | 3 | 1 440 000 | |
| Investment Bank of the F BiH | 1 | 180 000 | |
| PIU Local Initiatives Project | 1 | 520 000 | |
| 6. Srednjebosanski | 102 | 30 684 922 | |
| BOR BiH | 18 | 2 571 712 | |
| Federal Ministry of Finance | 28 | 7 295 000 | |
| Investment Bank of the F BiH | 42 | 8 268 500 | |
| PIU Local Initiatives Project | 1 | 1 401 000 | |
| USAID | 13 | 11 148 710 | |
| 7. Hercegovacko-Neretvljanski | 82 | 22 516 195 | |
| BOR BiH | 13 | 2 869 680 | |
| Federal Ministry of Finance | 19 | 7 984 000 | |
| Investment Bank of the F BiH | 45 | 8 074 000 | |
| PIU Local Initiatives Project | 2 | 988 515 | |
| USAID | 3 | 2 600 000 | |
| 8. Zapadnohercegovacki | 32 | 9 687 000 | |
| Federal Ministry of Finance | 10 | 5 200 000 | |
| Investment Bank of the F BiH | 22 | 4 487 000 | |
| 9. Sarajevo | 151 | 63 782 804 | |
| BOR BiH | 44 | 6 835 942 | |
| Federal Ministry of Finance | 20 | 7 624 000 | |
| IFC | 1 | 8 800 000 | |
| Investment Bank of the F BiH | 51 | 9 662 010 | |
| PIU Local Initiatives Project | 3 | 3 107 733 | |
| USAID | 32 | 27 753 119 | |
| All Federation Cantons* | 3 | 1 318 115 | |
| BOR BiH | 2 | 179 729 | |
| PIU Local Initiatives Project | 1 | 1 138 386 | |
| Republika Srpska (East) | 3 | 2 515 296 | |
| PIU Local Initiative Project – RS | 1 | 715 296 | |
| USAID | 2 | 1 800 000 | |
| Republika Srpska (West) | 9 | 7 578 956 | |
| PIU Local Initiative Project – RS | 4 | 2 978 956 | |
| USAID | 5 | 4 600 000 | |
| Grand Total: | 775 | 269 982 121 |
Source of information: RCM Database Office of the High Representative