If current data on state of public debt indicates that Bosnia and Herzegovina is still moving within the defined boundaries of sustainability of debt (Maastricht criteria), the very dynamics of public debt indicates the need to introduce the system of control in further borrowing. This is especially important in the context of difficulties that the entity governments have in the financing of current liabilities as well as maturity of long-term liabilities for payment in the coming years.
According to the data published by Ministry of Finance and Treasury of B&H, the total public debt in June 2016 was 11.923 billion BAM with regard to the end of 2015 is lower for 5 million BAM. If it is observed within the context of movement of debt in accordance with GDP, the total public debt is still at an acceptable level, which was in 2015 amounted at 42.3% of GDP. From this numbers could be concluded that B&H is moderately indebted country. But the reality in B&H is different especially if you take into consideration the economic situation in the country as well as the state of public finances.
It is known fact that B&H debt to foreign creditors on more favorable terms than in the country. The main reason lies in the fact that B&H is not able to directly borrow on the capital markets and in the private sector, but from the international financial institutions as well as from development funds of governments of developed countries. The very purpose of these funds is mainly focused in the development and structural projects, and inherently have a lower interest rate compared to the market interest rate.
From the total amount of public debt in the first half of 2016, on external debt refers to 8656.26 billion BAM. External debt of the country (government sector) compared to the same period of last year is decreased by 4.43 million BAM (0.05%). On this decrease influenced larger repayment of external debt in relation to the withdrawal of the new debt.
According to available data, in June 2016, most of the loans (52.14%) taken abroad refers to loans targeted for the implementation of infrastructure projects, and loans (34.50%) for the public sector and for economic activity (13.36 %).
Loans for infrastructure are mostly focused on projects in road infrastructure, telecommunications, and water supply and so on, while the projects for the public sector include the standby arrangement, education, health and local level.
Although in 2016 was signed a new agreement with the IMF and obtained the first loan installment, continuation of the arrangement was stopped due to the failure to adopt a set of important laws and measures. This was reflected in the charging entity budgets, and the entity governments had to continue with the policy of increasing domestic borrowing in order to maintain fiscal stability.
The total debt of the general government sector with commercial banks at the end of the first six months of 2016 was 1022.3 billion BAM and compared to the same period of last year decreased by 121.2 million BAM. This decrease is primarily due to the fact that the government continued with the policy of issuing securities as a primary source of financing in the domestic market.
At the end of June 2016 state of liability of general government sector in terms of securities was 2.5 billion BAM and higher on an annual basis to 241.7 million or 10.8%. Most of funds raised by issuing securities are used to settle the current liabilities of the entity governments.
By analyzing data from the region, it is clear that Bosnia and Herzegovina has the lowest public debt in relation to GDP. Nonetheless, the fact is that the public debt of B&H is growing from year to year due to insufficient economic growth. The problem of public debt does not lie in the fact that it, as such, is growing, but in the purposes where are spend new borrowings. As long as the funds raised are used to patch budget holes, and not for development purposes, till than will be a fear that this kind of borrowing is not long-term sustainable.
According to the Central Bank of B&H foreign direct investment in 2015 were 12 201 million BAM, which is less by 34.8% compared to foreign investment in the previous year.
By observing foreign direct investment by countries in 2015, most investments were from Austria (2488.4 mil. BAM), Serbia (2063.3 mil. BAM) and Croatia (2059.2 mil. BAM).
The biggest withdrawal of capital was in France (40.8 mil. BAM), Switzerland (17.6 mil. BAM) and Slovakia (16.7 mil. BAM).
Decrease of foreign direct investment was largely due to reduced participation in the processing industry and in the manufacturing of coke and petroleum products (-30.6%), mining ie extraction of coal and lignite (-12.4%), the trade sector (- 13.7%), manufacture of basic metals (-9.7%) and the accommodation sector (-3.6%).
In order to increase the level of foreign direct investment in B&H it is necessary to facilitate the procedures for obtaining various permits, provide certificates to exporters, and encourage reinvestment and export. For this to be achieved it is necessary to improve the efficiency of the public administration’s and to move forward with further reforms, necessary for the development of the real sector.
Source: Federation for support of economic and social development „Horizon 2024“