Ex-post evaluation of the EU’s macro financial assistance to Bosnia and Herzegovina (2009-2013) : final report.
Date: 2015-03-19
Institutions: Directorate-General for Economic and Financial Affairs
Subjects: Bosnia and Herzegovina, EU aid, EU loan, aid evaluation, financial aid, macroeconomics

Ex-post Evaluation of the EU’s          
Macro Financial Assistance to                              

Bosnia and Herzegovina             

(2009-2013)  
European Commission, Directorate-General for 
Economic and Financial Affairs 

Final Report 

January 2015 

 
 
 
 
 
   
 
 
 
 
 
 
 
 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Directorate-General for Economic and Financial Affairs 

The information and view set out in this report are those of the author(s) and do not 
necessarily  reflect  the  official  opinion  of  the  Commission.  The  Commission  does  not 
guarantee the accuracy of the data included in this study. Neither the Commission nor 
any  person  acting  on  the  Commission’s  behalf  may  be  held  responsible  for  the  use 
which may be made of the information contained therein.  

This study exists in English only and can be downloaded from the website 
http://ec.europa.eu/economy_finance/evaluation/index_en.htm  

A great deal of additional information is available on the Internet. It can be accessed 
through the Europa server (ec.europa.eu) 

KC-02-15-078-EN-N 

© European Union, 2015 
Reproduction is authorised provided the source is acknowledged 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Table of Contents 

List of Abbreviations and Acronyms....................................................................... i 
Executive summary ........................................................................................... iii 

The MFA operation in Bosnia and Herzegovina .................................................... iii 
Evaluation objectives and methods ................................................................... iv 
Impact of the MFA on macroeconomic stabilisation and external sustainability ........ v 
Impact of the MFA on structural reforms ............................................................ vi 
Design and implementation issues ................................................................... vii 
Timetable ..................................................................................................... vii 
EU Value Added ............................................................................................ viii 
Lessons learned ............................................................................................ viii 

1 

Introduction ................................................................................................ 1 

1.1 
1.2 
1.3 
1.4 

The scope and objectives of the ex-post evaluation .......................... 1 
Structuring of the evaluation ......................................................... 3 
Caveats and limitations ................................................................. 3 
This Report .................................................................................. 7 

2  The context and content of the MFA operation ................................................. 8 

2.1 
2.2 
2.3 
2.4 
2.5 
2.6 

The background to the crisis .......................................................... 8 
Policy response ...........................................................................20 
IMF programmes .........................................................................20 
EU Macro Financial Assistance .......................................................26 
Other EU Assistance to BiH during 2009 – 2013 ..............................28 
The World Bank Development Policy Loan ......................................31 

3 

Impact of the MFA on macroeconomic stability and external sustainability..........33 

Macroeconomic developments in BiH during the implementation of the 

3.1 
MFA operation (2009-2013) ............................................................................33 
Construction of the counterfactual scenario ....................................41 
3.2 
Macroeconomic and external sustainability impacts .........................51 
3.3 
Conclusion ..................................................................................53 
3.4 

4 

Impact of the MFA on Structural Reforms .......................................................54 

4.1 
4.2 

Reform Context ...........................................................................54 
Conclusions ................................................................................82 

5  Design and implementation issues ................................................................84 

5.1 
5.2 
5.3 
5.4 

Timing of the operation ................................................................84 
Design of the operation ................................................................84 
Visibility of the operation ..............................................................84 
Monitoring and implementation .....................................................85 

6  EU value added ...........................................................................................86 
7  Conclusions and lessons learnt .....................................................................88 

7.1 
7.2 

Conclusions ................................................................................88 
Lessons learned ..........................................................................90 

  
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

ABSTRACT 

On 30 November 2009, the Council of the European Union adopted a decision providing 
Macro-Financial  Assistance  (MFA)  - in  the  form  of  a  loan  of  EUR  100  million  -  to  Bosnia 
and Herzegovina (BiH). The MFA was provided to support the country’s recovery from the 
adverse  impact  of  the  2009  global  financial  crisis.  The  implementation  of  the  MFA 
operation  was  significantly  delayed  due  to  political  developments 
in  BiH  and 
the government’s  difficulties  in  fulfilling  certain  reform  conditions.  The  assistance  was 
eventually  disbursed  in  two  equal  tranches  in  February  and  September  2013  alongside 
the  2012  IMF  Stand-by  Arrangement  (SBA).  The  disbursement  of  the  two  tranches  was 
linked  to  the  fulfilment  of  structural  reforms  conditions  related,  inter  alia,  to  reforms  in 
the  areas  Public  Finance  Management  (PFM),  financial  sector  stability,  pension  system 
and official statistics.  

independent  evaluation  examines 

This 
impact,  design  and 
implementation of the MFA operation in BiH. It also draws a series of wider lessons from 
this experience that could be applied more generally to the future design and application 
of the MFA instrument. 

the  added  value, 

RÉSUMÉ 

Le 30 novembre 2009, le Conseil de l'Union européenne a adopté une décision accordant 
une assistance macrofinancière (AMF)  - sous la forme d'un prêt de 100 millions EUR – à 
la Bosnie-Herzégovine. L'AMF était destinée à aider le pays à faire face aux conséquences 
de la crise financière mondiale de 2009. Le déploiement de l'AMF a été considérablement 
retardé  du  fait  de  la  situation  politique  en  Bosnie-Herzégovine  et  des  difficultés  du 
gouvernement  à  remplir  certaines  conditions  en  matière  de  réformes.  Le  prêt  a 
finalement été versé en deux tranches égales en février et septembre 2013, en plus des 
ressources  mises  à  disposition  par  le  FMI  dans  le  cadre  de  l'accord  de  confirmation  de 
2012. Le versement des deux tranches a été déclenché par la satisfaction des conditions 
de  réformes  structurelles,  notamment  dans  les  domaines  de  la  gestion  des  finances 
publiques, de la stabilité du secteur financier, du système de retraite et des statistiques 
officielles.  

Cette  évaluation  indépendante  analyse  la  valeur  ajoutée,  l'impact,  la  conception  et  la 
mise en œuvre de l'opération d'AMF en Bosnie-Herzégovine. Elle tire également quelques 
enseignements de cette expérience, qui pourraient être appliqués plus généralement à la 
conception et à l'utilisation de l'instrument d'AMF à l'avenir. 

  
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

COUNTRY PROFILE 

Bosnia  and  Herzegovina  (BiH)  is  a  small  country  in  South  East  Europe.  It  has  a 
population of 3.8 million people (2013), covers an area  of 51,200 square km  and has a 
narrow coastline (20 km).  

Figure (i) Map of Bosnia and Herzegovina 

Source: United Nations (2007) Map No. 3729 Rev. 6. [online] Available at: 
http://www.un.org/depts/Cartographic/map/profile/bosnia.pdf     

  
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

In 2013, the GDP of BiH was EUR 13.4 billion in current prices and GDP per capita was 
EUR 3,550 (Table i). BiH is classified by the World Bank as an upper middle income 
country1. 

Table (i) Key macroeconomic statistics for Bosnia and Herzegovina, 2009-2013 

Nominal GDP (EUR bn) 

Real GDP (%yoy) 

GDP per capita (EUR) 

2009 

2010 

2011 

2012 

2013 

12.4 

-2.7 

12.7 

0.8 

13.2 

1 

13.2 

-1.2 

13.4 

2.5 

        3,236  

        3,312  

        3,430  

        3,426  

        3,550  

GDP per capita (EUR at PPP) 

        6,400  

        6,700  

        7,000  

        7,100  

        7,200  

Household consumption (real, % yoy) 

Gross fixed capital formation (real % yoy) 

Industrial output (% yoy) 

Producer prices (avg, % yoy) 

Consumer prices (avg, % yoy) 

Average gross wages (LCY, % yoy) 

Unemployment rate (avg, %) 

General budget balance (% of GDP) 

Public debt (% of GDP) 

Trade balance (% of GDP) 

Current account balance (% of GDP) 

Official FX reserves (EUR bn) 

Gross foreign debt (% of GDP) 

EUR/LCY (avg) 

USD/LCY (avg) 

-4.6 

-28.8 

-3.3 

-3.2 

-0.4 

8.2 

24.1 

-4.4 

36.2 

0.1 

-15.9 

1.6 

0.9 

2.1 

1.1 

27.2 

-2.5 

39.3 

0 

15.8 

5.6 

3.7 

3.7 

4.4 

27.6 

-1.3 

40.8 

-32.0 

-30.7 

-32.4 

-6.5 

3.2 

53.5 

1.96 

1.4 

-6.2 

3.3 

57.3 

1.96 

1.47 

-9.6 

3.3 

66.8 

1.96 

1.41 

-0.8 

3.5 

-5.2 

1.9 

2.1 

1.1 

28 

-2 

44.6 

-32.8 

-9.2 

3.3 

63.1 

1.96 

1.52 

0.3 

-3 

6.7 

-1.8 

-0.1 

0.4 

27.5 

-2.2 

42.5 

-29.7 

-5.9 

3.6 

62.5 

1.96 

1.47 

Source: Agency for Statistics of B&H, Central Bank of B&H 

BiH has a complex, multi-layer governance structure. This is a legacy of the 1995 Dayton 
Peace  Accord,  which  ended  the  war  of  1992-1995.  The  country  has  a  bicameral 
legislature  and  a  three-member  Presidency  composed  of  representatives  of  each  major 
‘constitutive’ ethnic group (Bosniaks, Serbs and Croats). The central government's power 
is  highly limited,  as  the  country  is largely  decentralised  and  comprises  two  autonomous 
Entities:  The  Federation  of  Bosnia  and  Herzegovina  (FBiH)  and  Republika  Srpska  (RS), 
and  a  self-governing  administrative  unit  of  Brčko  District  -  figure  (ii).  Moreover,  FBiH 
itself  has  a  complex  governance  structure  that  consists  of  10  cantons  and  79 
municipalities.  In  addition  to  a  high  degree  of  decentralisation,  the  division  of 
competencies  between  the  cantons  and  FBiH  is  unclear.  This  renders  the  Entity  more 
difficult to govern. The RS is more centralised and is sub-divided only into municipalities, 
and is thus easier to govern.  This multi-layer governance structure causes duplication of 
many  domestic  policy  functions  and  makes  it  difficult  to  achieve  consensus  on  policy 
issues.  

Public budgetary arrangements reflect these features. While the direct taxes are in direct 
purview  of  the  Entities,  all  indirect  taxes  are  collected  at  a  single  location  (the  Indirect 
Tax Authority of Bosnia and Herzegovina). The revenues from indirect taxation are used 
for  debt  service  and  funding  of  the  BiH  State  budget.  The  remaining  revenue  is  split 

1 World Bank data on Bosnia and Herzegovina. Available at: http://data.worldbank.org/country/bosnia-and-
herzegovina  

  
 
 
 
 
 
  
                                           
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

according  to  the  shares  of  final  consumption  among  the  two  Entities  and  Brčko  District. 
In  FBiH,  much  of  the  public  spending  takes  place  at  the  cantonal  level.  These 
arrangements make it difficult to achieve consensus on the overall budget framework and 
tend to leave the State level with a residual share of resources. 

Figure (ii) Administrative and fiscal structure in Bosnia and Herzegovina 

Source: adapted from World Bank (2012), Bosnia and Herzegovina Challenges and Directions of 
Reform, A Public Expenditure and Institutional Review, Report No. 66253-BA 

  
 
 
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

List of Abbreviations and Acronyms 

BAM 

Convertible Mark 

BHAS 

Bosnia and Herzegovina Agency for Statistics 

BiH 

BoP 

Bosnia and Herzegovina 

Balance of Payments  

CARDS 

Community Assistance for Reconstruction, Development and Stabilisation 

CBBH 

Central Bank of Bosnia and Herzegovina 

CHU 

CIT 

DPL 

Central Harmonisation Unit 

Corporate Income Tax  

Development Policy Loan 

DG ECFIN 

Directorate General for Economic and Financial Affairs 

DG ELARGE 

Directorate General for Enlargement  

EBRD 

European Bank of Reconstruction and Development 

EC 

European Commission 

ESA 95 

European System of National and Regional Accounts 

EU 

European Union 

EU DEL 

EU Delegation 

EUR 

FBiH 

FC 

FDI 

FIS 

Euro 

Federation of Bosnia and Herzegovina 

Fiscal Council  

Foreign Direct Investment 

Federal Institute of Statistics of the Federation of Bosnia and Herzegovina 

FYROM 

Former Yugoslav Republic of Macedonia 

GBMIS 

Government Budget Management Information System  

GDP 

GFS 

Gross Domestic Product 

Government Finance Statistics  

IBRD 

International Bank for Reconstruction and Development  

IDA 

IMF 

International Development Association  

International Monetary Fund 

i 

  
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

IPA 

MFA 

MoU 

NPL 

OA 

PEDP 

PIFC 

PIT 

PFM 

PPP 

PPS 

RS 

Instrument for Pre-accession Assistance 

Macro-Financial Assistance 

Memorandum of Understanding 

Non-Performing Loan 

Operational Assessment 

Public Expenditure Crisis Development Policy 

Public Internal Financial Control 

Personal Income Tax  

Public Finance Management 

Purchasing Power Parity  

Purchasing Power Standards 

Republic of Srspka 

RSIS 

Republika Srpska Institute of Statistics 

SAA 

SAP 

SBA 

SDR 

SITC 

T-bill 

Stabilisation and Association Agreement 

Stabilisation and Association Process 

Stand-By Arrangement 

Special Drawing Rights 

Standard International Trade Classification 

Treasury Bill 

USAID 

United States Agency for International Development 

USD 

VAT 

WB 

WEO 

YTM 

United States Dollar 

Value Added Tax 

World Bank 

World Economic Outlook 

Average Yields to Maturity  

ii 

  
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Executive summary 

This  Report  presents  the  results  of  the  ex-post  evaluation  of  the  Macro-Financial 
Assistance  (MFA)  provided  to  Bosnia  and  Herzegovina  (BiH)  over  the  period  2009-2013. 
The  evaluation  was  commissioned  by  the  Directorate-General  for  Economic  and  Financial 
Affairs  (DG  ECFIN).  The  work  was  undertaken  by  ICF  with  inputs  from  local  economists 
based in Sarajevo and Banja Luka.  

The MFA operation in Bosnia and Herzegovina 

The  Bosnian  economy  was  severely  affected  by  the  global  economic  crisis:  real  GDP 
growth contracted sharply from 5.6 per cent in 2008 to -2.7 per cent in 2009 as domestic 
consumption  slumped  and  demand  for  Bosnian  exports  fell  sharply.  In  parallel,  pressure 
on public finances mounted due to pre-crisis expansion of public expenditures and a crisis-
driven slowing of government revenues. As a result, the consolidated budget deficit nearly 
doubled,  reaching  4.4  per  cent  of  the  GDP  in  2009.  Tensions  on  the  global  financial 
markets spilled over to BiH and resulted in a "mini bank-run" in October 2008, when EUR 
420 million of deposits (12 per cent of the stock of deposits) were withdrawn. The country 
however,  managed  to  avoid  a  full-blown  financial  crisis  thanks  to  decisive  action  by  the 
Central  Bank.  The  authorities’  immediate  policy  response  to  the  unfolding  crisis  focused 
on: safeguarding the stability of the financial system; and carrying out the necessary fiscal 
adjustment  including  a  reduction  in  public  sector  wages.  In  addition,  the  authorities 
requested  international  assistance  from  various  sources,  including  the  International 
Monetary Fund (IMF), the World Bank and the European Union (EU).  

On  22  May  2009,  the  State  Minister  of  Finance  of  BiH  requested  for  macro  financial 
assistance  of  EUR  100  million  from  the  EU2.  With  the  IMF  Stand-By  Agreement  (SBA)  in 
place  in  June  2009,  the  formal  conditions  were  met  for  the  EU  to  provide  the  MFA. 
Following  the  European  Commission’s  proposal  of  October  2009,  the  Council  took  a 
decision on 30 November 2009 to provide MFA to BiH (2009/891/EC). It was agreed that 
the proceeds would be transferred to the State and the Entity budgets as follows: 

  10 per cent to the State level; 

  60 per cent to the Federation of Bosnia and Herzegovina (FBiH); and 

  30 per cent to Republic of Srspka (RS). 

Disbursement of the MFA was however, significantly delayed due to delays in signature of 
the  Memorandum  of  Understanding  (MoU)  between  the  EU  and  Bosnian  authorities;  non-
fulfilment  of  conditions  attached  to  the  disbursement  of  the  first  tranche;  and  de  facto 
suspension of the IMF SBA following the October 2010 general elections that resulted in a 
political  stalemate.  Some  normalisation  was  reached  in  mid-2012  which  allowed  the 
authorities to resume negotiations with the IMF and the EU. In July 2012, a new IMF SBA 
was approved, making available SDR 338.2 million (~ EUR 398 million)3 to the authorities. 
On  29  October  2012,  a  Decision  (2012/674/EU)  to  extend  the  availability  of  the  MFA  to 
BiH by one year was adopted by the European Commission. The first EUR 50 million loan 
tranche  was  eventually  disbursed  in  February  2013.  This  was  followed  by  a  second  and 
final disbursement of equal size  at the end of September 2013. The total size of the MFA 

 2 ECFIN/D/1/Ares (2010)439787 – Note for the Economic and Financial Committee regarding Macro-Financial 
Assistance to Bosnia and Herzegovina, 19.07.2010. 
3 The 2012 SBA was augmented by SDR 135.28 million (about EUR153.1 million) on 31 January 2014 to meet the 
country’s additional financing needs. The IMF SBA was further augmented by SDR 84.55 million (about EUR 
95.7million) on 30 June 2014 to meet the country’s urgent balance of payments need caused by severe floods in 
May 2014. 

iii 

  
 
 
 
                                           
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

operation  was  relatively  small,  corresponding  to  0.7  per  cent  of  BiH’s  GDP  in  2013, 
although it accounted for 17 per cent of the financing gap estimated by the IMF ex ante4.  

The  disbursement  of  the  MFA  was,  inter  alia,  dependent  on  the  satisfactory  fulfilment  of 
ten reform conditions agreed in the MoU between the EU and the Bosnian authorities. The 
MFA conditionality targeted the following areas: 

  Public finance management (7 conditions); 

  Financial supervision and co-ordination (1 condition); 

  National statistical system (1 condition); and 

  Pension system (1 condition). 

Evaluation objectives  

Each MFA operation is subject to an independent ex-post evaluation one to two years after 
the end of its implementation period with a view to support organisational learning and to 
enable DG ECFIN to discharge its obligations in terms of transparency and accountability5. 

In line with DG ECFIN’s Evaluation Guidelines6, an ex-post evaluation typically focuses on 
the following areas of analysis: 

  The  macroeconomic  impact  of  the  MFA  operation  on  the  recipient  country’s 

economy (e.g. GDP growth, Balance of Payments, fiscal balances); 

  The impacts of the structural reforms supported through the MFA operation; 

  Design and implementation of the operation encompassing issues such adequacy of 

financing, timing of disbursements, selection of conditionality; and 

  The  value  added  of  EU  intervention  (stand-alone  and/or  in  combination  with  IMF 

intervention). 

And  although  each  MFA  operation  is  unique  in  terms  of  its  context  and  content,  the  ex-
post evaluations – where relevant – also seek to draw out lessons which could be applied 
more  broadly  to  the  design  and  implementation  of  future  interventions.  An  ex-post 
evaluation of an MFA is therefore, both summative and formative in nature.  

The method of approach 

The present evaluation was based on a mixed-methods approach. A variety of quantitative 
and  qualitative  techniques  were  used  to  build  a  comprehensive  evidence  base  for  the 
evaluation and to provide the basis for triangulation of results, most notably:  

  A review of relevant literature and official documentation;  

  Semi-structured  interviews  with  key  informants  during  two  missions  to  BiH, 
missions to Brussels and Washington DC. During these missions, consultations were 
conducted  with  European  Commission  officials,  officials  in  the  relevant  ministries 
and  departments  at  the  State  and  the  Entity  level,  representatives  from  other 
public  institutions  including  the  Central  Bank  of  BiH,  international  financial 
institutions/ multilateral development banks (IMF, World Bank, EBRD), and the EU 
Delegation in BiH;  

4 IMF Country Report No. 12/282 dated October 2012 
55 According to Article 30 of the Financial Regulation, “all programmes or activities, including pilot projects and 
preparatory actions, where the resources mobilised exceed EUR 5 million shall be the subject of an interim and/or 
ex post evaluation in terms of the human and financial resources allocated and the results obtained in order to 
verify that they were consistent with the objectives set”. 
6 European Commission (2010) Guidelines for the Ex Post Evaluation of MFA and BoP assistance Operations, DG 
ECFIN, May 2010. 

iv 

  
 
 
                                           
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

  A Delphi survey among key selected stakeholders and experts to establish the most 

likely counterfactual scenarios;  

  Focus group discussions with non-governmental stakeholders in Sarajevo and Banja 

Luka; and 

  Analysis  of  macroeconomic  statistics  and  desk  based  analysis  of  macroeconomic 

outcomes and impacts of structural reforms. 

Main findings and conclusions of the evaluation 

The  main  conclusion  of  the  evaluation  is  that  the  MFA  had  a  positive  impact  on  BiH’s 
economy  and  it  also  contributed  to  promoting  structural  reforms  in  the  country.  The 
overall  added  value  and  impact  of  the  operation  was  however,  quite  modest.  The 
implementation of the operation was severely delayed for reasons already mentioned and 
which were beyond DG ECFIN’s control or even sphere of influence.  DG ECFIN devised the 
MFA operation at a time of uncertainty and at the peak of the economic crisis in 2009. By 
the  time  the  MFA  was  actually  disbursed  (in  2013),  BiH’s  economic  situation  had 
considerably evolved and to some extent, improved; but the Commission could not readily 
adapt the operation to BiH’s changing context and needs, given the EU’ s political decision 
making processes7. This reduced the overall relevance and added value of the operation as 
it  was  initially  designed  and  consequently,  it  had  a  limited  impact  on  BiH’s  economy  and 
the reform process. 

The above ‘headline’ findings and conclusions are elaborated below.  

(i)  Impact  of  the  MFA  on  macroeconomic  stabilisation  and  external 
sustainability  

The MFA operation made a positive – albeit rather limited – contribution to macroeconomic 
stability  in  BiH  in  2013.  This  was  primarily  because  of  the  small  size  of  the  operation 
relative to the country’s GDP (the MFA corresponded to 0.7 per cent of BiH’s GDP in 2013), 
but  also  because  the  MFA  was  entirely  substitutable  by  domestic  debt  issuance.  All 
available  evidence  suggests  that  there  was  sufficient  liquidity  and  capacity  in  the  local 
banking  sector  to  absorb  an  additional  EUR  90  million  of  domestic  debt  issuance  (bonds 
and  T-bills)  had  the  MFA  not  been  available  to  the  Entities8.    The  authorities  effectively 
‘switched’ domestic debt issuance with MFA as the latter was available on more favourable 
terms. The net  effect  of the MFA  was therefore, marginal: it is expected to have lowered 
the  cost  of  public  debt  servicing  by  an  estimated  EUR  12.4  million  (the  difference  in  the 
borrowing  conditions  offered  by  the  MFA  and  those  that  could  have  hypothetically  been 
available in the domestic debt market).  

The  MFA  was  closely  linked  to  the  IMF’s  2012  SBA.  Given  the  scale  of  the  latter,  the 
combined  macroeconomic  impact  of  these  two  operations  was  found  to  have  been 
substantially  larger  than  the  impact  of  the  MFA  alone.  These  two  programmes  combined 
were assessed to have provided a significant boost to economic activity during 2012-2014. 
The  cumulative  impact  of  the  EU  MFA  and  IMF  SBA  on  BiH’s  GDP  over  this  period  is 
estimated  to  be  the  range  of  2.6  –  5.1  per  cent  (more  precise  estimates  cannot  be 
obtained as it was not possible to build a reliable macroeconomic model due to issues with 

7 The Commission does not have the flexibility to make changes to an MFA operation after it has been approved by 
the co-legislators. 
8 In order to fully make up for the lack of MFA financing, the FBiH would have needed to issue additional EUR 60 
million (around BAM 117 million) of debt instruments during 2013 and RS an additional EUR 30 million (around 
BAM 59 million). No policy response and no macroeconomic implications are assumed at the State level. This is 
due to the surplus in the State level budget (slightly exceeding the amount of MFA assistance going to the State, 
i.e. EUR 10 million) and the fact that the State level budget has been in surplus for the last few years, coupled with 
the limited amount of money involved in the MFA tranches to the State level.  

v 

  
 
 
 
                                           
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

availability and quality of macroeconomic statistics). This was primarily driven by avoiding 
a significant fiscal adjustment on the expenditure side that would have been necessary  in 
the absence of the external assistance.  

The MFA however, slightly added to the country’s external debt. The level of public debt – 
at  around  40  per  cent  of  GDP  –  is  deemed  sustainable  although  it  makes  an  emerging 
economy like BiH with a fixed exchange rate and no access to international capital markets 
potentially vulnerable to shocks. The  IMF and  the authorities recognise the need to bring 
debt-to-GDP ratio on a firm downward path towards the pre-crisis level of 30 per  cent of 
GDP. 

(ii) Impact of the MFA in promoting structural reforms 

The  conditionality  attached  to  the  MFA  was  selected  on  the  basis  of:  (i)  an  operational 
assessment of financial circuits and procedures in BiH carried out in November 2009 by an 
external consultancy on behalf of the European Commission; and (ii) discussions with BiH’s 
authorities, the EU Delegation, and other development partners, in particular the IMF.  

The choice of conditionality was mainly based on: 

  Reforms  in  the  area  of  Public  Finance  Management  (PFM)  as  identified  in  the 

Operational Assessment;   

  Cross-conditionality  and  in  some  cases,  complementarity  with  the  reforms 

prescribed in the IMF SBAs; 

  Reform priorities identified by the authorities themselves. 

Although  there  was  broad  consensus  among  all  parties  involved  that  the  consultation 
process was carried out appropriately, the degree of ambition of the reform package was 
regarded  as  low  to  modest  by  most  stakeholders  interviewed  in  the  context  of  this 
evaluation. Due to delays in the implementation of the MFA, some conditions had already 
been fulfilled prior to the signature of the MoU, namely: (i) adoption of the pension system 
reform strategy by the Parliament of Republika Srpska; (iii) implementation of a new cash 
management system for public finances in the Federation; and (iii) enhanced surveillance 
of the banking system including quarterly stress tests.  

In addition, most of the reforms (6 out of 10 conditions) closely ‘mirrored’ the prior actions 
and  structural  benchmarks  included  in  the  IMF  SBAs.  In  these  cases,  the  MFA  mainly 
played  a  reinforcing  role  rather  than  the  one  that  galvanised  or  drove  the  new  set  of 
reforms.  

Notably, the MFA package did not include any reforms related to business environment in 
BiH, which is chronically weak by international standards and widely acknowledged as the 
most important priority for reform in the country.  

Overall,  it  can  be  concluded  that  MFA  conditions  were  relevant  and  addressed  important 
issues, but not the most pressing areas requiring reforms.   With the benefit of hindsight, 
MFA  could  have  promoted  more  far  reaching  reforms  in  the  area  of  private  sector 
development / improvement in the business environment rather than seek to reinforce or 
duplicate  IMF  conditionality (although admittedly, it is important to bear in mind the size 
and  form  of  the  instrument  as  a  potential  incentivising  factor  when  designing 
conditionality).  

Conditions  were  not  precisely  formulated,  which  left  room  for  interpretation  by  the 
authorities.  The  country’s  authorities  technically,  implemented  the  necessary  actions,  but 
scratching  beneath  the  surface,  there  is  clear  evidence  of  an  implementation  deficit  (gap 
between de jure  reform and  de facto reform) in 7 out of the 10  conditions. For  example, 
the  Coordination  Board  for  PIFC  has  been  set  up in  accordance  with  the  MFA  MoU,  but it 
has not met once in either 2012 or 2013.  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Notwithstanding  the  gaps  noted  in  the  implementation  of  several  MFA  conditions,  some 
benefits of these reforms are evident: 

  Availability  of  quarterly  GDP  statistics  (at  the  national  level)  necessary  for 

macroeconomic surveillance and policy making; 

  The  enhanced    surveillance  of  the  banking  system,  including  regular  quarterly 
stress tests of the banking system which has contributed to better information flow 
between agencies, Central Bank and banking institutions; 

  An  availability  of  the  more  complete  picture  of  public  debt  of  FBiH,  specifically 

covering obligations related to old foreign currency savings totals; 

  Better  quality  and  more  timely  information  for  public  administration  units 
performing  management  control  functions  as  a  result  of  the  adoption  of  the  two 
rulebooks on the new chart of public financial accounts by the Ministry of Finance of 
RS. 

The  potential  gains  from  reforms  have,  however,  not  fully  materialised  due  to  the 
implementation deficit noted in several conditions (which means that benefits could not be 
optimised)  and  considering  the  short  time  that  has  elapsed  since  the  implementation  of 
some reforms (e.g. the Law on Fiscal Responsibility). 

Moreover, while assessing the impact of the MFA reforms, it is  also important to consider 
the  unique  socio-cultural  context  of  BiH  reflected  in  its  highly  complex  institutional 
framework  and  the  nature  of  relations  between  the  State  and  the  Entities.  These 
characteristics  make  it  more  challenging  to  implement  reforms  in  BiH.  It  is  worth 
highlighting here that one of the objectives of the MFA was to tackle this issue by setting 
conditions  that  involved  policy  dialogue  and  coordination  between  the  State  and  the 
Entities.        

(iii) Design and implementation issues 

Timetable  

The  commitment  for  EU  MFA  was  made  at  the  end  of  November  2009  when  the  Council 
Decision  on  providing  the  MFA  came  into  force,  while  the  signature  of  Loan  Agreement 
took  place  in  November  2010.  Actual  disbursement  took  place  after  a  time  lag  of  26 
months.  This  was  predominantly  due  to  a  lack  of  progress  on  reforms  necessary  for  the 
disbursement  of  the  first  tranche  and  the  political  stalemate  that  followed  the  October 
2010 general elections.   

As a consequence, the  MFA arrived after the two  recessions were  over (2009 and 2012). 
Nonetheless,  BiH’s  tentative  economic  recovery  and  fragile  fiscal  situation  in  2013  still 
implied  financing  needs.  Although  as  previously  pointed,  the  deficit  financing  needs 
covered by the MFA could have been met domestically. 

Size and form of assistance 

The assistance was provided on highly concessional terms (interest rate of 2 per cent p.a. 
accompanied  by  a  long  maturity  period)  which  were  considered  favourable  by  the 
Ministries  of  Finance  of  the  State  as  well  as  the  two  Entities.  This  made  the  MFA  an 
attractive form of financing. The moderate level of indebtedness of the country at the time 
when the operation was being designed along with its level of development (classified as 
an “upper middle income” country by the World Bank) justified the choice of loan form as 
oppose to a grant or a loan/ grant combination.  

Visibility 

The study revealed that the visibility and awareness of the MFA instrument was negligible, 
even  among  stakeholders  who  closely  follow  the  economic  developments  in  the  country. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Instrument  for  Pre-Accession  Assistance  (IPA)  seems  to  be  slightly  better  recognised  in 
BiH’s context.  

(iv) EU Value Added 

From  the  perspective  of  the  national  authorities,  the  main  attractiveness  of  the  MFA  was 
the  cost  and  tenure  of  financing  provided  by  the  instrument.  The  MFA  allowed  the 
authorities to reduce  its costs of debt servicing by  an estimated  EUR 12 million9 over the 
period 2013-2015, which would have to be otherwise been borne by Republika Srpska, the 
Federation and the State. And as previously mentioned, the MFA played a discernible role 
in reinforcing the reforms promoted by the IMF.  

In addition, given BiH’s status as a potential EU candidate country, the MFA demonstrated 
the  EU’s  political  commitment  and  solidarity  towards  BiH  in  times  of  crisis.  Moreover,  it 
provided the EU ‘a place at the table’ while discussing macroeconomic policies in BiH.  

Finally,  the  MFA  fostered  dialogue  between  the  State  and  the  Entities  by  setting 
conditionality  that  required  consensus-building  and  coordination  (there  were  four  such 
conditions). Although through the evaluation exercise, it was also evident that coordination 
between the State and the Entities often phased out as soon as the specific condition was 
fulfilled.    

Lessons learned 

The  lengthy  timetable  for  disbursement  of  MFA  is  in  clear  contradiction  with  its  primary 
objective (anti-crisis support). This has been a recurring issue in previous MFA operations, 
and is applicable to this one too – although in this instance, the delay was caused by BiH 
authorities  rather  than  the  EU’s  decision  making  processes.  In  the  case  of  BiH,  the  long 
time-lag between approval and disbursement of the MFA undermined its impact and added 
value:  the  macro-economic  impact  of  the  operation  was  limited  as  it  arrived  at  a  time 
when  the  authorities  could  have  replaced  the  MFA  with  domestic  debt  issuance;  and 
reform conditions had a limited impact as some of them had already been fulfilled prior to 
the signature of the MoU. Thus, more flexibility in the design of individual MFA operations 
would be desirable going forward. Specifically, it would be beneficial if conditionality could 
be  adapted  to  evolving  circumstances  during  the  MFA  implementation  period  (e.g. 
dropping  already  fulfilled  conditions,  adjusting  conditions  that  become  infeasible  / 
controversial in view of changed macroeconomic and /or political realities). It is recognised 
that any change in this direction would require high level political decisions within the EU.  

The  quick-disbursing  nature  of  the  MFA  instrument  implies  that  conditions  will  need  to 
continue  being  specified  in  terms  of  expected  short-term  outputs.  However,  it  is 
recommended  that  expected  longer-term  outcomes  and  impacts  of  conditionality  should 
also be explicitly set out. This would strengthen domestic ownership, minimise the risk of 
implementation deficit (the difference between de jure and de facto reforms), and provide 
the basis for future ex-post evaluations and where applicable, follow-up through EU budget 
support.  

Moreover,  in  designing  conditionality,  a  balance  has  to  be  struck  between  addressing  an 
immediate  financing  need  and  the  desire  to  promote  reform,  while  also  considering  the 
size  and  form  of  the  instrument  as  a  potential  incentivising  factor  for  the  recipient 
country’s authorities to pursue reform.  

In  addition,  along  with  the  level  of  magnitude  of  the  crisis,  the  deployment  of  the  MFA 
should be analysed in the context of potential alternative sources of financing available to 
the recipient country. In the case of BiH, the most plausible scenario in the absence of the 

9 ICF estimation 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

MFA, would have been additional issuance of the public debt in domestic markets by both 
Entities. As the cost of such debt would have been very reasonable, it raises the question 
about  the  level  of  urgency  in  a  given  country  that  should  trigger  the  deployment  of  the 
MFA.  If  such  level  of  urgency  is  comparatively  low,  this  should  be  compensated  by 
negotiating a more ambitious reform package.   

Due to a highly complex socio-political structure and  existing tensions between the State 
and  the  Entities,  implementation  delays  and  ‘half  completed’  reforms  were  a  feature  of 
2009-2013  MFA  operation.  Hence,  more  active  involvement  of  the  European  Commission 
in  monitoring  the  implementation  of  reform  conditions,  ideally  associated  with  access  to 
technical assistance, could be considered as a way forward to improve the effectiveness of 
the  MFA  conditionality.  One  way  could  be  through  closer  alignment  between  the  EU 
delegation  and/  or  the  IMF  which  could  support  DG  ECFIN  in  the  monitoring  of  the 
implementation  process  (and  provide  technical  assistance,  if  necessary).  Another 
alternative  would  be  closer  involvement  of  DG  ECFIN  itself,  for  instance  in  the  form  of 
more  frequent  missions  to  the  recipient  country.  The  latter  would  however,  be  more 
resource intensive.            

Finally, it should be considered whether better communication of the MFA to both targeted 
stakeholder  groups  and  general  public  (as  an  element  of  the  broader  package  of  EU 
assistance)  is  needed.  The  visibility  of  the  instrument  among  these  groups  is  negligible 
and as such, it is unlikely to have any influence on their perceptions and attitudes towards 
the EU. 

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Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

1 

Introduction 

This is the Final Report for the ex-post evaluation of the EU’s macro-financial assistance to 
Bosnia and Herzegovina (2009  – 2013). The evaluation was launched by the Directorate-
General for  Economic and Financial Affairs (DG ECFIN) in  June 2014 and was undertaken 
by ICF Consultancy Services Ltd. with inputs from local economists and experts.  

The Final Report details the work undertaken, the evidence collected within the framework 
of  this  evaluation,  and  the  findings  and  conclusions  emerging  from  this  evidence.  It  also 
draws out some broader lessons that can be applied to the design and implementation of 
future MFA operations. 

1.1  The scope and objectives of the ex-post evaluation 

The  present  evaluation  covers  the  EU’s  Macro-Financial  Assistance  (MFA)  to  Bosnia  and 
Herzegovina (BiH) over the period of 2009-201310. The MFA to BiH, consisting of a loan of             
EUR  100  million,  was  approved  by  the  Council  Decision  in  November  2009  and  was 
released in two tranches as follows:  

  The first tranche of EUR 50 million was disbursed in February 2013;  

  The second and final tranche of EUR 50 million was disbursed in September 2013. 

The overall objective of this evaluation is to provide an independent assessment of the 
above operation, focusing in particular on the following areas of analysis: 

  The macroeconomic impact of the MFA operation on the economy of the recipient 

country (e.g. GDP growth, Balance of Payments, fiscal balances). 

  The impact of the structural reforms supported through the MFA operation. 

  Design and implementation of the operation encompassing issues such adequacy of 

financing, timing of disbursements, selection of conditionality. 

  Value added of EU intervention (stand-alone and/or in combination with IMF 

intervention). 

In support of the above objectives, the Terms of Reference (ToR) listed a series of specific 
evaluation  questions  for  this  Study  to  address.  Table  1.1  summarises  the  method  of 
approach  that  was  adopted  to  answer  each  of  these  evaluation  questions.  The  detailed 
methodological framework for the evaluation can be found in Annex 1. 

Table 1. 

Summary of the methodological framework for the evaluation 

Core Issue 

Evaluation Question  Approach to answering the 

Methods used 

Macro-
economic 
impact of the 
MFA operation 

Q1. How would the 
economy of Bosnia and 
Herzegovina have evolved 
in the absence of MFA (and 
IMF) assistance 

 

Evaluation Question 

Identification of all potential 
counterfactual scenarios 

  Assessment of the likelihood of 

occurrence of each counterfactual 
scenario  

  Assessment of Bosnia and 

Herzegovina’s expected economic 
adjustment path under the most 
likely/ plausible counterfactual 
scenario(s) 

  Documentary 

review 
  Analysis of 

macroeconomic 
statistics 

  Literature review 
 

Interviews with key 
informants 
  Delphi panel 

Q2. To what extent has the 
MFA assistance been 
effective in terms of the 

  Description of actual macroeconomic 

outcomes (as observed in 
macroeconomic data) 

  Documentary 

review 
  Analysis of 

10 Council Decision 2009/891/EC of 30 November 2009 providing macro-financial assistance to Bosnia and 
Herzegovina, OJ L 320, 5.12.2009, p. 6. [online] Available at: http://eur-lex.europa.eu/legal-
content/EN/TXT/PDF/?uri=CELEX:32009D0891&from=EN  

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Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Core Issue 

Evaluation Question  Approach to answering the 

Methods used 

macroeconomic 
statistics 

  Literature review 
 

Interviews with key 
informants 
  Delphi panel 

  Documentary 

review 
  Analysis of 

macroeconomic 
statistics 

  Literature review 
 

Interviews with key 
informants 
  Delphi panel 

  Documentary 

 

review 
Interviews with key 
informants 
  Focus group 
discussions 

  Documentary 

 

review 
Interviews with key 
informants 
  Focus group 
discussions 

  Documentary 

 

review 
Interviews with key 
informants 
  Focus group 
discussions 

short-term macroeconomic 
stabilisation of Bosnia and 
Herzegovina? 

Evaluation Question 
  Assessment of the net impact of the 

MFA (the difference between 
observed outcomes and 
counterfactual outcomes) 

Impact on 
external 
sustainability 

Q3. To what extent has the 
MFA contributed to 
returning the external 
financial situation of Bosnia 
and Herzegovina to a 
sustainable path over the 
medium to longer-term? 

Impact on 
structural 
reforms 

Q4. To what extent has the 
MFA assistance been 
effective in terms of 
supporting structural reform 
in Bosnia and Herzegovina? 

Q5. What have been the 
indirect and/ or unexpected 
effects of the MFA 
assistance? 

Design and 
implementation 

Q6. How has the way in 
which the MFA operation 
was designed and 
implemented conditioned its 
effectiveness and 
efficiency? 

  Analysis of trends in key external 

indicators: before and after the MFA 

  Qualitative assessment of the net 

impact of the MFA 

  Assessment of the relevance, 

fulfilment, durability, additionality and 
impact of MFA reforms 

  Assessment of any implementation 
deficit (i.e. the gap between de jure 
implementation and de facto 
implementation) 

  Elaboration of the ex-ante 

intervention logic of all structural 
reform measures 

  Ex-post validation of the intervention 

logics 

  Comparison between the ex-ante 
intervention logic and ex-post 
outcomes to identify actual indirect 
and/ or unintended effects 
Identification of unexpected 
macroeconomic outcomes  

 

Assessment of design features: 
  Whether the size of the assistance 

was appropriate in relation to Bosnia 
and Herzegovina’s financing needs 

  Whether the form in which 

assistance was provided was 
appropriate (loan versus grant) 
  Whether scope of reforms promoted 
were appropriate considering the 
size and form of the MFA operation 
and reform priorities  

  Whether the design of the MFA 

operation was flexible i.e. it adjusted 
to changes in context and/or 
feedback mechanisms 
Implementation issues e.g. 
  Timeliness of MFA disbursements  
  Dialogue between the European 
Commission, the IMF and Bosnia 
and Herzegovina authorities 
  Monitoring of the MFA operation 

Added value 

Q7. To what extent has EU 
added value been 
maximised? 

Assessment of the financial and non-
financial added value of the MFA 
operation e.g.  

  Confidence boosting effects; 

  Documentary 

 

review 
Interviews with key 
informants 

2 

  
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Core Issue 

Evaluation Question  Approach to answering the 

Methods used 

Evaluation Question 

  Complementarities with other types 

of assistance; 

  Role in accelerating/ reinforcing 

reforms in specific areas; 

  Allowing for a smoother economic 

adjustment path etc. 

  Focus group 
discussions 

1.2  Structuring of the evaluation 

The overall study design is illustrated in Figure 1. In line with the ToR, the evaluation was 
structured in four distinct and sequential phases, each of which comprised a series of tasks 
and deliverables.  

Figure 1.  Structuring of the evaluative tasks 

  Task 1.1: Kick-off 

  Task 2.1: 

Meeting 

  Task 1.2: 

Preliminary Desk 
Research 

  Task 1.3: First 
Interviews 

  Task 1.4: Fine-
tuning the 
Evaluation 
Methodology 

D.1: Inception 
Report 

M.1: Inception 
Meeting 

Document  and 
Data Review 

  Task 2.2: 

Interviews - EU 
Delegation in BiH 

  Task 2.3: 

Interviews - BiH 
Authorities  

  Task 2.4: 

Interviews - IMF / 
WB (Washington) 

  Task 2.5: 

Interviews – Other 
key Development 
Partners 

  Task 2.6: 

Preliminary 
Counterfactual 
Assessment  

D.2: Interim Report 

M.2: Interim Meeting 

Task 4.1: Stakeholder 
Workshop in 
BiH(optional) 

Task 4.2: Validation 
Workshop with the 
Steering Group 

Task 4.3: Report 
Finalisation 

Task 4.4: 
Dissemination 
Presentation 

D.4: Final Report 

  Task 3.1: Follow-
up Interviews 

  Task 3.2: Focus 

Group 
Discussion(s) with 
Private and Non-
Governmental 
Stakeholders 

  Task 3.3: 

Finalisation of 
Counterfactual 
Assessment 

  Task 3.4: 

Synthesis, 
Analyses and 
Judgement 

D.3: Draft Final 
Report 

M.3: Final Meeting 

Jun – Jul 2014 

Aug – Oct 2014 

Oct – Dec 2014 

Jan 2015 

1.3  Caveats and limitations 

A  variety  of  methods  were  used  to  build  a  rich  evidence  base  for  the  evaluation  and  to 
provide the basis for triangulation of results. Table 2 critically assesses the methods used 
and the validity of the data collected as part of this evaluation.   

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Directorate-General for Economic and Financial Affairs 
 Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Table 2.  Strengths and limitations of the  methods used in the ex-post evaluation of MFA to BiH 

Method 

Scope 

Caveats and limitations 

Desk research 

European Commission files relating to the MFA operation, notably: 

There were gaps in the official documentation available with DG ECFIN e.g. 

  Council Decision 2009/891/EC;  

  Letter from BiH authorities requesting for MFA in 2009; 

  Ex-ante assessment; 

  Operational Assessment; 

  Preparatory documents submitted to the Economic and Financial 

Committee; 

  Compliance statements and supporting documentation submitted by 

BiH authorities. 

Documentation published by the BiH authorities such as economic strategies, 
reform programmes, action plans and progress reports, annual reviews; 

IMF documents namely, the Letters of Intent submitted by BiH authorities to 
the IMF and IMF Country Reports; 

World Bank documents such as Country Partnership Strategies, program 
documents relating to the Bank’s Development Policy Operations in BiH, 
documents relating to projects supporting relevant reforms; 

Academic and grey literature on political and economic developments in BiH 
and its progress with the implementation of structural reforms; 

Macroeconomic data and statistics compiled from various sources: 

  Gross Domestic Product (GDP) and its components; 

  Balance of Payments (BoP) statistics; 

  Public finances; 

  Monetary statistics. 

See Annex 2 for a complete list of references. 

  Letter from BiH authorities requesting extension of the validity period 

of MFA; 

  Mission reports. 

Non-availability of the above documents does not however, affect the quality 
of the evaluation – although a useful source of background and contextual 
information, these documents were of a non-critical nature for the evaluation. 

Poor quality and limited availability of macroeconomic statistics: Statistical 
functions are spread across different levels of government in BiH. There are 
two statistical institutes at the level of the Entities-the Federal Institute of 
Statistics of the FBiH (FIS) and RS Institute of Statistics (RSIS). In 1998, the 
State created its own statistical institute, the Bosnia & Herzegovina Agency 
for Statistics (BHAS), with a view to compiling country-wide statistics in 
accordance with internationally-accepted methodologies, consolidating data 
produced by the Entities’ Statistical Institutes. In addition to the three 
statistical institutions, the Central Bank of BiH (CBBH) compiles monetary 
and balance of payments and financial statistics for BiH. 

There are issues with accuracy, reliability, coverage and timeliness of 
statistics. For instance, the IMF notes that there are: (i) significant 
discrepancies between the production and expenditure measures of GDP; (ii) 
poor BoP data coverage in areas of foreign grants, workers’ remittances, 
income received by residents working for international organizations in the 
country, spending by their non-resident staff, informal trade, and changes in 
foreign currency cash holdings; (iii) issues with the quality of public debt 
figures which does not include unrecognised liabilities. 

Quarterly national accounts are only available from 2006 onwards, are 
produced with a considerable time lag and subject to frequent and sizeable 
revisions. 

Given the poor quality of statistics and limited availability of time series data, 
a model based (quantitative) approach to counterfactual analysis could not be 
adopted in the case of this evaluation. 

Interviews with key  Semi-structured interviews with: 

Interviews covered key informants who were closely involved in the 

4 

 
 
Method 

Scope 

Caveats and limitations 

Directorate-General for Economic and Financial Affairs 
 Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

negotiation and/or implementation of the IMF/MFA assistance. The official 
responses were measured and cautious. 

Although a substantial effort was made to ensure highest relevance and 
validity of responses, Delphi surveys in general exhibit certain weaknesses. 
In the context of the MFA, the major risks related to an insufficient familiarity 
of participants with the aspects of the MFA operation and the tendency to 
stick to their own strong views based on their interpretation of historical 
developments. Therefore, the findings from this exercise should be 
considered with certain degree of caution. 

informants 

Delphi Panel 

  Relevant State authorities 

  Relevant authorities at Entity level 

  European Commission officials 

 

IMF/ World Bank officials 

See Annex 3 for a list of interviewees. 

Due to methodological issues with using standard techniques such as 
macroeconomic modelling (e.g. shortcomings with statistical data described 
above), the Delphi survey technique was used to develop counterfactual 
scenarios. The Delphi survey is a technique used to gather views and 
generate consensus among a group of expert (the Delphi panel). It is 
organised as a structured process for soliciting and synthesising knowledge 
from the panel in an iterative process. The iteration consists of a series of 
questionnaires distributed to experts accompanied by controlled opinion 
feedback from the previous round.  

A panel of 60 experts (based on their knowledge of country context and 
macroeconomic situation) was set-up in the context of this evaluation to 
gather their views on the most probable counterfactual scenario(s). The 
structure of the questionnaire was largely driven by the insights gathered 
during key informant interviews. Pilot test of the research instrument was also 
conducted before launching the survey. 

Thirty-seven respondents provided their feedback (a 62 per cent response 
rate). Survey respondents comprised both public and private institutions, 
including representatives from Ministries of Finance in each Entity and at the 
State level, CBBH, Indirect Tax Authorities, International Donors (IMF, the 
WB, EBRD, DG ECFIN), EU Delegation, academia, national think-tanks, as 
well as limited number of individuals from other type of organisations such as 
local chamber of commerce, banking association and selected group of 
independent fiscal consultants.  

The first round of survey results yielded a high level of consensus among the 
participants in terms of most likely alternative for the MFA. Therefore a 
second iteration was not deemed necessary. 

Annex 4 provides a summary of the results of the Delphi survey. 

Focus Group 
Discussions 

Two focus group discussions were organised (one in Sarajevo and another in 
Banja Luka) to collect the views and opinions of a wider group of 

The scope of the focus group discussions was limited by definition. The 
discussions focussed on issues such as visibility of EU support, its role in 

5 

 
 
 
Directorate-General for Economic and Financial Affairs 
 Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Method 

Scope 

Caveats and limitations 

stakeholders i.e. those ‘outside’ the government and not directly involved in 
the operation. 

promoting reforms and the overall assessment BiH’s progress with reforms 
since the implementation of the MFA. 

The group dynamic was particularly useful in triggering an informative and 
thought provoking discussion on the reform process and its outcomes. 

In Banja Luka, the views of the participants were not entirely objective and to 
a certain degree politically motivated. 

Focus group discussions also provided an indication of the visibility of the 
MFA among wider stakeholder groups and their perceptions of the role of 
MFA in promoting reforms. 

Finally, the focus group discussions were particularly useful in determining if 
the MFA had any confidence boosting effects and / or impact on EU-BiH 
relations, public opinion of the EU. 

6 

 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

1.4  This Report 

The remainder of the document is structured as follows: 

  Section 2: The context and content of the MFA operation; 
  Section 3: Macroeconomic impact of the MFA operation; 
  Section 4: Impact on structural reforms; 
  Section 5: Design and Implementation Issues; 
  Section 6: EU added value; 
  Section 7: Conclusions and lessons learned. 

Annexes: 

  Annex 1: Overall methodological framework for the evaluation; 
  Annex 2: List of references; 
  Annex 3: List of interviews conducted; 
  Annex 4: Results of the Delphi survey; 
  Annex 5: Summary of the focus group discussions; 
  Annex 6: Evolution of BiH’s credit rating; 
  Annex 7: Overview of past MFA operations in BiH. 

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Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

2 

The context and content of the MFA operation 

This  section  provides  an  overview  of  the  economic  situation  in  BiH  in  the  run-up  to  the 
2009  economic  crisis.  Specifically,  the  causes  and  consequences  of  the  crisis  are 
examined.  This  is  followed  by  a  description  of  the  main  features  of  the  assistance 
provided by the IMF, the World Bank and the EU to restore macroeconomic stability and 
to facilitate BiH’s recovery from the crisis.  

2.1  The background to the crisis  

Box 1 Headline overview of BiH’s pre-crisis economic context  

 

Following the heavy losses and destruction during the war period, the country experienced 
strong economic growth - in excess of 10 per cent per annum -  during the second half of 
the 90s (1996-1999), albeit from a low base11. This impressive economic growth was 
driven by post-war reconstruction activity financed by large aid inflows.  Once these funds 
gradually diminished, growth moderated (when compared to the previous decade), but still 
remained relatively robust during the 2000s (averaging 4.8 per cent per year during 2001-
2008).  

 

The following factors played an important role in fuelling the economic expansion during 
this period: 

 

Large remittances inflows in the range of 15-18 per cent of GDP between 2000 and 200812. 

  Steady inflows of foreign direct investment (FDI) averaging around 6 per cent of the GDP 
during 2001-200813. Key sectors benefiting from FDI inflows were aluminium, steel, 
automotive and financial services. FDI inflows peaked at around 12 per cent of GDP in 
2007 on the back of one large privatisation transaction when Telekom Srpske (a 
telecommunication company in the RS) was acquired by Telekom Srbija. 

  Rapid credit expansion stimulating private demand. Credit to non-financial enterprises and 
households grew at an annual average rate of 29 per cent and 44 per cent respectively, 
during 2001-200814. 

 

Expansionary fiscal policies, particularly during 2007-2008 when revenue windfall from the 
successful introduction of VAT in 2006 was used to increase current spending, in particular 
social transfers. 

  Despite the continuous expansion of the economy over this period, there were significant 

underlying structural weaknesses. These included, high levels of unemployment, politically 
motivated public spending and a weak business environment. 

 

In the run-up to the crisis BiH’s economy exhibited typical signs of overheating. With 
capital inflows driving a domestic demand boom, credit expanded sharply, core inflation 
accelerated, and the current account deficit widened. Looser fiscal and incomes policies in 
2008 further exacerbated these imbalances, limiting the space for manoeuvre when the 
crisis hit.  

The  sub-sections  below  look  at  recent  macroeconomic  developments  in  BiH  in  further 
detail,  examining  in  particular  the  build-up  of  vulnerabilities  and  macroeconomic 
imbalances during the pre-crisis period and the immediate consequences of the crisis. 

11 According to some estimates, the GDP of BiH amounted to around 1/5 of its pre-war value in the first year after 
the conflict 
12 IMF. (2010). Selected Issues: Cyclical Adjustment and Fiscal Policy Design. [online] Available at: 
http://www.imf.org/external/pubs/ft/scr/2010/cr10347.pdf  
13 Based on macroeconomic statistics compiled in the European Commission’s 2009 Progress Report on BiH. 
[online] Available at: http://ec.europa.eu/enlargement/pdf/key_documents/2009/ba_rapport_2009_en.pdf  
14 Central Bank of Bosnia and Herzegovina, Structure of Loans by Sector in Commercial Banks of BiH. Available 
on the Bank’s website: 
http://cbbh.ba/index.php?id=33&lang=en&sub=mon&table=sektorska_struktura_kreditaa_komercijalnih_banaka_b
ih  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

2.1.1  Real GDP growth 

In the seven-year period preceding the 2009 crisis (i.e. between 2001 and 2008), output 
grew  on  average  by  4.8  per  cent  per  year  in  real  terms.  Economic  growth  was 
particularly strong and stable during the last three years of this period, averaging at 5.8 
per cent per year (Figure 2). 

Figure 2.  Real GDP growth in BiH, 2001-2009 (per cent) 

Source: Agency for Statistics of B&H - National Accounts Statistics 

Figure 3. 
2009 (index; EU28 =100)  

GDP per capita in PPS – BiH compared to regional peers, 2001-

Source: Eurostat; Code: tec00114 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

The GDP per capita more than doubled in nominal terms  between 2001 and 2008, from 
USD  1,528  to  USD  4,89115.  However,  this  still  implied  slower  pace  of  convergence  with 
EU  average  GDP  per  capita  in  purchasing  power  standards  (PPS)  compared  to  BiH’s 
regional  peers  (Figure  3).  BiH  remained  among  the  poorest  European  countries  by  this 
measure, only surpassing Albania in the Western Balkans. 

2.1.2  GDP and its components 

During the pre-crisis period from 2004 to 200816, economic growth was mostly fuelled by 
increasing  household  consumption,  a  common  characteristic  of  all  economies  in  the 
Western  Balkans.    Household  consumption  on  average  accounted  for  85.5  per  cent  of 
GDP during this period while imports stood at 58.7 per cent of GDP (on average) during 
the same period. The share of exports and government consumption remained relatively 
stable during this period (averaging at 21 per cent and 27 per cent of GDP, respectively). 
Gross Capital Formation also remained stable at 23 per cent of GDP during 2004 to 2008, 
while the 2009 recession strongly hit gross private and public investment, resulting in a 
drop in its total share to 19 per cent of GDP.     

Figure 4.  Developments of GDP structure by expenditure approach (2004-2009) 

Source: Agency for Statistics of B&H – National Accounts Statistics. Notes: The above 
figure does include Final consumption expenditure of NPISH which represents ~1% of 
GDP. Gross Capital Formation = Gross Fixed Capital Formation + change in inventories + 
valuables  

Looking  at  the  share  of  specific  sectors  in  national  GDP,  they  have  remained  mostly 
unchanged  during  the  period  2001-2009.  Approximately  50  per  cent  of  GDP  was 
produced  by  five  sectors:  Wholesale  and  Retail,  Manufacturing,  Public  administration, 

15 The Agency for Statistics of B&H – National Account Statistics; Available at: 
http://www.bhas.ba/index.php?option=com_publikacija&view=publikacija_pregled&ids=2&id=11&n=Nacionalni%2
0računi&Itemid=&lang=enI  
16 Data are only available for the years 2004-2013 for the expenditure side of GDP from national sources 

10 

  
 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Real  Estate  and  Agriculture,  Forestry  and  Fishing  (Figure  5).  The  only  sector  which 
substantially increased its share in GDP between 2001 and 2009 was the Wholesale and 
Retail trade sector, which became the most important in terms of share of GDP in the run 
up to the crisis. This was due to the dynamics of private consumption and imports. 

Figure 5.  Developments of GDP structure by production approach (2001-2009)  

Source: Agency for Statistics of B&H – National Accounts Statistics  

2.1.3  Public finances 

Fiscal policies remained fairly prudent during the period 2005 to 2007, when BiH reported 
an  overall  budget  surplus  of  2.1  per  cent  of  GDP  on  average17.  The  introduction  of  VAT 
(2006)18, income tax reforms19 and large privatisations in RS (2007) strengthened public 
finances  during  this  period.  However,  expansionary  fiscal  policies  in  2007  and  2008 
(increases  in  public  sector  wages  and  social  benefit)  alongside  declining  revenues 
resulted in a sharp deterioration in public finances in 2008 – see Figure 6. In addition to 
rising  expenditure,  the  global  economic  crisis  strongly  hit  Bosnian  economy  and 
substantially  pressured  tax  collection  and  overall  budget  revenues.  These  developments 
resulted in a further widening of the budget deficit to 4.4 per cent of the GDP in 2009 - 
prompting BiH authorities to seek international financial assistance.   

17 Based on GFS methodology published by the CBBH 
18 In 2006, one of the major fiscal reforms was successfully implemented i.e. the introduction of VAT (indirect 
taxes are collected at the State level) with a single rate of 17 per cent  resulting in the increase of tax revenues to 
the tune of 2 per cent of GDP 
19 After the indirect tax reform, the two Entities undertook substantial reform of their Personal Income Tax (PIT) 
and Corporate Income Tax (CIT) during 2006-2009 

11 

  
 
 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Figure 6.  General government revenues and expenditures, 2005-2009 (per cent 

of GDP) 

Source: CBBH. NB: Expenditures also include net acquisition of fixed assets. 

At  all  levels  (consolidated  BiH,  FBiH  and  RS)  current  expenditure  represents  the  vast 
majority of budget expenditure; capital expenditure represented only 4 per cent (in case 
of  consolidated  BiH  and  FBiH)  and  9  per  cent  (consolidated  RS)  of  budgets  on  average 
during 2003 to 2009. Current expenditures mostly comprise three expenditure categories 
(social transfers, wages  and the use  of goods  and services) which  collectively represent 
88 per cent of all current expenditures on average (Figure 7).  

Figure 7.  Structure of consolidated general government’s current expenditures, 

2005-2009 

(i) As a share of GDP 

(ii) As a share of total revenue 

Source: CBBH – GFS Statistics. Other includes grants 

12 

  
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Overall,  in  the  period  prior  to  the  crisis,  public  expenditure  grew  faster  than  GDP,  with 
spending  on  social  transfers  and  public  sector  wages  leading  the  way.  During  the  pre-
crisis  period,  there  was  a  continuous  upward  pressure  on  social  transfers  which  rose  to 
37  per  cent  of  total  current  expenditures  in  2009.  During  the  pre-election  campaign  in 
2006,  several  laws  were  adopted  introducing  new  and  unusually  generous  entitlements 
(rights-based  benefits).  Consequently,  non-insurance  transfers  in  the  FBiH  increased 
from 4.8 per cent of FBiH’s GDP in 2006 to 7.5 per  cent in 2008, while those in the RS 
remained  in  the  range  of  3-3.5  per  cent  of  RS  GDP.  The  developments  in  the  FBiH 
rendered  the  fiscal  situation  unsustainable  and  FBiH  budgetary  arrears  mounted  to  1.4 
per cent of BiH GDP by end-200820. 

Moreover,  public  administration  employment  was  very  high  in  both  Entities  with  the 
share of public administration employment surpassing 11 per cent of total employment, a 
level not seen among any of the EU Member States21. As of 2007, public administration 
wages were 30 per cent higher than the average wage for the whole  BiH economy. One 
significant difference between the two Entities was that proceeds from privatisation in RS 
constituted a substantial source of financing, while privatisation in FBiH advanced little.  

On the revenue side of the budget, the government relied heavily on indirect taxes (VAT, 
Customs  Tariffs,  Excise  Duties).  Following  a  reform  of  the  indirect  taxation  system  and 
successful  introduction  of  VAT  in  2006,  the  share  of  indirect  taxes  in  total  government 
revenues  rose  to  50  per  cent.  The  economic  crisis  however,  resulted  in  a  significant 
decline  in  indirect  tax  collection  during  2008  and  2009.  The  share  of  indirect  taxes  fell 
from  22  per  cent  of  the  GDP  in  2007  to  19  per  cent  of  the  GDP  in  2009.  Social 
contributions - the second largest revenue category  - remained stable at 14 per cent of 
the GDP (on average) during the same period.   

Figure 8.  Consolidated general government’s revenue structure, 2005-2009 

(i) As a share of GDP 

(ii) As a share of total revenue 

Source: CBBH – GFS Statistics 

20 World Bank (2010) Program Document for a Proposed First Programmatic Public Expenditure Development 
Policy Loan/Credit to Bosnia And Herzegovina 
21 IMF. (2008). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm?pn=4 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

BiH’s  public  debt-to-GDP  ratio  and  external  debt-to-GDP  ratio  steadily  declined  during 
2001 to 2006, reflecting the country’s strong  economic performance and public finances 
during  this  period  (Figure  9).  Although  external  public  debt  of  BiH  continued  its 
downward  trajectory  during  2007-2008,  domestic  public  debt  grew  as  the  two  Entities 
implemented  legislation  on  the  settlement  of  liabilities  from  frozen  foreign  currency 
deposits  and  from  war  damages.  Despite  the  jump  in  2007,  public  debt  stood  at  a 
comfortable level of 30.8 per cent of the GDP in 2008. 

Figure 9.  Public debt 2001-2009 (per cent of GDP) 

Source: IMF Country Reports No. 05/199 (2001), 06/371 (2002-2004), No. 05/199 (2000-2001),  09/226 
(2005-2007), 10/348 (2008-2009). Notes: According to the IMF, public debt figures should be treated with 
caution as there are uncertainties about the size of the government’s contingent liabilities 

2.1.4  Monetary policy 

The Central Bank of BiH (CBBH) was established in August 1997 and the single currency 
(konvertibilna  marka  -  BAM)  was  introduced  in  June  1998.  BiH’s  monetary  policy  has 
been  anchored  by  the  currency  board  arrangement,  with  the  currency  pegged  to  the 
euro.  The only monetary policy instrument available to the Bank is the required reserves 
ratio. In accordance with the Law on the Central Bank of BiH, the Bank is not allowed to 
pursue  the  lender  of  last  resort  function,  and  it  is  prevented  from  conducting  open 
market  operations.  Therefore,  the  Bank  is  completely  insulated  from  the  possibility  of 
influencing  interest  rates  and  the  money  supply.  This  also  implied  that  inflationary 
developments  were  largely  reflecting  global  price  movements  of  important  commodities 
and  domestic  policies  affecting  wages  and  social  benefits.  Inflation  remained  subdued 
until  2004,  but  then  two  sharp  increases  took  place  (Figure  10).  The  first  one  in  2006 
could  be  partly  explained  by  the  introduction  of  the  VAT  that  year;  while  the  spike  in 
2008 reflected a sharp rise in global food and energy prices. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Figure 10.  Average annual inflation, 2000-2009 (per cent) 

Source: CBBH. Main Economic Indicators.  

2.1.5  External sector 

High levels of domestic demand, fuelled by a boom in bank lending and steady inflows of 
remittances  from  abroad  resulted in  persistently  high  external imbalances  in  the  run  up 
to  the  crisis  –  Table  3.  BiH’s  strong  demand  for  imports  -  driven  by  wage  growth  and 
domestic  credit  expansion  –  contributed  to  a  growing  trade  deficit  during  the  pre-crisis 
period.  The  mounting  trade  deficit  was  partially  offset  by  increasing  inflows  of 
remittances  from  abroad  (which  mitigated  around  50  per  cent  of  the  trade  deficit  on 
average).  However,  given  the  typical  transitional  macroeconomic  framework  of  BiH 
(where remittances represents a major source of purchasing power of domestic citizens), 
an  increase  in  remittances  fuelled  demand  for  imports.  Consequently,  the  current 
account deficit remained high – averaging at 14 per cent per year – during the pre-crisis 
years (the highest among CE and SEE countries).  

Table 3.  Key external indicators, EUR billion unless stated otherwise 

Categories 

C/A deficit  

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

0.8 

1.3 

1.4 

1.3 

1.5 

C/A deficit [in % of GDP] 

12.9 

17.5 

19.1 

16.1 

17.0 

Trade deficit - BoP data 

3.3 

3.5 

3.7 

3.7 

4.0 

0.8 

7.9 

3.4 

1.0 

9.0 

4.6 

1.8 

14.1 

5.5 

0.8 

6.5 

4.0 

Trade deficit [in % of GDP]  

51.0 

49.3 

48.8 

45.0 

45.0 

34.2 

40.6 

42.7 

32.0 

Export of goods (BoP data) 

Import of goods (BoP data) 

Capital account 

Remittances 

Remittances [in % of GDP] 

Official FX reserves  

1.3 

4.6 

0.45 

1.63 

0.25 

1.4 

1.2 

4.7 

0.43 

1.50 

0.21 

1.3 

1.3 

5.0 

0.41 

1.46 

0.19 

1.4 

1.7 

5.4 

0.24 

1.60 

0.20 

1.8 

2.1 

6.0 

0.23 

1.64 

0.19 

2.2 

2.7 

6.1 

0.23 

1.78 

0.18 

2.8 

1.4 

6.0 

0.21 

1.99 

0.18 

3.4 

1.7 

7.2 

0.20 

1.96 

0.15 

3.2 

1.6 

5.6 

0.18 

1.71 

0.14 

3.2 

Official FX reserves [in % of GDP] 

21.1 

17.8 

19.0 

21.7 

24.5 

28.0 

30.4 

25.2 

25.6 

Source: CBBH. Main Economic Indicators. Note: Current account data differ between sources (e.g. because of 
divergence between two GDP series – expenditure- and production-based), but broad picture remains identical 
to the one presented above.  

15 

  
 
 
 
 
 
 
 
 
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Despite the enormous current account deficit, the pre-crisis period was also characterised 
by  the  notable  investment  in  all  areas  (FDI,  portfolio  and  other  investment),  due  to 
privatization  and  booming  turnover  on  stock  exchanges.  Net  FDI  reached  its  peak  in 
2007  (BAM  2.6  billion)  –  Table  4.  Given  the  positive  developments  in  the  capital  and 
financial account, the overall balance of payment was positive in the pre-crisis period (as 
reflected  in  an  increase  in  the  reserves  assets).  However,  the  overall  balance  of 
payments  picture  in  that  period  clearly  shows  BiH’s  vulnerability  to  external  factors 
(remittances, import, FDIs etc).   

Table 4. 

Select Balance of Payment indicators, 2007 – 2009, million BAM 

2007 

2008 

2009 

Exports of goods & services 

5,827 

6,559 

6,009 

Imports of goods & services 

12,444 

14,842 

11,895 

Trade balance 

-6,618 

-8,283 

-5,886 

Current account balance  

-2,047 

-3,513 

-1,590 

Net FDI 

2,560 

1,315 

344 

Net Portfolio investment 

4 

29 

274 

Source: CBBH. Balance of Payments 

2.1.6  Financial sector 

The  financial  sector  in  BiH  experienced  profound  changes  in  early  2000s.  Banks’ 
privatisation  and  regulatory  reforms  coupled  with  improved  growth  prospects  attracted 
huge  capital  inflows22.  Banks  from  Austria  were  particularly  vigorous  in  entering  the 
market and their market share rose from zero to around 40 per cent between 2000 and 
201023.   

Private sector credit grew at an average rate of 35 per cent annually during 2001-2008, 
driven  by  increases  in  credit  to  households  –  Figure  11.  The  rapid  credit  growth  was 
stimulated  by  the  availability  of  the  long-term  borrowing  provided  by  foreign-owned 
parent banks24.  

22 IMF. (2009). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm?pn=4  
23 Causevic, F. (2012). Economic perspectives on Bosnia and Herzegovina in the period of global crisis. Oxford 
University. Available at: http://www.sant.ox.ac.uk/seesox/opinionpieces/Causevic-Economicperspectives.pdf.  
24 IMF. (2008). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm?pn=4  

16 

  
 
  
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Figure 11.  Growth in lending to households and enterprises, 2001-2009 (yoy, 

per cent) 

Source: CBBH. Structure of Loans by Sector in Commercial Banks of BiH 

2.1.7  Labour market situation 

The  labour  market  situation  has  remained  difficult,  becoming  one  of  the  most  pressing 
social  issues  in  BiH.  Labour  market  participation  was  among  the  lowest  in  Europe  – 
around 44 per cent between 2006 and 2008, compared to approximately 60 per cent in 
the region and the EU average of more than 70 per cent25. This was particularly driven by 
exceptionally  low  female  labour  force  participation  (due  to  cultural  factors).  Moreover, 
despite some improvement the BiH unemployment rate (in the range of 23 to 31 per cent 
up until the crisis – Figure 12), remained among the highest in the region. 

Figure 12.  Selected labour market indicators in BiH, 2006- 2010 (per cent)  

Source: Agency for Statistics of B&H, based on the series of Labour Force surveys. Note data not available for 
2001-2005 from this source 

25 Labour Force Survey data; Eurostat, [lfsi_act_a]. See also  EBRD. (2014), Strategy for Bosnia and 
Herzegovina. Available at: http://www.ebrd.com/downloads/country/strategy/bosnia2014.pdf 

17 

  
 
 
 
 
 
 
 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

2.1.8  Pre-crisis vulnerabilities 

As described above, BiH was not particularly well positioned to weather the impact of the 
global  financial  and  economic  crisis.  The  key  underlying  vulnerabilities  and  structural 
weaknesses are summarised below: 

Weak public finances: Although the public debt was still relatively low (31 per cent of 
GDP in 2008), it was on a clear upward trend. Expansionary, pro-cyclical fiscal policies of 
2007-2008  left  little  fiscal  space  for  cushioning  the  adverse  shock  of  the  global  crisis 
when  it  hit  BiH.  The  structure  of  expenditures  was  not  favourable  for  growth  prospects 
with large public sector wage bill and substantial social transfers.  

Large public sector: Public sector spending stood at 46 per cent of GDP in 2008, while 
employment  in  the  public  sector  exceeded  11  per  cent  of  the  total  employment  in  the 
economy. As a result, the already large discrepancy between average wages in the public 
sector and the private sector increased sharply in 2007 and 2008, just before the onset 
of the crisis. This exerted pressure on wage-setting in the private sector and (in addition 
to the fixed exchange rate) further limited the scope for a flexible response to the crises 
in terms of adjusting the external prices. 

Unsustainable  external  imbalances:  Current  account  deficit  had  remained  at  very 
high  level  since  early  2000s,  reaching  around  14  per  cent  of  GDP  in  2008.  This  was 
driven  by  private  credit  expansion, 
loose  fiscal  and  income  policies  and  low 
competitiveness – trade deficit reached BAM 8.2 billion (EUR 4.1 billion or close to 44 per 
cent of GDP in 2008).  

Complex socio-political situation: There are deep factional divisions along ethnic lines 
in  BiH.  In  addition  to  this,  BiH  has  a  highly  complex  political  and  institutional  structure 
where  lack  of  consensus  can  relatively  easily lead  to  political  and institutional  paralysis. 
Both of these factors remained underlying risk factors.  

Difficult  environment for private  sector  development: As  of 2008, the World Bank 
ranked  BiH  105th  out  of  178  countries  on  “ease  of  doing  business”.  Among  several 
indicators  taken  into  account,  starting  the  business  in  BiH  was  assessed  as  particularly 
challenging26.  

Difficult  situation  in  the  labour  market:  Economic  activity  rates  in  2008  were  very 
low (44 per cent), particularly among women (32 per cent). Unemployment rates for the 
same period, despite some improvement in previous years,  stood at  23  per cent. Youth 
unemployment  was  particularly  high  (48  per  cent  as  of  2008)27.  The  difficult  labour 
market situation was stimulating the growth of already large informal economy28. 

High dependence of national financial sector on foreign capital: Although BiH was 
quite  well  capitalised  during  the  pre-crisis  period,  banks  operating  in  the  country  were 
dependent  on  foreign  parent  banks  to  a  considerable  extent.  Reduction  of  exposure  to 
BiH by foreign banks in the event of the crisis could potentially lead to liquidity and in the 
extreme case, solvency problems for some banks operating in the country. 

26 The World Bank. (2008). Doing Business 2008. Available at: 
http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB08-
FullReport.pdf   
27 The World Bank. (2014). Unemployment, youth total. Available at: 
http://data.worldbank.org/indicator/SL.UEM.1524.ZS?page=1  
28 ILO. (2011). Employment diagnosis analysis: Bosnia and Herzegovina. Available at: 
http://www.ilo.org/wcmsp5/groups/public/@ed_emp/documents/publication/wcms_158485.pdf  

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Bosnia and Herzegovina 

High reliance of remittances: With money transfers from relatives reaching EUR 1.3 
billion in 200829, severe worsening of economic environment abroad could have had a 
significant impact on domestic demand.   

2.1.9  The immediate impact of the crisis 

The BiH economy had possibly entered into a recession in 2008 (quarterly GDP data are 
not  reliable  for  that  year30)  and  certainly  from  the  beginning  of  2009.  The  recession 
continued  during  the  entire  2009  with  the  exception  of  the  second  quarter  (Figure  13). 
Rapidly  worsening  macroeconomic  environment  in  Europe  triggered  a  sharp  decrease  in 
demand for BiH exports. Exports of goods31 and services dropped by 18 per cent between 
2008  and  2009.  At  the  same  time,  the  weakening  internal  demand  translated  into  a 
substantial decrease of imports (which declined by around 25 per cent) – see Table 4 on 
page 18. This resulted, inter alia, in an adjustment in the trade balance and a reduction 
of  the  current  account  deficit  from  14  per  cent  of  GDP  in  2008  to  around  7  per  cent  of 
GDP  in  2009  (Table  3  on  page  18).  Inflow  of  remittances  –  a  very  important  factor 
fuelling  the  growth  during  the  pre-crisis  period  –  shrank  by  17  per  cent  from  EUR  1.28 
billion to EUR 1.06 billion according to the estimation of the Central Bank of BiH32.  

Figure 13.  Quarterly GDP dynamics in BiH, 2009-2010 (per cent quarter on 

quarter, seasonally adjusted data) 

Source: Agency for Statistics of Bosnia and Herzegovina, GDP quarterly data – preliminary data. First release, 
24.7.2014.Note: The recent publications of the Agency for Statistics of BiH provide quarterly GDP data since 1Q 
2008. However, reported quarterly growth dynamics during 2008 do not seem to be consistent with annual 
growth figures and hence are not reported here. Updated quarterly data published on 07.01.2015 also do not 
look reliable for the same reasons and hence not reported here 

29 Oruc. N. (2013). Social Transfers and Remittances in Bosnia-Herzegovina: Exploring Dynamics of the 
‘Crowding Out’ Effect. Available at: 
http://www.gdn.int/admin/uploads/editor/files/2013Conf_Papers/NerminOruc_Paper.pdf   
30 The recent publications of the Agency for Statistics of BiH provide quarterly GDP data since 1Q 2008. However, 
reported quarterly growth dynamics (based on seasonally adjusted data) during 2008 does not seem to be 
consistent with annual growth figure for that year. 
31 Mainly aluminium, metals and steel products  
32 Oruc, N. (2013). Social Transfers and Remittances in Bosnia-Herzegovina: Exploring Dynamics of the 
‘Crowding Out’ Effect. Available at: 
http://www.gdn.int/admin/uploads/editor/files/2013Conf_Papers/NerminOruc_Paper.pdf   

19 

  
 
 
 
 
 
 
 
                                           
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

Fiscal pressure increased considerably as a result of the recession. Public debt rose from 
31 per cent of GDP in 2008 to 35 per cent in 2009 (Figure 9), while the government 
deficit started deteriorating in 2008 and widened to 4.4 per cent of GDP in 2009 (Figure 
6). FBiH found itself under much stronger fiscal pressure than RS. Declines in output and 
the associated drop in tax revenues exacerbated fiscal outcomes and led to a full-blown 
fiscal crisis in FBiH. RS had a lower deficit than the FBiH and was able to finance it from 
privatisation revenues. The FBiH, on the other hand, had to turn to commercial banks in 
February 2009 for an emergency line of credit to cover the financing gap in the 2008 
budget. The drop in indirect taxes, the main source of public revenues, started in the last 
quarter of 2008 and continued into 2009 (averaging -14.5 per cent during the first six 
months)33   

Despite an initial scare (Box 2), the financial sector however, remained sound and well-
capitalised  and  its  liquidity  position  was  not  seriously  undermined  by  the  crisis.  The 
largely  foreign  owned  national  banking  sector  could  rely  on  capital  supply  from  parent 
companies.  Nonetheless,  the  crisis  highlighted  shortcomings  of  the  national  financial 
supervisory system with insufficient coordination between Entities.  

Box 2 Immediate Impact of the crisis on BiH’s financial sector 

Tensions on the global financial markets spilled over to the country and resulted in a "mini bank-
run" in October 2008 when some EUR 420 million of deposits (12 per cent of the stock of 
deposits) were withdrawn. Foreign parent banks injected liquidity to their local subsidiaries and 
the Central Bank of BiH reacted firmly and adequately by inter alia gradually reducing the 
minimum reserve requirements for banks so that the situation stabilised quickly. The value of 
guaranteed bank deposits was more than doubled in a first step to around EUR 10,200 in early 
2009 and further increased to EUR 25,500 in 2010 with support from the EBRD34.  

Source: SEC(2009) 1459  

2.2  Policy response 

The  immediate  response  of  the  authorities  was  largely  focused  on  safeguarding  the 
stability of the financial system and consisted of the following measures35: 

  A  relaxation  of  the  required  level  of  banks  reserves  (from  18  to  14  per  cent)  in 

October 2008; 

  The threshold for bank deposit guarantees was increased twice.  
 

In  June  2009,  after  a  series  of  meetings  in  Vienna  and  Sarajevo,  nine  foreign-
owned  banks  operating  in  BiH  and  holding  85  per  cent  of  the  banking  sector 
assets  committed  to  maintain  their  exposure  to  the  country  to  ensure  that 
subsidiaries were sufficiently capitalised.  

Moreover, in response to revenue shortfalls the  Entity central governments and  cantons 
started  to  exercise  restraint  in  spending.  However,  recognising  the  limits  to  the  efforts 
that could be made with internal capacities, BiH authorities turned to the IMF, the World 
Bank and also to the EU in 2009 for international assistance.  

2.3 

IMF programmes 

2.3.1  The 2009 IMF Stand-By Arrangement 

The negotiations with the IMF led to a staff level agreement on the new programme in 
early May 2009. In June 2009, the IMF approved the three year Stand-By Arrangement 
(SBA) for BiH ‘to mitigate the effect of the global financial crisis’. The planned financial 
assistance was SDR 1.01 billion (EUR 1.15 billion) with SDR 182.6 million (approximately 

33 World Bank (2010) op cit 
34 EBRD. (2010). B&H Deposit Insurance. Press Office. Available at: 
http://www.ebrd.com/pages/news/press/2010/100127.shtml 
35 IMF. (2010). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm?pn=3 

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Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

EUR 195 million) to be available immediately36. The programme had the following 
objectives37: 

  Reduce the structural fiscal balance to limit the government's financing needs and 

bring public finances on a sustainable medium-term path; 

  Re-establish public wage restraint; reform the system of transfers and improving 
public  finance  management;  increase  capital  spending  and  strengthen  the  social 
safety net to protect the most vulnerable; 

  Support adequate liquidity and capitalisation of banks; and 

  Secure sufficient external financing and improve confidence. 

The  programme  was  monitored  through  quantitative  performance  criteria  and  structural 
benchmarks  during  quarterly  reviews.  Its  initial  signature  was  conditioned  on  five  so-
called ‘prior actions’, measures that needed to be implemented before the IMF  SBA was 
approved (Table 5)38.  

Table 5.  ‘Prior actions’ of the 2009 IMF programme – conditions to be 

fulfilled before the programme approval 

Prior Action 

Rationale  

Adoption of the rebalanced budgets by Entity 
governments and submit to Parliament 

Fiscal adjustment necessary for reestablishment of 
macroeconomic stability 

Adoption of amendments to the wage bill legislation by 
the Council of Ministers 

Adoption of the Intervention law in the Federation 

Adoption of a new Excises Law 

Adoption of the Global Framework by the Fiscal 
Council 

Source: IMF (2009). Country Report 09/226.  

Fiscal adjustment necessary for reestablishment of 
macroeconomic stability and ongoing viability of the 
currency board 

Enabling of the Federation government to initiate 
necessary reforms in the near horizon 

Tax harmonisation with EU that will also allow to  
compensate for some of the revenue loss from phase-
out of trade taxes 

Fiscal policy coordination; reinforce the importance of 
adherence to established timeline for budget and 
medium-term budget framework elaboration 

Table  6  outlines  the  reforms/  structural  benchmarks  as  defined  in  the  initial  agreement 
and after the first SBA review as well as their rationale. As summarised by the IMF report 
from  December  2010:  ‘Progress  was  made  on  the  program’s  structural  reform 
benchmarks,  albeit  with  delays’.  There  were  delays  in  the  implementation  of  some 
reforms,  namely  preparation  of  a  Strategy  for  Pension  Reform  (at  the  FBiH  level), 
adoption of wage legislation consistent with fiscal policy objectives (at the FBiH level) or 
eligibility  audits  for  civil  and  war  benefits  recipients  (at  the  FBiH  and  RS  level).  The 
progress  in  the  implementation  of  the  programme  was  also  monitored  by  a  range  of 
quantitative  performance  criteria39.  Between  March  and  October  2010,  three  reviews  of 
the IMF SBA were completed leading to disbursement of two loan tranches in March and 
October  2010  (following  the  initial  disbursement  in  mid-2009).  The  parliamentary 
deadlock  following  the  October  2010  general  elections  and  the  lack  of  progress  in 
implementation  of  reforms  de-facto  terminated  the  2009  programme  with  no  further 
reviews taking place.  

36 IMF. (2009). Press release: IMF Executive Board Approves US$ 1.57 billion Stand-By Agreement for B&H. 
Available at: http://www.imf.org/external/np/sec/pr/2009/pr09258.htm      
37 Ibidem. 
38 IMF. (2009). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm?pn=4 
39 List with the specific quantitative criteria can be consulted here: 
http://www.imf.org/external/np/loi/2010/bih/030510.pdf  

21 

  
 
                                           
Table 6.  Structural reform benchmarks attached to the 2009-2012 programme  

Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Reform 

Defined in 
Initial 
agreement 

Defined 
in the 
first 
review 

Rationale  

Continued adherence of the Currency Board Arrangement as constituted under the 
law (continuous) 

Publish on the State government’s web site quarterly consolidated general 
government accounts with a 5 week lag (continuous). 

Agree on an action plan acceptable to the World Bank and IMF staffs to reform the 
system of rights-based transfers in the Federation (end of August 2009) 

Submit to the Federation Parliament a Law forbidding passing of unfunded 
legislation (end of November 2009) 

Carry out eligibility audits for civil and war benefit recipients; publish results 
(quarterly within 4 weeks after the end of each quarter) of audits, including 
expected savings from disqualifications (Federation, RS) (continuous) 

Adopt by Parliament wage legislation consistent with the 2010 fiscal policy 
objectives (Federation) (end of March 2010) 

Reform privileged pensions by Entity governments (Federation, RS) (end of March 
2010). 

Prepare a strategy for pension reform by Entity governments (Federation, RS) (end 
of March 2010) 

The Deposit Insurance Agency to impose a principle of universal membership 
requirements, including for partially State-owned banks (end of February 2010) 

Form a standing committee of financial stability and sign the MoU on financial 
stability, crisis preparedness and crisis management (end of November 2009) 

Approval of the rebalanced budgets by the Entity Parliaments (by the end of 
August 2009) 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

Anchor for macroeconomic policy; Contribute to 
economic and political stability 

Enhance fiscal transparency and program ownership 

Ensure fiscal sustainability and improve the composition 
of public spending 

Ensure fiscal discipline 

Reduce recurrent spending through better targeting of 
transfer programs 

Harmonization of remuneration policies across levels of 
government with the view of containing the public wage 
bill 

Steps toward containing the cost to central governments 
of financing the pension systems 

As above 

Strengthen banking system stability 

Strengthen financial sector supervision and improve 
policy coordination 

Source: IMF. (2009 and 2010). Country Report 09/226 and Letter of Intent and Technical Memorandum of Understanding, March 05, 2010

22 

  
 
 
 
 
 
 
 
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to 
Bosnia and Herzegovina 

2.3.2  The 2012 IMF Stand-By Arrangement 

Higher  chances 
environment triggered the activation of a second IMF SBA in September 2012.   

for  political  normalisation  and 

improvement 

in  socio-economic 

More  specifically,  shortly  after  receiving  parliamentary  approval  in  February  2012,  the 
government  requested  for  new  IMF  assistance.  A  staff-level  agreement  was  reached  in 
July  2012  and  the  IMF’s  Executive  Board  approved  a  new  two-year  SBA  on                    
26  September  2012  with  total  available  financing  of  around  SDR  338.2  million                   
(approximately  EUR  398  million)40.  As  with  the  previous  SBA,  the  programme  was 
accompanied  by  prior  actions  that  had  to  be  met  before  approval  by  the  IMF’s  Board 
(Table 7). 

Table 7.  ‘Prior actions’ of the 2012 IMF programme – conditions to be 

fulfilled before programme approval 

Prior Action 

Adoption by the FBiH Parliament of a revised 2012 Federation budget, 
incorporating agreed measures 

Adoption by the RS Parliament of a revised 2012 RS budget, 
incorporating agreed measure 

Repeal of the amendments to the Federation Banking Agency law, 
Articles 15 and 27, that were adopted in 2012 

Rationale 

Fiscal sustainability  

Fiscal sustainability 

Fiscal sustainability 

Adoption of a decision on the settlement of any disputed indirect tax 
amounts through end-2011  

Fiscal sustainability 

Source: IMF. (2012). Country Reports from October and December 2012 

The objectives of the new programme were as follows: 

 

Improving national policy coordination, which is important in a country with many 
government levels, like BiH; 

  Maintaining fiscal discipline while advancing structural fiscal reforms: helping BiH 
reduce the size of current expenditure and allow more space for capital spending 
as well as increase in efficiency of social spending; 

  Safeguarding financial stability within the context of the currency board; further 
improvement of the crisis preparedness, banking supervision, and resolution 
frameworks; 
Intensification of reforms to improve the business environment to support growth, 
investment, and job creation. 

 

Table 8 presents the structural conditions defined in the initial agreement and after first 
SBA review. 

40 IMF. (2012). IMF Reaches Staff-Level Agreement with Bosnia and Herzegovina on a Stand-By Agreement. 
Available at: http://www.imf.org/external/np/sec/pr/2012/pr12267.htm 

23 

  
 
 
                                           
Table 8.  Structural performance criteria attached to the 2012 IMF programme 

Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Reform 

Defined in 
Initial 
agreement 

Defined in 
the First 
review 

 Rationale  

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

Continue to adhere to the Currency Board Arrangement as constituted under the law 
(continuous)  

Refrain from introducing new privileged or special rights for retirement (continuous)  

Publish on the web site of institutions of BiH quarterly consolidated general government 
accounts with a 6 week lag (quarterly). 

Carry out eligibility audits for war benefit recipients; publish results (quarterly within 4 
weeks after the end of each quarter) of audits (Entities) (quarterly)  

Pay obligations accrued through May 2012 arising from early retirement provisions 
under the Law on Service in the Armed Forces of BiH (end December 2012) 

Amend the law on financing of Institutions of BiH to allow for continued servicing of 
foreign debt in the absence of an adopted Budget (end December 2012) 

Amend the banking law in FBiH to limit provisional administration to one year with a 
possible six month extension (end December 2012) 

Amend the banking law in the RS to limit provisional administration to one year with a 
possible six month extension (end December 2012) 

Amend the legal frameworks related to the treatment of confidential information to align 
them with EU requirements (end December 2012) 

Submit to the BiH Parliament a revised law governing the Deposit Insurance Agency 
along the lines specified in 28 of the Letter of Intent of 11 Sep 2012 (end March 2013) 

Sign a Memorandum of Understanding by the Ministry of Finance and Treasury of BiH, 
the Ministry of Finance of the FBiH , the Ministry of Finance of the RS, and the  
CBBH, which will regulate the disbursements from and servicing of all related obligations 
to the IMF (end December 20120) 

Adopt a new law on privileged pensions in the FBiH in line with IMF staff 
recommendations (end January 2013) 

Adopt a new law on budget in the FBiH that improves data reporting and enhancing 
control over lower level governments, extra-budgetary funds, and public companies (end 
March 2013) 

Sign a joint Memorandum of Understanding between the Entities' tax administrations 
and the ITA on data exchange to further improve the exchange of information (end May 
2013) 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

✓ 

Anchor for macroeconomic policy; contributing 
to economic and political stability 

Reducing recurrent spending through better 
targeting of transfer programs  

Fiscal transparency 

Reducing recurrent spending through better 
targeting of transfer programs  

Arrear clearance 

Contributing to economic and political stability 
as well as to investor confidence  

Strengthening bank supervision as well as the 
bank resolution framework 

Strengthening bank supervision as well as the 
bank resolution framework  

Improving information sharing and policy 
coordination 

Improving crisis preparedness and contingency 
planning 

Safeguarding Fund Resource 

Reducing recurrent spending through  
better targeting of transfer program 

Fiscal sustainability 

Reducing tax evasion and enhancing  
policy cooperation 

24 

  
 
 
 
 
 
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Reform 

Establish a one-stop shop process for business registration in RS (end September 2013) 

Amend legislation in the RS to eliminate the take-home pay protection for public sector 
employees (end December 2013) 

 Source: IMF. (2012). Country Reports from October and December 2012

Defined in 
Initial 
agreement 

Defined in 
the First 
review 

 Rationale  

✓ 

✓ 

Improving business environment 

Controlling the public sector wage bill in the 
medium term 

25 

  
 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

In  general,  the  second  programme  remains  on  track  at  the  time  of  writing  this  Report, 
despite  some  delays.  The  fifth  review  was  completed  in  January  2014  and  apart  from 
approving  the  SDR  42  million  (approximately  EUR  48  million)  disbursement,  it  also 
extended  the  programme  to  the  end  of  June  2015  and  augmented  available  funds  by 
additional  SDR  135.28  million  (approximately EUR  153  million).  Completion  of  the  sixth 
and seventh review, originally scheduled for February 2014, was delayed until June 2014 
when  the  IMF  programme  was  further  augmented  by  SDR  84.55  million  (approximately 
EUR  96  million)  to  meet  the  BiH’s  financing  needs  arising  from  severe  flooding  that 
affected large parts of the country in May 201441. The most recent IMF visit in December 
2014  highlighted  the  need  for  continuous  effort  to  contain  the  government’s  current 
expenditures,  improve  tax  compliance/  fight  tax  fraud  and  strengthen  financial  sector 
stability. At the same time, the IMF observed that ‘the economic recovery appeared to be 
more resilient than initially thought to the impact of natural disaster’. The eight review of 
the SBA is expected to take place in January 201542. 

2.4  EU Macro Financial Assistance 

On  22  May  2009,  the  State  Minister  of  Finance  of  BiH  requested  an  MFA  of  EUR  100 
million43. With the IMF programme in place, the formal conditions were met for the EU to 
provide the MFA. Following the European Commission’s proposal dated October 2009, the 
Council took a decision on 30 November 2009 to provide MFA to BiH (2009/891/EC). The 
assistance,  up  to  EUR  100  million  was  to  be  provided  in  the  form  of  a  loan in  order  to: 
‘…support  BiH’s  economic  stabilisation  and  alleviate  its  balance  of  payments  and 
budgetary needs’. 

Box 2 Objectives of the 2009 MFA operation in BiH 

 

 

 

 

 

To contribute to covering BiH’s external financing needs; 

To alleviate budgetary financing needs; 

To support the fiscal consolidation effort in the context of an IMF programme; 

In this respect, help BiH reduce the financial constraints on the implementation of its 
comprehensive socio-economic reform programme; 

To facilitate and encourage efforts of the authorities of BiH to implement measures 
identified under the European Partnership; 

  To reinforce the EU's role in the economic policy dialogue with the authorities of BiH on 

the programme of reforms. 

Source: SEC(2009) 1459 

The  choice  of  loan  instead  of  a  loan/grant  combination  was  based  on  a  number  of 
considerations  including  BiH’s  income  status  (classified  by  the  World  Bank  as  an  upper 
middle income country) and its moderate level of indebtedness.44.  

During  2010,  the  pre-election  environment  in  BiH  complicated  discussions  on  the 
Memorandum of Understanding (MoU). The main stumbling blocks for the signing of the 
MoU were the distribution of funds available from the MFA between the different levels of 

41 IMF. (2014). IMF Press release No. 14/320. Available at: 
http://www.imf.org/external/np/sec/pr/2014/pr14320.htm    
42 IMF, (2014), IMF Press release No. 14/569. Available at: 
http://www.imf.org/external/np/sec/pr/2014/pr14569.htm  
43 ECFIN/D/1/Ares(2010)439787 – Note for the Economic and Financial Committee regarding Macro-Financial 
Assistance to Bosnia and Herzegovina, 19.07.2010. 
44 SEC. (2009). 1459 - Ex-ante evaluation statement – Macro-Financial Assistance to Bosnia and Herzegovina. 
Available at: http://www.ipex.eu/IPEXL-
WEB/dossier/document.do?code=SEC&year=2009&number=1459&extension=FIN   

26 

 
 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

government  and  one  of  the  technical  conditions  related  to  the  cooperation  of  the 
Statistical Institutes at State and Entity level45. 

The  MoU  that  was  finally  signed  in  November  2010,  after  the  State  and  the  Entities 
agreed amongst themselves on all policy conditions negotiated with the Commission. The 
MoU  stipulated  that  the  MFA  would  be  disbursed  in  two  tranches  and  that  the  proceeds 
may be transferred to the State and Entity budgets according to the following distribution 
key: 

  10 per cent to the State, 

  60 per cent to the FBiH, and 

  30 per cent to RS. 

Following  the  general  elections  of  October  2010,  the  Loan  Agreement  was  signed  in 
November  2010.  However,  partly  because  of  the  lengthy  period  taken  for  government 
formation  (16  months)  after  the  October  2010  general  elections,  the  Loan  Agreement 
was only ratified by the Bosnian Presidency in August 2011. 

The  MoU  contained  two  policy  reform  conditions  linked  to  the  disbursement  of  the  first 
loan  tranche  (apart  from  satisfactory  implementation  of  the  IMF  SBA)  and  eight 
conditions  for  the  second  loan  instalment.  The  specific  conditions  are  presented  in  the 
next section. 

Despite the ratification of the Loan Agreement in mid-2011, no MFA disbursements were 
made  for  the  remainder  of  the  year  given  that  the  political  stalemate  after  the  October 
2010  general  elections  had  de  facto  derailed  the  IMF  Programme.  Moreover,  one  of  the 
two  policy  conditions  attached  to  the  disbursement  of  the  first  MFA  tranche  –  the 
approval of the Global Framework of Fiscal Policies by the Fiscal Council of BiH – was not 
met  during  2011  (see  Box  3).  This  was  an  important  condition  given  the  role  of  the 
Framework  as  a  key  instrument  for  medium-term  budgetary  planning  and  an 
indispensable element of the annual budgetary process. This was of particular relevance 
in BiH given the federal structure of the country. 

Box 3 Coordination of fiscal policy in BiH 

Establishing an effective mechanism for coordinating fiscal policy is critical in a country like BiH, 
which is extraordinarily decentralised for its size. Its many governments (14) and off-budget 
units (43) have a large degree of autonomy over expenditure planning, but their willingness to 
adopt budgets to support overall macroeconomic stability is undermined when others fail to do 
likewise. If left unchecked, the aggregate outcome could be excessive expenditure levels and 
macroeconomic instability. 

A durable and effective fiscal coordination mechanism is therefore needed to balance the 
objectives of individual administrative units against the broader ones of the country as a whole. 
Fiscal coordination is even more important in the case of BiH, with a currency board which offers 
no scope for independent monetary policy. Consequently fiscal policy is the only instrument left 
to manage aggregate demand. 

After years of delay, the Fiscal Council (FC) was finally established in 2008. The FC is made up of 
three prime ministers and three ministers of finance and two non-voting members (the governor 
of the Central Bank and representative of Brcko District). The main responsibility of the FC, 
although not the only one, is to adopt the so-called Global Framework of Fiscal Balance and 
Policies (Fiscal Framework). This document is a key input for 3-year Framework Budget 
Documents of each of the State and Entity governments which in turn forms the basis for 
adoption of their respective annual budgets. .  

The FC has no enforcement mechanisms and depends on the good will of the Entities and the 
State level for its work. In reality, optimal functioning of the FC is often impeded by political 
differences. For example, the FC did not adopt the Global Fiscal Framework for 2011-2013 (due 

45 COMMISSION STAFF WORKING PAPER Background analysis per beneficiary, /* SEC/2011/0873 final */. The 
presentation in this subsection follows the publicly available sources, especially annual Reports from the 
Commission to the Council and to the European Parliament on the implementation of macro-financial assistance 
(MFA) and associated working documents. 

27 

 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

in May 2010) as well as one for 2012-2014 (due in May 2011). Consequently, the State-level 
institutions operated without a budget for 2011 and on basis of Decisions on Temporary 
Financing that can fund operations on the same level as appropriated in the 2010 Budget.  The 
Entities adopted their own budgets for 2011 and 2012 outside the coordinating mechanism of BiH 
Fiscal Council which was a direct contradiction of the law (Article 12 of the Law on Fiscal Council 
in BiH requires that in absence of agreement on the Global Fiscal Framework, BiH Council of 
Ministers, FBiH government and RS government undertake to pass Decisions on Temporary 
Financing until agreement is reached. Under this scenario, governments can fund operations on 
the same level as appropriated in the last adopted budget.) 

The situation stayed broadly unchanged in early 2012 as the MFA condition was still not 
met. The availability of the MFA was to expire on 7 November 2012. However, in view of 
the BiH authorities’ steps towards improving public finance sustainability, the adoption of 
a new SBA by the IMF Board on 26 September 2012 and the difficult budget and balance 
of payments situation of the  country, the  European Commission adopted  on 29  October 
2012 a Decision (2012/674/EU) to extend the availability period of the EU MFA to BiH by 
an  additional  year,  until  7  November  2013.  As  a  consequence,  the  MoU  was  extended 
until  7  November  2013  by  an  addendum  signed  by  the  BiH’s  authorities  and  the 
European  Commission  on  21  November  2012.  Also  in  November  2012,  the  European 
Commission  received  a  compliance  report  on  the  fulfilment  of  the  structural  reform 
criteria  related  to  the  first  instalment  and  in  January  2013,  a  request  for  funds. 
Consequently,  the  disbursement  of  the  first  EUR  50  million  tranche  took  place  in 
February  2013  and  the  second  tranche  was  disbursed  at  the  end  of  September  2013, 
following satisfactory compliance with the attached policy conditions. 

2.5  Other EU Assistance to BiH during 2009 – 2013 

EU  assistance  to  BiH  since  2009  has  to  be  viewed  in  the  context  of  its  long  term 
engagement  with  the  country.  The  EU  has  been  an  active  player  in  the  country’s 
reconstruction  since  the  Dayton/Paris  Peace  Agreement  was  signed  in  199546. 
Institutionalised  contacts  between  the  EU  and  BiH  started  in  June  1998.  At  the  EU's 
initiative,  the  Stability  Pact  for  South  Eastern  Europe  (BiH,  other  Western  Balkan 
countries, other countries of the region, the EU and several other countries, international 
financial institutions and regional initiatives) was adopted on 10 June 1999 in Cologne. As 
its  main  contribution  to  the  Stability  Pact,  the  EU  launched  the  Stabilisation  and 
Association  Process  (SAP)  for  the  countries  of  the  Western  Balkans  in  1999.  It 
established  a  strategic  framework  for  their  relations  with  the  EU,  combining  a  new 
contractual  relationship  (Stabilisation  and  Association  Agreement)  (SAAs)  and  an 
assistance  programme  (CARDS).  The  purpose  of  SAP  was  to  establish  special  relations 
“between the countries concerned and the Union in exchange for reforms with a view to 
accession,  which  will  involve  aligning  their  legislation  more  closely  with  that  of  the 
Community47”. 

Later, the Thessaloniki Summit held in June 2003  confirmed the EU perspective for BiH.  
It  introduced  new  instruments  to  the  SAP  aiming  to  enforce  the  support  of  the  reform 
process in the Western Balkan countries and to approach them to the European Union48. 
The  Council  also  adopted  Regulation  2666/2000,  on  Community  Assistance  for 
Reconstruction, Development and Stabilisation (CARDS). This was a technical assistance 
program  designed  for  the  SAP  countries  that  covered  several  sectors:  justice  and  home 

46  European Parliament. (2004). Title V TEU, articles 133 and 310. Available at: 
http://www.europarl.europa.eu/facts_2004/6_3_3_en.htm   
47 European Parliament. (2004). Title V TEU, articles 133 and 310. Available at: 
http://www.europarl.europa.eu/facts_2004/6_3_3_en.htm  
48 European Commission. (2009). EU delegation. Available at: 
http://eeas.europa.eu/delegations/kosovo/eu_kosovo/political_relations/stabilisation_and_assocation_process/ind
ex_en.htm  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

affairs, economic and social development, administrative capacity building, environment, 
customs, transport and energy49. 

Some of the key developments since then are summarised below: 

Table 9. 

Timeline of the key developments in EU’s relations with BiH 

Date 

2004 

November 2005 

September 2007 

February 2008 

June 2008 

July 2008 

December 2010 

June 2012 

Development 

First European Partnership for BiH 

Stabilisation and Association Agreement (SAA) negotiations officially 
opened in Sarajevo 

Visa facilitation and readmission agreements with the European 
Community signed 

BiH signs the IPA Framework Agreement 

Stabilization and Association Agreement and Interim Agreement on trade 
and trade-related issues signed50 

Interim Agreement on trade and trade-related issues enters into force 

Visa free regime for Schengen area introduced for all BiH citizens having 
a biometric passport 

The EU and BiH launched the High Level Dialogue on the Accession 
Process 

Since  2007,  most  of  EU  assistance  to  BiH  has  been  channelled  through  the  Instrument 
for  Pre-accession  Assistance  (IPA).    This  is  the  EU  instrument  to  support  reforms  in 
'enlargement  countries'  with  financial  and  technical  assistance.  The  IPA  funds  build  up 
the capacities of the countries throughout the accession process, resulting in progressive, 
positive developments in the region. 

Of  the  total  IPA  funding  stream  of  around  EUR  11.5  billion  over  the  period  2007‑13,                  
EUR 665 million was allocated to BiH, with the bulk of it dedicated to transition assistance 
and institution building51. This EU assistance is managed by the EU Delegation in BiH.  It 
“aims  to  provide  assistance  primarily  in  the  following  sectors:  Public  Administration 
Reform,  Justice  and  Home  Affairs,  Private  Sector  Development,  Transport,  Environment 
and  Climate  Change,  and  Social  Development”52.  The  total  financial  allocation  for  the 
period  2007-2012  was  EUR  546.7  million.  Figure  14  shows  details  of  the  distribution  of 
assistance per sector.  

49European Commission. (2004). Evaluation of the implementation of Regulation 2666/2000 (CARDS) –EC 
support to the Western Balkans- ref.951651. Available at: 
http://ec.europa.eu/europeaid/how/evaluation/evaluation_reports/evinfo/2004/951651_ev_en.pdf  
50 While the SAA was signed in 2008 and has been ratified, it has not yet entered into force. 
51 European Commission. (2012). Instrument for Pre-Accession Assistance (IPA) Revised Multi-Annual Indicative 
Financial Framework for 2013, 581 final. Available at: 
http://ec.europa.eu/enlargement/pdf/key_documents/2012/package/miff_adopted10-10-12_en.pdf  
52 European Commission. (2011). Adopting a National Programme for Bosnia and Herzegovina under the IPA –
Transition Assistance and Institution Building Component for the year 2011. Available at: 
http://ec.europa.eu/enlargement/pdf/bosnia_and_herzegovina/ipa/2011/comm_pdf_c_2011_9104_f_en_decision_
execution_commision.pdf  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 14. 

IPA assistance per sector 2007-2012, in per cent 

Source: Schroeder, H. (2013). Instrument for Pre - Accession Assistance (IPA) to Bosnia and 
Herzegovina, presentation, Sarajevo. 

In October 2013, the European Commission launched procedures for  reducing the initial 
IPA 2013 programme for BiH by 54 per cent and to postpone discussions on IPA II until 
the country got back on track in the EU integration process (Table 10). At the EU Council 
meeting on 17 December 2013 it was noted that it was the inability of the leaders of BiH 
to meet EU requirements that led to "a loss in IPA funds for 2013" and to "postponement 
of  further  discussions  on  IPA  II".    “Serious  concern  that  the  EU  integration  process  has 
stalled  due  to  a  lack  of  political  will  on  the  part  of  the  BiH  political  leadership"53  were 
raised at the meeting. 

Table 10. IPA financial allocation for BiH, 2007-2014, EUR million 

2007 

2008 

2009 

2010 

2011 

2012 

2013 
planned 

2013 
actual 

62.1 

74.8 

89.1 

105.4 

107.4 

107.9 

108.8 

47.3 

Source: Schroeder, H. (2013). Instrument for Pre - Accession Assistance (IPA) to Bosnia and 
Herzegovina, presentation, Sarajevo. Available at: 
http://europa.ba/documents/delegacijaEU_2013121012030960eng.pdf and European Commission. 
(2014). Enlargement. Bosnia and Herzegovina –financial assistance. Available at: 
http://ec.europa.eu/enlargement/instruments/funding-by-country/bosnia-
herzegovina/index_en.htm 

The  finalisation  of  the  agreement  on  IPA  II  assistance  for  the  period  2014-2020  was 
conditioned  on  establishing  an  effective  EU  coordination  mechanism  and  adoption  of 
country-wide strategies, in particular in relation to investment needs54. 

Apart  from  assistance  from  the  EU  institutions,  BiH  has  received  substantial  bilateral 
assistance  from  several  EU  Member  States  in  the  past  decade.  The  main  bilateral  EU 
donors  during  2001-2008  were  Spain,  Germany,  Sweden,  and  Austria  providing  aid  in 
the region of EUR 30-40 million annually55. Following the devastating floods in May 2014 

53 EBRD. (2014), Strategy for Bosnia and Herzegovina. Available at: 
http://www.ebrd.com/downloads/country/strategy/bosnia2014.pdf 
54 Schroeder, H. (2013). Instrument for Pre - Accession Assistance (IPA) to Bosnia and Herzegovina, 
presentation, Sarajevo. Available at: http://europa.ba/documents/delegacijaEU_2013121012030960eng.pdf.  
55 Calculations based on World Development Indicators. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
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a donor conference was held following the initiative of the European Commission, France 
and  Slovenia.    Pledges  of  assistance  for  BiH  exceeded  EUR  800  million  from  various 
countries and institutions56. 

2.6  The World Bank Development Policy Loan 

In  2010,  the  Bosnian  authorities  also  negotiated  a  programmatic  series  of  three 
Development  Policy  Loans  (DPLs)57,  referred  to  as  the  “Public  Expenditure  Crisis 
Development Policy” (PEDP) loans/credits. The first PEDP (PEDP-1) was for an amount of 
USD 111 million (approximately EUR 80 million), and it was made up of a USD 66 million  
International Development Association (IDA) credit and a loan of US$45 million  from the 
International  Bank  for  Reconstruction  and  Development  (IBRD).  The  loan/credit  was 
allocated on a 60/40 basis to FBiH and RS, respectively.  

The PEDP consisted of three pillars. 

(i) 

(ii) 

(iii) 

Pillar I. Reform of Social and Unemployment Benefits: The reforms focused 
on  improving  the  targeting  and  means  testing  of  social  programmes  by  shifting 
away from a “rights-based” to a “targeted” social safety net system, as well as on 
achieving more effective and efficient administration of social benefits. 

Pillar  II.  Reform  of  Public  Sector  Pay  and  Wage  Bill  Management:  The 
reforms  aimed  to  lower  the  burden  of  the  budget  on  the  economy  by  lowering 
public sector wage expenditures to a level closer in line with the EU average (as a 
per  cent  of  GDP).  The  reforms  were  also  aimed  at  creating  a  more  transparent 
and internally equitable performance-based public sector pay system. 

Pillar  III.  Social  Contribution  and  Indirect  Tax  Measures  in  Support  of 
Competitiveness:  The  reforms  aimed  at  lowering  the  tax  wedge  and  thereby 
improving  competitiveness  and  promoting  formal  employment.  The  indirect  tax 
measures pursued under the reform were meant to have a lower direct tax burden 
on firms while, at the same time, raising additional revenue for the budget  

The  PEDP aimed to tackle reforms in those areas of public sector expenditure which had 
been the main driver of pro-cyclical, growth-hindering, and unsustainable fiscal policies, 
notably  very  high  and poorly  targeted  expenditure  on  social  transfers  and  a  high  public 
sector wage bill. In addition, the programme sought to improve external competitiveness 
of  the  private  sector  by  lowering  health  insurance  contributions  in  formal  sector 
employment. 

The PEDP had seven specific objectives: 

  A  shift  from  rights-based  to  needs-based,  targeted  social  safety  net  system 

improving overall distribution of social transfers. 

 

Improved benefits incidence (targeting accuracy). 

  More  effective  and  efficient  administration  of  social  benefits  equipped  to 

substantially reduce transfers that are the result of abuse and fraud. 

  Lowering of the public sector wage bill to levels more in line with EU averages. 

 

Increased pay system transparency, internal equity, and performance incentives 

56 More details is available in the note MEMO/14/490 (16/07/2014) available at http://europa.eu/rapid/press-
release_MEMO-14-490_en.htm  
57 DPLs support government policy and institutional reforms and are available to IBRD and IDA borrowers. DPLs 
are quick-dispersing in one or more stages (tranches). Funds are released upon compliance with certain 
conditions and require coordination with the IMF. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

 

Improved  social  contribution  fairness,  firm  competitiveness  and  formal  sector 
employment. 

  A fairer health financing system. 

PEDP-1  was  appraised  on  16  November  2009;  approved  by  the  Bank  Board  on  8  April 
2010; became effective on 1 October 2010; and was closed on 31 December 2010. The 
first DPL was disbursed as a single tranche on the basis of the government’s enactment 
of  key  legislation  regarding  targeting,  means  testing,  and  benefits  auditing  as  “prior 
actions”.  The  latter  two  operations  were  however,  cancelled  in  October  2012  following  
policy  reversals  of  the  new  government  in  the  face  of  push  back  by  beneficiaries  (e.g. 
means  testing  for  veteran’s  benefits);  challenges  by  the  constitutional  court  regarding 
changes  in  the  social  safety  net  system;  and  little  or  no  progress  on  several  other 
reforms.58 

58 Independent Evaluation Group website: 
http://lnweb90.worldbank.org/oed/oeddoclib.nsf/DocUNIDViewForJavaSearch/8525682E0068603785257B64007
0887A?opendocument  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

3 

Impact of the MFA on macroeconomic stability and 
external sustainability 

The macroeconomic impact of the MFA operation can be assessed at two levels:  

  Gross impact as observed in actual macroeconomic outcomes; 
  Net impact which is the difference between what actually happened and what 

might have happened in the absence of the IMF/ MFA support and involves the 
construction of counterfactual scenarios. 

This section first provides an overview of macroeconomic developments during the period 
of  implementation  of  the  MFA  (Q4  2009  –  Q3  2013)  and  following  the  end  of  the 
operation  (until  data  are  available,  in  most  cases  until  2Q  2014).  This  provides  an 
overview  of  actual  developments  and  the  extent  to  which  MFA  objectives  have  been 
achieved, irrespective of the driving factors for these developments and the  specific role 
of the MFA.  

In  the  second  subsection,  macroeconomic  counterfactual  scenarios  are  explicitly 
developed  separately  for  the  case  of  no  MFA  assistance  and  for  the  case  of  lack  of 
combined  MFA  and  2012  IMF  programme.  This  then  enables  speculative  assessment  of 
net impacts. 

3.1  Macroeconomic developments in BiH during the implementation of 
the MFA operation (2009-2013) 

3.1.1  GDP growth 

After the 2009 recession, a weak recovery - mainly driven by external demand - followed 
in  2010  (Figure  15).  This  recovery  was  however,  short-lived.  In  Q2  2011,  the  economy 
slipped back into a recession which persisted - with the exception of Q3 2011 - until Q4 
2012.  In  2013,  the  economy  returned  to  growth,  expanding  by  nearly  2  per  cent.  The 
gradual  rebound  observed  during  2013  was  adversely  affected  by  severe  floods  during 
May 2014 (quarterly GDP data for Q2 and Q3 2014 released on 7 January 2015 does not 
look  reliable  as  it  is  not  consistent  with  annual  rates  of  growth)  that  are  provisionally 
estimated  to  have  reduced  GDP  by  5–10  per  cent59.  GDP  growth  in  2014  will  be 
negatively  affected.  In  its  latest  forecast  published  in  July  2014,  the  IMF  revised  GDP 
growth  estimates  for  2014  from  2  per  cent  to  0.7  per  cent60  whereas  some  other 
estimates  are  more  pessimistic,  projecting  the  GDP  to  grow  by  a  0.5  per  cent61  yoy  in 
real terms. 

59 IMF Country Report No. 14/189 dated July 2014 
60 Ibid.  
61 Raiffeisen Bank (2014) Bosnia and Herzegovina: Economic Report, Issue No. 12, December 2014. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 15.  Quarterly dynamics of real GDP, 1Q2010-1Q2014 (per cent change 

quarter on quarter) 

Note: seasonally adjusted data. Source: Agency for Statistics of Bosnia and Herzegovina, GDP quarterly data – 
preliminary data. First release, 24.7.2014. Note: Quarterly GDP data have been subject to significant revisions 
thus raising major doubts about the reliability of these statistics 

3.1.2  GDP and its components 

Like  elsewhere  in  the  region,  BiH’s  pre-crisis  growth  model  relied  on  booming  domestic 
demand financed from foreign capital inflows (remittances from family members working 
abroad,  foreign  direct  investment,  unrequited  transfers  to  government,  and  a  credit 
boom  funded  by  foreign  banks).  Since  the  2009  crisis  however,  BiH  has  slowly  been 
moving  towards  an  export  driven  growth  model.  Consequently,  household  consumption 
now represents a smaller share of the country’s economic output. The share of household 
consumption  declined  from  85.5  per  cent  of  GDP  during  2004-2009  to  81.6  per  cent  of 
GDP  during  2010-2013.  High  unemployment  and  low  net  wages  contributed  to  this 
decline; while continuing high levels of remittances and retail credit lines by the banking 
sector  (two  key  sources  of  the  purchasing  power  for  BiH  citizens)  cushioned  the  fall. 
Moreover,  the  share  of  Gross  fixed  capital  formation  in  BiH’s  GDP  dropped  by  6.6  per 
cent  (from  23.8  per  cent  to  17.2  per  cent).    Governmental  spending  remained  almost 
unchanged  in  years  after  the  crisis  compared  to  years  before.  The  share  of  exports  in 
GDP rose  from 27.5 per cent during the  pre-crisis period to 29.3 per  cent during 2010-
2013, with the EU being the largest export market for BiH.  

Looking in more detail at the GDP structure by production, there were no major changes 
compared  to  the  pre-crisis  period.    Retail  sales  is  the  largest  category  within  the  GDP 
structure (13.2 per cent on average during 2010-2013), followed by Manufacturing (10.8 
per  cent  on  average),  Public  administration  (9.2  per  cent  on  average)  and  Agriculture 
(6.5 per cent on average).  The largest drop of share within the GDP structure was in the 
Construction  sector.    Since  the  start  of  the  crisis,  Construction  has  been  on  a  constant 
downfall and in 2013, accounted for a modest 3.9 per cent of GDP.    

3.1.3  External sector 

The economic crisis and the decrease in domestic demand resulted in a temporary fall in 
imports in 2009, but in subsequent years they picked up again.  Relatively strong exports 
rebounded  in  2010  and  contributed  to  a  current  account  adjustment –  the  deficit  fell  to 
6.5 per cent of GDP – below half the level seen in 2008. The decrease in current account 
deficit was reversed from 2011 onwards, when somewhat stronger domestic demand led 
to a significant increase in imports.  The current account deficit remained around EUR 1 
billion, close to 10 per cent of GDP. More recently, the current account deficit narrowed in 

34 

 
 
 
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

2013  (5.4  per  cent  of  GDP)  as  a  consequence  of  strong  export  growth  and  weaker 
domestic demand. However, the May 2014 floods damaged infrastructure and interrupted 
supply  chains  affecting  export  capacity;  this  coupled  with  growth  in  imports  due  to 
reconstruction process are projected to increase the current account deficit to 11 per cent 
in 2014 (Table 11). 

Table 11. Trends in current account deficit and trade deficit, 2001-2013 (in 

EUR bn unless stated otherwise) 

Categories 

C/A deficit  

2001  2002  2003  2004  2005  2006  2007  2008  2009  2010  2011  2012  2013 

0.8 

1.3 

1.4 

1.3 

1.5 

0.8 

1.0 

1.8 

0.8 

0.8 

1.3 

1.2 

0.8 

C/A deficit [in % of GDP] 

12.9  17.5  19.1  16.1  17.0  7.9 

9.0 

14.1  6.5 

6.2 

9.6 

9.2 

5.9 

Trade deficit - BoP data 

3.3 

3.5 

3.7 

3.7 

4.0 

3.4 

4.6 

5.5 

4.0 

3.9 

4.3 

4.3 

4.0 

Trade deficit [in % of GDP]  

51.0  49.3  48.8  45.0  45.0  34.2  40.6  42.7  32.0  30.7  32.4  32.8  29.7 

Export of goods (BoP data) 

1.3 

1.2 

1.3 

1.7 

2.1 

2.7 

1.4 

1.7 

1.6 

2.2 

2.6 

2.6 

2.8 

Import of goods (BoP data) 

4.6 

4.7 

5.0 

5.4 

6.0 

6.1 

6.0 

7.2 

5.6 

6.1 

6.9 

6.9 

6.8 

Capital account 

0.45  0.43  0.41  0.24  0.23  0.23  0.21  0.20  0.18  0.2 

0.2 

0.2 

0.2 

Remittances 

1.63  1.50  1.46  1.60  1.64  1.78  1.99  1.96  1.71  1.8 

1.8 

1.9 

1.9 

Remittances [in % of GDP] 

0.25  0.21  0.19  0.20  0.19  0.18  0.18  0.15  0.14  0.14  0.14  0.14  0.14 

Official FX reserves  

1.4 

1.3 

1.4 

1.8 

2.2 

2.8 

3.4 

3.2 

3.2 

3.3 

3.3 

3.3 

3.6 

Official FX reserves [in % of GDP] 

21.1  17.8  19.0  21.7  24.5  28.0  30.4  25.2  25.6  26.0  24.9  25.3  26.9 

Source: Agency for Statistics of Bosnia and Herzegovina. BoP statistics 

3.1.4  Public finances 

Following  pro-cyclical  fiscal  expansion  in  2008  and  the  slowing  of  revenues  during  the 
crisis,  BiH’s  consolidated  budget  deficit  widened  to  4.4  per  cent  in  2009.  Adjustment 
measures  implemented  under  the  2009  IMF  SBA  alongside  rising  revenues  (due  to 
economic  recovery  and  increases  in  tax  contribution  and  excise  rate)  helped  bring  the 
budget  deficit  down  to  2.5  per  cent  of  GDP  in  2010.  Fiscal  consolidation  continued  in 
2011,  although  budget  planning  for  that  year  (and  beyond)  was  seriously  hampered  by 
the  non-adoption  of  the  Global  Framework  for  Fiscal  Policies  for  the  periods  2011-2013 
and  2012-2014.  Consequently,  in  2011,  fiscal  consolidation  was  dictated  by  the  lack  of 
foreign  financing  for  the  Entities  and  by  the  temporary  financing  rules—that  limit 
spending  in  the  absence  of  an  adopted  budget—for    the  Institutions  of  BiH.  The 
consolidated budget deficit increased from 1.3 per cent in 2011 to 2 per cent in 2012 as 
post 2009 recovery stalled; rising further to 2.2 per cent in 2013 as the economy slipped 
back  into  recession.  Sizable  revenue  shortfalls—including  lower-than-budgeted  indirect 
tax  revenues,  a  delay  in  the  distribution  of  dividends  from  the  electricity  transmission 
company  TRANSCO,  and  lower  receipts  from  the  sale  of  military  assets—combined  with 
delays in securing external financing forced the authorities to significantly compress non-
priority spending toward the end of 2013.  The severe flooding in May 2014 has however, 
interrupted  the  authorities’  efforts  at  fiscal  consolidation  and  consequently,  the  budget 
deficit is projected to rise above 4 per cent in 201462. 

62 IMF, (2014). Country Report. Available at: http://www.imf.org/external/pubs/cat/longres.aspx?sk=41707.0   

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Figure 16.  Overview of public finances, 2005 - 2013 (per cent of GDP) 

Source: CBBH – GFS Statistics.  

Despite  several  years  of  fiscal  restraint,  the  share  of  general  government  spending  in 
GDP remains high (averaging 44 per cent during 2009-2013). In order to streamline both 
the size and structure of BiH’s public spending, the adjustment measures implemented as 
part of the 2012 IMF SBA included cuts in public sector wages, measures to improve the 
efficiency  of  healthcare  spending,  reform  of  war-related  benefits  and  old  age  pension. 
However, the composition of expenditure has shown no improvement so far, as spending 
on  public  wages  and  social  transfers  (particularly,  war-related  benefits)  remains  high63. 
The  adjustment  measures  on  the  expenditure  side  –  if  fully  implemented  –  should  be 
successful in the coming years. 

63 During 2010-2013, there was an increase in social transfers, especially in RS.  The share of social transfers in 
total expenditure increased by 13.8 per cent (reaching almost half of the total spending) in RS during 2010-2013  
as a result of increases in the benefits going to various social groups’ (war veterans, pensioners). In FBiH and at 
the State level, social benefits rose by 6 and 4 per cent respectively, during the same period to (rising to an 
overall level of  39 per cent of government spending).  

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Figure 17.  Structure of consolidated general government’s current 

expenditures, 2005-2009 

(i) As a share of GDP 

(ii) As a share of total revenue 

Source: CBBH – GFS Statistics. Other includes grants 

On the revenue side, steps were taken by the authorities – under the aegis of the 2012 
IMF  SBA  –  to  improve  revenue  performance  by  strengthening  tax  administration  and 
compliance  (particularly  by  addressing  VAT  fraud  and  collecting  tax  arrears)  and 
broadening  the  tax  base.  Nonetheless,  the  share  of  indirect  taxes  in  the  consolidated 
budget  fell  sharply  during  the  crisis  period  (2009-2013)  as  compared  to  the  pre-crisis 
period (2005-2008). This was largely due to the weak state of domestic consumption and 
falling  prices,  but  it  also  reflected  delays  in  the  full  implementation  of  measures  to 
improve tax collection64. 

64 IMF Country Report No. 14/189 dated July 2014 

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Figure 18.  Structure of consolidated general government’s revenue, 2005-

2008 and 2009-2013 

(i) As a share of GDP 

(ii) As a share of total revenue 

Source: CBBH – GFS Statistics 

3.1.5  Public debt 

BiH’s  public  debt  has  been  on  an  upward  trajectory  since  2007,  expanding  rapidly  from 
30  per  cent  of  the  GDP  in  2007  to  45  per  cent  of  the  GDP  in  2012.  There  was  a  slight 
reduction  in  2013  primarily  thanks  to  the  reduction  in  domestic  debt,  but  total  public 
debt is expected to increase in 2014.  This is due to the financing needed to make up for 
revenue  losses  and  to  cover  the  costs  related  to  the  after  post-flood  recovery  and 
reconstruction process. The current level of public debt – at around 40 per cent of GDP – 
is  moderate  and  sustainable.    However,  according  to  the  IMF,  it  makes  an  emerging 
economy  like  BiH,  with  a  fixed  exchange  rate  and  no  access  to  international  capital 
markets potentially vulnerable to shocks. The IMF is working with the authorities to bring 
debt-to-GDP ratio toward the pre-crisis level of 30 per cent of GDP. 

In  terms  of  its  composition,  BiH’s  public  debt  consists  largely  of  concessional  external 
debt to IFIs65, with 28 per cent of 2013 GDP, and of domestic debt in form of long-dated 
bonds (15 per  cent of the 2013 GDP).  The largest share  of the public external debt (30 
per  cent)  is  towards  the  World  Bank  Group  and  specifically,  the  International 
Development Association (IDA).  Much of this debt was acquired during the post-conflict 
reconstruction phase (1996-2002). The remainder of the external debt is to the IMF (13 
per cent), European financial institutions such as the EIB (18 per cent), the EBRD (9 per 
cent),  the  Paris  club  (9  per  cent)  and  others66.  Domestic  debt  is  in  form  of  bonds  that 
were issued to settle pre-war frozen foreign currency savings and war damage claims by 
citizens. Given the limited development of local financial markets, governments in BiH did 
not turn to them for regular issuance of bonds and bills for deficit financing until 2011. 

65 With average interest rate of all debt being 1.44% . Source: SWD (2013) 425 final – Bosnia and Herzegovina, 
2013 Progress Report, p.23 
66 Based on CBBH statistics on Stock of foreign debt BH government sector. Figures for end of 2014 

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Gross external financing needs are expected to rise from USD 3.6 billion in 2013 to USD 
4.8  billion  in  2014  (or  from  19.9  per  cent  to  25.1  in  GDP  terms)67  In  addition,  2014  is 
also the time of the concentration of repayment obligations68 to international donors from 
already functioning assistance programmes.  

Figure 19.  Public debt developments, 2001-2013 (per cent of GDP)  

Source: IMF Country Reports No. 05/199 (2001), 06/371 (2002-2004), No. 05/199 (2000-2001),  09/226 
(2005-2007), 10/348 (2008-2009), 14/39 (2010), 14/189 (2011-2013) 

3.1.6  Employment 

The labour market situation in the country has remained difficult. Economic activity rate 
has not changed significantly (it has remained stagnant at around 44 per cent) and 
continues to be not only the lowest in Western Balkans but also in the European 
context69. Labour market reforms that could have boosted job creation faced resistance 
and youth unemployment increased from 48.7 per cent in 2009 to 57.5 per cent70 in 
2013 according to the World Bank data71.   

67 IMF. (2013). Country Report. Available at: https://www.imf.org/external/country/BIH/index.htm  
68 According to the BiH Central Bank estimation, costs related to foreign debt servicing were BAM 340 million, 
BAM 413 million, BAM 684 million, BAM 472 million as of 2011, 2012, 2013 and 2014 respectively.    
69 See for instance World Bank, (2014). Boosting Job Growth in the Western Balkans. Available at: 
https://www.imf.org/external/pubs/ft/wp/2014/wp1416.pdf  
70 Note that according to the Labour Force Survey carried out by Agency of Statistics of Bosnia and Herzegovina 
in April 2013, the youth unemployment was 59.1 per cent. Available at: 
http://www.bhas.ba/saopstenja/2013/LFS%202013%20Preliminarni%20bos.pdf    
71 World Bank, (2014). Youth unemployment data. Available at: 
http://data.worldbank.org/indicator/SL.UEM.1524.ZS   

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Figure 20.  Labour market characteristics in Bosnia and Herzegovina from 

2010 onwards - key indicators 

Source: Agency for Statistics of Bosnia and Herzegovina. 

3.1.7  Monetary policy developments 

As  opposed  to  the  pre-crisis  period  when  inflation  level  was  erratic  and  occasionally 
reached  high  levels  (6.1  per  cent  in  2006  and  7.4  per  cent  in  2008);  inflationary 
pressures have remained subdued in recent years, reflecting the weak domestic demand 
and  falling  commodity  prices.  High  unemployment,  fiscal  consolidation,  and  weak 
consumer confidence have continued to dampen domestic demand, resulting in deflation 
during 2013, which is likely to continue in 2014 based on the Central Bank’s forecast. As 
economic  growth  is  likely  to  accelerate  in  2015,  inflation  is  projected  to  increase  (see 
Figure 21).   

Figure 21. 

Inflation rate, 2010 to 2015 

Source: Central Bank of Bosnia and Herzegovina. Forecast data (f) for 2014 and 2015. 

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3.1.8  Financial sector 

The banking system in the country remains stable, the capitalisation is appropriate72 and 
there are no problems with liquidity in the system. Yet, the share of non-performing 
loans (NPLs) has been continuously rising since 2009 reaching 15.1 per cent at the end 
of 2013 (this has been largely driven by corporate liabilities)73. Although this has been a 
common trend in the region, it has raised particular concerns in BiH’s context.  This is 
because of the potential side effects and particularly the risk to the ability of local banks 
to support the enterprise sector. It is also plausible that as a result of recent flooding, 
NPLs may rise considerably74.  

Figure 22.  Evolution of the share of Non-Performing Loans: BiH compared to 

regional peers, 2009-2013  

Source: World Bank data on bank non-performing loans to total gross loans 

3.2  Construction of the counterfactual scenario 

To  determine  the  ‘net’  macroeconomic  impact  of  the  MFA  a  comparison  between  actual 
macroeconomic  developments  and  a  counterfactual  scenario  that  describes  what  would 
have  happened  (or  not  happened)  in  its  absence  is  required.  By  definition,  a 
counterfactual cannot be observed and has to be constructed, thus involving an element 
of judgement.  

In  line  with  DG  ECFIN’s  evaluation  guidelines75,  assessment  of  net  economic  impact  of 
the  MFA  operation  requires  the  explicit  construction  of  at  least  two  counterfactual 
scenarios: 

  One where MFA operation does not take place (“no MFA” scenario); and 
  Another  where  MFA  operation  does  not  take  place  and  in  addition,  the  IMF  SBA 

also does not take place (“no MFA and no IMF” scenario).  

In  the  case  of  MFA  to  BiH,  the  period  between  the  approval  of  the  MFA  and  actual 
disbursement of MFA tranches coincided with two BiH agreements with the IMF: 

  A three-year SBA approved in June 2009; and 
  A two-year SBA approved in September 2012. 

72 Capital adequacy ratio was 17.7 per cent in Q2 2013. 
73 World Bank. (2014). Bosnia and Herzegovina. Partnership: Country Program Snapshot. Available at: 
http://www.worldbank.org/content/dam/Worldbank/document/eca/BH-Snapshot.pdf  
74 IMF, (2014). Country Report. Available at: http://www.imf.org/external/pubs/ft/scr/2014/cr1439.pdf   
75 European Commission (2010) Guidelines for the Ex Post Evaluation of Macro-Financial Assistance and 
Balance of Payments Assistance Operations, May 2010. 

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The  first  one  opened  the  possibility  for  the  EU  to  approve  the  provision  of  MFA.  The 
second one opened the possibility that – after a period of political deadlock and delay in 
implementation of reforms included the MFA conditionality – the validity of MFA operation 
could be extended and eventually loan tranches could be disbursed during 2013. 

The  definition  of  the  “no  MFA”  counterfactual  is  relatively  straightforward.  In  this 
counterfactual  scenario,  assistance  from  other  sources,  including  the  IMF  is  assumed  to 
remain as in the actual scenario. 

The  definition  of  the  “no  MFA  and  no  IMF”  assistance  counterfactual  scenario  requires 
making certain assumptions given the two IMF programmes in place during the life of the 
MFA  operation.  Available  evidence  does  not  give  any  indication  of  MFA  effects 
materialising following the EU decision to provide the assistance (from December 2009), 
especially considering that the MoU and the Loan Agreement followed only in November 
2010. Hence the MFA impact was mainly expected to materialise in relation to: 

  The  reform  progress  following  the  formulation  of  MFA  conditionality  (November 

2010) and especially in 2012-2013, and 

  The actual disbursement of MFA loan tranches during 2013. 

It follows that the period of most interest for the assessment of MFA impact starts at the 
end  of  2010  (signature  of  MoU  defining  the  MFA  conditions)  and  runs  until  2013  and 
beyond.  This  is  the  period  after  the  first  IMF  agreement  was  effectively  halted  and 
coincides with the implementation of the second IMF programme approved in September 
2012. 

Taking the above into account, the definition of the “no MFA and no IMF” counterfactual 
scenario is as follows: 

  The MFA operation does not take place; 
  The  IMF  programme  agreed  in  June  2009  is  implemented  as  originally  specified, 

i.e. is de facto terminated in October 2010; and 

  There  is  no  September  2012  IMF  programme  and  no  other  IMF  programme  is 
agreed  until  end  of  the  period  covered  by  the  assessment  (i.e.  during  2013-
2014). 

3.2.1  Development of counterfactual scenarios 

A three-step approach was followed to the further elaboration of the two counterfactual 
scenarios (“no MFA” and “no MFA and no IMF”): 

  A long list of all potential counterfactual policy choices and outcomes was 

developed on the basis of literature review and macroeconomic data analysis;  
  The long list of all potential counterfactual policy choices and outcomes was then 
tested with key stakeholders (most notably, the State and Entity authorities, the 
IMF and the World bank) and experts via the Delphi survey; and  

  The results of the desk research, key stakeholder interviews and Delphi survey 

were cross-checked and triangulated to determine the most likely or plausible 
counterfactual policy choices and outcomes . 

The sub-sections below describe the most likely economic developments that would have 
occurred under the two counterfactual scenarios of “no MFA” and “no MFA and no IMF”.  

3.2.1.1  “No MFA” counterfactual scenario 

This  scenario  assumes  that  MFA  is  not  granted  to  BiH  in  2009  and  there  are  no 
disbursements of loan tranches totalling EUR 100 million during 2013. The IMF lending is 
assumed to be unaffected in the absence of the MFA. It should be noted that at the time 
of  negotiating  the  2012  SBA,  the  IMF  was  actually  very  interested  in  securing  financing 
from  other  sources  in  line  with  its  burden-sharing  principles.  Therefore,  the  EUR  100 
million  MFA  was  taken  into  account  when  designing  the  IMF  programme.  However,  the 
insights gathered during interviews suggest that the IMF would have gone ahead with its 
2012  SBA  even  in  the  absence  of  the  MFA  (given  its  strong  interest  in  recovering  the 
amounts disbursed as part of the 2009 SBA). Hence, and also in order to ensure a clear 

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and Herzegovina 

separation  from  the  “no  MFA  and  no  IMF”  scenario  described  below,  IMF  lending  is 
assumed unaffected in the “no MFA” counterfactual scenario. 

The “no MFA” counterfactual scenario could potentially have evolved as follows: 

  The  authorities  maintain  spending  and    deficit  at  the  levels  observed  in  actual 

macroeconomic data, replacing the MFA with domestic borrowing; 

  The  authorities  maintain  spending  at  observed  levels,  but  finance  it  by  raising 
additional revenue from changes in taxation and/or, privatisation receipts; or 

  The  authorities  do  not  replace  the  ‘lost’  MFA  funding  with  financing  from 
elsewhere. Without additional sources of deficit financing (or any scope for raising 
additional  revenue),  the  authorities  have  to  reduce  the  deficit  through  spending 
cuts. 

The  information  gathered  from  various  sources  suggests  that  the  most  plausible 
adjustment  path  in  the  absence  of  the  MFA  would  have  been  deficit  financing  through 
higher issuance  of domestic debt, both in the FBiH and in RS, to  replace the ‘lost’ MFA. 
Given the relatively small size of the MFA (EUR 100 million), a corresponding reduction of 
expenditures  in  both  Entities  would  have  been  unnecessary  and  thus,  very  unlikely. 
Interviews  with  the  Entities’  authorities  also  revealed  that  such  hypothetical  option  was 
not discussed at any point.  Increasing revenue collection to offset the ‘loss’ of financing 
from MFA was disregarded as a potential counterfactual scenario due to: 

  The complex and politically sensitive arrangement, which does not allow smooth 

and quick increases of VAT76; 

  Concerns that an increase in excise would incentivise higher tax evasion; 

  A lack of political will to raise direct tax base for individuals and corporations in a 

context of high unemployment and reduced purchasing power;  

  A low possibility of successful and substantial privatisation. 

Therefore,  the  most  plausible  “no  MFA”  counterfactual  that  emerges  from  the  desk 
research, key stakeholder interviews and the Delphi survey is as follows: 

 

In the absence of MFA financing in 2013, both Entities would have maintained 
their expenditures and deficits at levels observed in actual data (instead of 
reducing either); and 

  The deficit would have been financed through additional domestic debt issuance, 

(and therefore, at a slightly higher cost). 

The text box below provides an overview of developments in the domestic debt markets 
in  both  Entities  during 2012-2014,  thus  confirming  that  domestic  debt  markets  had  the 
capacity to absorb the extra government debt issued to replace the ‘lost’ MFA financing. 

76 Increase in VAT requires consensus at Entities and State level. 

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Box 4 Developments on the primary debt market in BiH (2012-2014) 

During  2012-2014,  the  Ministries  of  Finance  of  the  two  Entities  (FBiH  and  RS)  were 
major creators of debt instruments77. Corporate and municipalities bonds were still in the 
initial  phase  of  development.  Moreover,  the  debt  securities  issued  by  the  Entity 
governments  have  been  major  drivers  of  total  turnover  on  both  BiH  stock  exchanges, 
accounting for more than 50 per cent of total trade value of BiH capital markets.  

During  the  period  2012-2013,  FBiH  raised  total  of  BAM  368  million  (BAM  170  million in 
bonds and BAM 198 million in T-bills) while RS auctioned total of BAM 316 million (BAM 
30 million in bonds and BAM 286 million in T-bills) – see Figure 23. 

Figure 23.  Primary debt issuance of FBiH and RS governments in 2012-2014 

Source: Data compiled by Raiffeisen Research 

It is worth noting that prior to the negotiations with the IMF regarding the 2012 SBA, 
both Entities planned to finance their 2012 deficit mostly through the primary issues of 
the debt instruments in local currency (BAM 290 million in FBiH – BAM 230 million bonds 
and BAM 60 million of T-bills; while RS planned BAM 100 million – BAM 70 million in T-
bills and BAM 30 million of bonds).  

Consequently, there was a lot of activity in the primary debt market between March and 
May 2012. This was in line with the preliminary announced “Plans of the Primary Debt 
Issuances” adopted within the Budgets 2012. Hence, in March and April 2012, FBiH 
successfully placed the 4th and 5th issue of the 6M T-bills amounting to BAM 25 million 
and 15 million respectively (Table 12).  The average yields to maturity (YTM) were under 
downward pressure, and at 2.28 per cent and 2.20 per cent had the lowest cost of 
financing in SEE region. This was due to high excess liquidity in local banking sector (98 
per cent of investors were banks). In addition, FBiH began the first issues of their 
primary long-term debt instruments in May 2012. The first auction of 3Y bonds (BAM 80 
million), were successfully placed at a low yield of 5.25 per cent. This was the first out of 
a planned 5 auctions of a total amount of BAM 230 million, which had been planned to be 
implemented until September 2012. However, FBiH’s 4Y auction in June 2012 of BAM 30 
million had low take-up (57 per cent). This reflected the rising risk-aversion of local 
banks which have a limited tolerance of credit exposure to one issuer, and lowering 
appetite for investing in long-term instruments by the end of the year. The low take-up 

77 Due to the limited development of local financial markets, Governments in BiH did not turn to them for regular 
issuance of bonds and bills for deficit financing until 2011. 

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of 4Y bonds was the major reason why the Federal Ministry of Finance and Treasury 
decided to amend the Budget 2012 and changed the structure of deficit financing. The 
budget was re-orientated towards the IMF SBA and new issuances of shorter-term 
instruments (3M-6M T-bills).  However, the situation improved after a few months. 

Given the access to financing from the IMF SBA and EU-MFA, in 2013 the authorities 
effectively “switched” domestic debt issuance with external debt which was available on 
more favourable terms. This was reflected in the ‘dip’ in primary debt issuances in 2013 
compared to 2012. The downward pressure on yields and high cover ratios for issuances 
in 2013 were indicative of a growing appetite for bonds and T-bills among local banks. 

Table 12.  Primary debt auctions of FBiH and RS governments in 2012-
2013

One important observation is that over the 2012-2013 period the Ministries of Finance in 
BiH issued debt instruments at very low cost and yields, even compared to other 
countries with much better credit ratings. In RS, the YTM was 3.26 per cent, 3.44 per 
cent and 4.02 per cent for 6 month (6M), 9M and 12M T-bills respectively. The average 
YTMs in FBiH were even lower settling at 2.09 per cent for 6M and at 1.40 per cent on 
9M T-bills on average. The primary debt auctions of both Ministries met significant 
demand with overly liquid local banks being the main buyers. The banks mostly held 
debt instruments until maturity. The excess liquidity of the banking sector in FBiH and 
RS is a result of the very strict bylaws of the Entity banking agencies on currency and 

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term-structure of the banking system which result in excess short-term liquidity in local 
currency.  

Not only were average yields very low in the 2012-2013 period but yields actually 
declined over time especially on short-term instruments, settling at record lows by the 
end of 2013. The last 2013 auction of T-bills in FBiH resulted in YTMs of 1.4 per cent, 
while YTM on last 2013 auction of T-bills in RS went down to 2.08 per cent. 

In 2014, the Finance Ministries continued with the relatively large primary debt auctions. 
It is likely that 2014 will set a record in terms of the total value of primary debt issuance. 
This was driven inter alia by the limited progress of implementation of the SBA 
programme with the IMF, the floods in May 2014 and large credit repayments to the IMF 
falling this year. 

The local banks showed sufficient demand to absorb the increasing issuance at further 
declining yields. In the first three quarters of 2014, the FBiH collected BAM 270 million 
(BAM 50 million in bonds and BAM 219 million In T-bills) while the RS collected total of 
BAM 273 million (BAM 136 million and BAM 137 million in T-Bills). The trend of declining 
cost yields continued in the first half of 2014, especially in FBiH where average YTMs on 
all T-bills (3M, 6M, 9M and 12M) declined below 1 per cent for the first time since FBiH 
government started issuing T-bills. At the same time, decline in yields on bonds have 
been much more muted. 

Table 13.  Primary debt auctions of FBiH and RS governments in 2014 

Source: Data compiled by Raiffeisen Research 

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In  order  to  fully  make  up  for  the  lack  of  MFA  financing,  the  government  of  FBiH  would 
have  needed  to  issue  additional  EUR  60  million  (around  BAM  117  million)  of  debt 
instruments during 2013 and the government of RS an additional EUR 30 million (around 
BAM 59 million). No policy response and no macroeconomic implications are assumed at 
the State level. This is due to the surplus in the State level budget (slightly exceeding the 
amount of MFA assistance going to  the State, i.e.  EUR 10 million) and the fact that  the 
State  level  budget  has  been  in  surplus  for  the  last  few  years,  coupled  with  the  limited 
amount of money involved in the MFA tranches to the State level (EUR 10 million).  

The  actual  debt  issuance  in  2013  was  around  BAM  119  million  in  FBiH  and  BAM  191 
million in RS. In the case of FBiH, the majority of actual issuance during 2013 was in the 
form of short-term T-bills. In RS only T-Bills with maximum maturity of 12 months were 
issued. Moreover, there was a clear difference between yields on T-bills (below 2 per cent 
in FBiH) and 3 year bond issue with an average yield of 4.57 per cent.  

The figures for domestic debt issuance in 2011 and 2012 suggest that the domestic debt 
market  would  have  most  likely  been  able  to  absorb  the  additional  issuance  needed  in 
2013 to make up for the lack of MFA. However, the financing terms would have been less 
favourable: significantly shorter maturity and lack of a grace period. 

It  is  not  possible  to  confidently  estimate  the increase  in  yields  that would  be  needed  to 
replace MFA borrowing by the issuance of 3 year bonds for example. One can speculate 
that  this  could  be  possible  at  yields  higher  by  around  1  percentage  point  than  those 
actually achieved in FBiH during 2013. This implies average yield of around 5.6 per cent. 
Moreover,  this  could  drive  up  yields  on  other  debt  instruments,  including  short-term  T-
bills and bonds issues during 2013-2014. Again, there is no information base that would 
enable meaningful estimation of this effect. It can be speculated that the impact could be 
to  the  tune  of  0.5  percentage  points,  i.e.  T-bill  issued  during  2013  would  need  to  have 
average  yields  higher  by  around  0.5  percentage  points  than  actually was  the  case.  This 
effect  could  gradually  disappear  over  time,  e.g.  in  2014  average  T-bills  and  bonds 
interest  rates  could  be  higher  by  some  0.25  percentage  points  in  the  counterfactual 
scenario  compared  to  actual  outcomes.  The  effect  could  disappear  on  debt  instruments 
issued from 2015 onwards. 

The above impacts in terms of lending can be compared to the conditions of MFA loans. 
The  Loan  agreement  (signed  on  17  November  2010)  indicates  that  the  interest  rate 
applicable to MFA lending was 2 per cent.  

On  the  basis  of  the  above  information  along  with  some  simplifying  assumptions,  the 
additional debt servicing cost that would need to be borne by both Entities’ governments 
in  the  counterfactual  scenario  are  estimated  to  be  EUR  12.4  million  (at  current  prices) 
during  2013-2015  (Table  14).  To  put  this  figure  into  perspective,  annual  interest 
payments  in  the  consolidated  BiH  general  government  operations  amounted  to  around     
EUR 100 million in 2013, projected to rise to some EUR 118 million in 201478. Hence, in 
the  counterfactual  scenario  annual interest  spending  could increase  by  3-4  per  cent  per 
annum during 2013-2015.  

Table 14. Indicative calculations of additional debt servicing burden in the no 

MFA counterfactual scenario 

Interest rate 
differential 
(counterfactual vs. 
actual) (percentage 
points) 

Applicable to the 
volume of lending 
(EUR million) 

With 
approximate 
average 
maturity  

Description of debt 
instruments 

0.5 

0.5 

1 

41 

95 

20 

6 months 

9 months 

3 years 

FBiH T-bills in 2013 

RS T-bills in 2013 

FBiH bonds in 2013 

78 IMF Country report 14/189, July 2014, Table 5. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Interest rate 
differential 
(counterfactual vs. 
actual) (percentage 
points) 

Applicable to the 
volume of lending 
(EUR million) 

With 
approximate 
average 
maturity  

Description of debt 
instruments 

4 

0.25 

0.25 

90 

273 

270 

3 years 

1 year 

RS & FBiH bonds replacing MFA 

RS debt issuance 1-3Q 2014 

6 months 

FBiH debt issuance 1-3Q 2014 

Notes: an assessment of approximate maturity is based on analysis of actually issued debt instrument (an 
assumption is made that these would stay unaffected in the counterfactual scenario). 

The bond issuance replacing MFA is assumed to consist of 3-year bonds. The effects on this instrument are only 
considered until its maturity, i.e. for the first three years. This is equivalent to assuming that after that date 
Entities would be able to refinance at conditions comparable to those offered by MFA loans. 

Source: Own elaboration. 

This counterfactual increase in the costs of debt servicing is deemed too low to translate 
into  broader  macroeconomic  implications,  including  the  balance  of  payment  position  of 
the  country.  Higher  public  borrowing  on  the  domestic  market  (in  practice  from  BiH 
banks)  could  crowd  out  some  funds  that  could  be  channelled  to  private  sector  projects. 
Also,  higher  interest  rates  on  government  bonds  and  T-bills  could  have  an  impact  on 
interest  rates  of  loans  offered  to  the  private  sector.  This  might  have  certain  negative 
impact on economic activity, but the scale of this effect would likely be negligible.  

In  terms  of  public  and  external  debt  sustainability  the  counterfactual  scenario  involves 
shifting  from  external  to  domestic  borrowing.  However,  due  to  the  credibility  of  the 
currency board this is not expected to be associated with any impacts for public debt and 
external sustainability. Therefore, the main effects are due to higher interest payments, 
but again, the scale of this increase is not very significant. Table 15 provides a summary 
of  macroeconomic  and  external  sustainability  implications  of  the  no  MFA  counterfactual 
scenario.  

Table 15. “No MFA” counterfactual scenario – a summary 

Period 

 Policy response 

Net macroeconomic outcomes 

2013 

Higher borrowing on the 
domestic market 

Source: own elaboration 

Higher interest rates on domestic debt market. As a 
result, governments of RS and FBiH face higher debt 
servicing cost to the tune of EUR 12.4 million spread 
over the 2013-2015 period 

No sizeable impact on macroeconomic conditions (GDP 
growth, inflation, etc.)  

Balance of payment position – lower reserve 
accumulation and a slight contraction in imports 

It is difficult to conclude that lack of MFA would have 
changed market sentiments towards BiH and led to 
capital outflow. The presence of foreign capital is 
limited, and most of the inflows comprise donors’ 
funds; foreign direct investment (FDI) or portfolio 
investments comprise a much smaller proportion 

Some crowding out of private investment possible, but 
the size of the effect cannot be significant given the 
excess liquidity in the banking system 

No significant impact on public debt sustainability – 
minimally deteriorated outcome due to higher cost of 
debt servicing 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

3.2.1.2  “No MFA and no IMF” counterfactual scenario 

This scenario is defined as the one in which: 

  MFA operation does not take place; 
 

IMF programme agreed in June 2009 is implemented as originally planned, i.e. is 
de  facto  terminated  following  the  October  2010  elections  which  resulted  in  a 
political deadlock; and 

  There  is  no  September  2012  IMF  programme  and  no  other  IMF  programmes  is 
agreed  until  end  of  the  period  covered  by  the  assessment  (in  practice  during 
2013-2014). 

The  key  difference  between  this  counterfactual  scenario  and  the  no  MFA  scenario 
described above is in the scale of missing external financing. IMF disbursements equalled 
around EUR 116 million in 2012, EUR 126 million in 2013 and EUR 240 million during the 
first three quarters of 2014 (see Figure 24).  

Figure 24.  Disbursement of IMF and MFA loans, 2012-2014 (EUR million)  

Source: IMF (BiH Transactions with the Fund between 2012-2014), EC documents, macroeconomic data 
sourced from CBBH . 

The  domestic  debt  market  did  not  have  the  appetite  to  absorb  issuance  of  debt 
instruments  at  comparable  scale  (see  Box  4  above)79.  Given  BiH’s  lack  of  access  to 
international  markets,  the  counterfactual  ‘loss’  of  external  financing  would  need  to  be 
associated with fiscal adjustment. 

The  mobilisation  of  additional  tax  revenues  is  not  deemed  as  a  feasible  option.  This  is 
due, inter alia, to difficulty reaching the political compromise needed for any changes of 
indirect  taxes  (mainly  VAT)  collected  at  the  State  level.  In  addition,  the  relatively  large 
scale  of  the  unregistered  economy  and  various  weaknesses  of  tax  collection  institutions 
make substantial tax increases unlikely to generate matching rise in revenues. 

Hence, the most plausible adjustment would  have involved cuts in public spending. It is 
assumed,  for  simplicity,  that  other  sources  of  financing  are  not  affected  in  the 
counterfactual scenario. The required adjustment on the expenditure side would need to 
be  in  the  range  of  0.9  per  cent  of  BiH  GDP  in  2012  and  around  1.7  per  cent  of  GDP  in 
2013 and in 2014. The latter figure (for 2014) takes the end of August 2014 as a cut-off 
date of when actual IMF disbursements are removed in the counterfactual scenario. This 

79 In theory, domestic banks had the capacity to absorb any domestic debt issued to replace IMF funding. 
According to local financial regulation, any individual financial institution’s exposure to government debt cannot 
exceed 300% of its core capital. Therefore, in theory, the ceiling imposed by the financial regulations would not 
have been an obstacle for absorption of the debt instruments comparable to the size of IMF assistance.  

49 

 
 
 
                                           
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

is  explained  by  practical  considerations  (the  fact  that  this  analysis  was  conducted  in 
November  2014),  but  the  IMF  statement  after  the  Fund’s  visit  to  BiH in  mid-September 
2014 suggests that next disbursements may not be immediately available to BiH. 

Having  decided  on  the  most  likely  policy  response  that  would  be  required  under  this 
counterfactual  scenario,  the  key  question  is  about  its  macroeconomic  and  external 
sustainability implications. These are discussed below.  

The  first  important  issue  concerns  the  most  likely  structure  of  public  expenditure  cuts. 
Delays in certain wage and social spending and in transfers with State-owned enterprises 
appear  the  most  likely  short-term  response.  However,  it  is  questionable  whether  in  the 
longer term these spending cuts would translate into a permanent reduction of excessive 
(and  poorly  targeted)  social  expenditure  or  would  return  to  the  original  path  at  the 
expense of public investment expenditure. The latter scenario might be more plausible. 

No  studies  have  been  identified  that  would  try  to  estimate  fiscal  multipliers  for  BiH. 
Economic theory based on the Mundell-Fleming model predicts sizeable fiscal multipliers 
for  countries  with  fixed  exchange  rate  regimes.  Empirical  evidence  remains  somewhat 
mixed,  reflecting  inter  alia  various  methodological  challenges  in  estimating  fiscal 
multipliers, for example where the multipliers appear to be larger during recessions than 
during  expansions  (for  instance  Auerbach  and  Gorodnichenko,  201280).  Given  lack  of 
consensus  view  on  the  size  of  fiscal  multipliers  that  could  be  relevant  for  BiH  during 
2012-2014 the assumption is made that it could be in the range suggested by the recent 
study  by  Born  et  al  (2013)81.  This  study  reports  the  point  estimate  of  the  (short-run) 
fiscal  multiplier  of  about  1.2  in  countries  with  fixed  exchange  rate  regimes.  Due  to  the 
inherent  uncertainty  of  any  estimates  and  the  fact  that  emerging  economies  and 
countries  with  high  trade  openness  may  have  lower  multipliers  (Ilzetzki,  2009)82  two 
multiplier  values  have  been  applied:  1.2  and  half  of  that  figure  (0.6)  to  assess  the 
indicative range of counterfactual implications for GDP growth in BiH during 2012-2014. 

Subdued economic activity in the counterfactual scenario would likely be associated with 
lower imports and a lower current account deficit. The quantification of this adjustment is 
difficult. It can be speculated that income elasticity of import demand may be at least 1, 
suggesting counterfactual imports and current account adjustments to the tune of up to 
0.5 per cent of GDP in 2012, and 1 per cent of GDP in 2013-201483. 

Public  and  external  sector  indebtedness  would  be  lower  in  the  counterfactual  scenario, 
with  the  accumulated  stock  lower  by  some  4.3  per  cent  of  GDP  by  the  end  of  2014. 
However,  this  apparent  counterfactual  improvement  in  external  and  public  debt 
sustainability  would  not  necessarily  translate  into  longer-term  improvement.  This  is 
because it cannot be taken for granted that the fiscal adjustment necessitated by lack of 
access to MFA and IMF funds would translate into lasting improvement in the structure of 
public  spending.  If  this  was  not  the  case,  then  the  need  to  repay  accumulated  arrears 
and pressing public investment needs would require turning to external financing sources 
to  raise  additional  money  in  the  future.  Therefore,  the  counterfactual  improvement  in 
debt  sustainability  outlook  could  prove  rather  short-lived.  Any  assumptions  in  this 
respect would be highly speculative making the assessment of counterfactual longer term 
public and external debt sustainability particularly difficult. 

80 Auerbach, A J and Y Gorodnichenko (2012), Measuring the Output Responses to Fiscal Policy, American 
Economic Journal: Economic Policy, 4(2): 1–27. 
81 Born, Benjamin, Juessen, Falko and Mueller, Gernot J. (2013), Exchange rate regimes and fiscal multipliers, 
Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(2), pp 446-465. 
82 Ilzetzki, E., Mendoza, E.G., Vegh, C.A. (2009), 'How big are fiscal multipliers?', Centre for Economic Policy 
Research Policy Insight, 39.  
83 Goods and services imports as reported in the balance of payments statistics corresponded to approximately 
half of GDP in 2013. An overview of literature estimating trade demand elasticities in countries similar to Bosnia 
and Herzegovina can be found e.g. in B Jovanovic (2012), Estimating trade elasticities for ex-socialist countries: 
the case of Macedonia, mimeo, University of Rome Tor Vergata, 
http://www.eiit.org/WorkingPapers/Papers/TradePatterns/FREIT444.pdf  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

The results for this scenario are summarised in Table 16. They are subject to large 
margin of uncertainty, but are nevertheless likely to provide a realistic approximation of 
the scale of counterfactual outcomes. 

Table 16. No MFA and no IMF assistance counterfactual scenario – a summary 

Period 

Policy response 

Macroeconomic outcome 

2012 

Reduction of public spending by around 
EUR 116 million (0.9 per cent of GDP)  

2013 

Reduction of public spending by around 
EUR 126 million (1.7 per cent of GDP) 

2014 

Reduction of public spending by around 
EUR 240 million (1.7 per cent of GDP) 

GDP growth rate lower by between 0.5 and 1.1 
percentage point, i.e. deeper recession: GDP falling by 
1.7-2.3 per cent 

Imports and consequently, current account deficit 
lower by equivalent of some 0.2- 0.5 per cent of GDP 

Public and external debt stock lower by around 0.9 per 
cent of GDP 

GDP growth rate lower by between 1 and 2 
percentage point, i.e. economy between stagnation 
(GDP decline by 0.2 per cent) and slow growth (0.8 
per cent) 

Imports and current account deficit lower by equivalent 
of some 0.5- 1 per cent of GDP 

Public and external debt stock lower by around 2.6 per 
cent of GDP 

GDP growth rate lower by between 1 and 2.1 
percentage point, i.e. recession with GDP declining by 
between 0.3 per cent and 1.4 per cent) 

Imports and current account deficit lower by equivalent 
of some 0.5- 1 per cent of GDP 

Public and external debt stock lower by around 4.3 per 
cent of GDP. NB, the improvement in longer term debt 
sustainability is likely much less pronounced or at the 
extreme, around zero.  

Source: own elaboration 

3.3  Macroeconomic and external sustainability impacts 

The construction of counterfactual scenarios in the previous section allows an assessment 
of  an  indicative  net  macroeconomic  impact  of  the  MFA  (and  a  combination  of  the  MFA 
and  IMF  assistance)  on  the  BiH  economy.  It  is  calculated  as  the  difference  between  an 
observed  macroeconomic  path 
in  BiH  (what  has  actually  happened)  and  the 
counterfactual path (what would have happened without MFA assistance or without both 
MFA and IMF assistance).  

The largely qualitative approach to the construction of the counterfactual macroeconomic 
scenarios clearly suggests that any results should be interpreted with caution. They may 
indicate direction and likely order of magnitude of effects. With these caveats in mind, 
the tables below summarise the findings from the interim stage of the evaluation. 

51 

 
 
 
 
 
 
 
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Table 17.  Net impact of the MFA operation (observed outcomes – 

counterfactual outcomes) 

Macroeconomic 
variable 

Economic growth 

Likely net impact of the MFA operation 

No significant impact; potentially marginal positive contribution due to more domestic 
funds being available to finance private sector development – the scale of this effect 
is likely to be very small 

Labour market 

No significant impact 

Inflation 

No significant impact 

Balance of payment 
position 

Fiscal position 

No significant impact - lower reserve accumulation and a slight contraction in imports 

No significant impact - MFA lowered debt servicing costs by around EUR 12.4 million 
during 2013-2015 

Public sector debt 
sustainability 

No significant impact – minimally lower debt servicing costs (a decrease of around 3-
4 per cent during 2013-2015); small change in debt structure: lower share of 
domestic debt and higher share of (concessional) external public debt 

External debt 
sustainability 

No significant impact – slightly higher (concessional) public external debt  

Source: own elaboration. 

Table 18. Net impact of the combined MFA operation and IMF’s 2012 SBA 

programme (observed outcomes – counterfactual outcomes) 

Macroeconomic 
variable 

Economic growth 

Likely combined impact of MFA and IMF assistance 

Significant boost to economic activity over the period 2012-2014. Cumulative 
impact on GDP level by end of 2014 could be in the range of 2.6 – 5.1 per cent 

Labour market 

Improved labour market situation – no quantitative estimate available 

Inflation 

No significant impact (potentially a minor increase) 

Balance of payment 
position 

Boost to imports fuelling higher current account deficits during 2012-2014 – by up 
to 1 per cent of GDP during 2013-2014 

Fiscal position 

Public sector debt 
sustainability 

Assistance prevented significant fiscal consolidation on the expenditure side that 
would otherwise be necessary. The assessment of implications depends on the 
structure of spending cuts and whether these would be permanent (e.g. involving 
changing the rules of allocation of social spending to make them better targeted 
and in aggregate lower) or temporary (e.g. running arrears) in the counterfactual 
scenario 

Public sector debt increased by up to 4.3 per cent of GDP in the short-term (till 
end-2014). Longer term deterioration of public debt sustainability expected to be 
potentially much lower or even going down to zero if fiscal adjustment was not in 
the form of permanent changes reducing current expenditures and leaving more 
room for investment spending. In the latter case, at some future date pressing 
public investment needs would require raising additional financing by the 
government(s) 

External debt 
sustainability 

External debt increased by up to 4.3 per cent of GDP in the short-term (till end-
2014). Longer term impact on sustainability not necessarily that significant or 
potentially close to zero (see discussion above) 

Source: own elaboration 

52 

 
 
 
 
Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

3.4  Conclusion 

On the basis of available evidence, it can be concluded that the EU MFA operation made a 
marginal  positive  contribution  to  macroeconomic  developments  in  BiH  in  2013.  The 
economic growth dynamics in the period 2009-2014 were primarily driven by factors not 
directly  related  to  the  MFA  operation.  The  potential  net  effect  of  the  MFA  was  two-fold. 
First, it is expected to have lowered the costs of public debt service by an estimated EUR 
12.4  million  over  the  period  2013-2015.  Second,  it  may  have  made  access  to  credit 
somewhat  easier  for  BiH  businesses  (by  avoiding  any  crowding  out  effect  of  increased 
domestic  borrowing  by  the  government).  This  suggests  a  very  small,  but  positive  net 
MFA impact on macroeconomic situation. 

The  MFA  is  best  seen  as  an  element  of  broader  international  assistance  to  BiH  and  in 
particular  the  MFA  was  closely  linked  to  the  IMF  programme.  Given  the  significantly 
larger size of the IMF’s 2012 SBA, it is not surprising that the combined macroeconomic 
impact of these two operations is found to have been substantially larger than the impact 
of  the  MFA  alone.  The  two  programmes  combined  are  assessed  to  have  provided  a 
significant boost to  economic activity during 2012-2014. Cumulative impact on the  GDP 
level  by  end  of  2014  could  be  in  the  range  of  2.6  –  5.1  per  cent.  This  was  primarily 
driven by avoiding the significant fiscal adjustment on the expenditure side that would be 
necessary without external assistance. 

The  combined  MFA  and  IMF  support,  by  maintaining  higher  economic  activity  level  also 
prevented a reduction in imports that typically accompanies weakening domestic demand 
stemming  from  expenditures  cuts  (particularly  wage  cuts).  This  contributed  to  higher 
current  account  deficits  than  would  otherwise  have  been  the  case  in  the  counterfactual 
scenario.  However,  no  clear  evidence  has  been  identified  of  any  medium  to  long-term 
impact on current account. The direct impact of assistance was an increase of the public 
external  debt.  However,  this  does  not  necessarily  imply  worsening  of  longer-term  debt 
sustainability. This is because public spending contraction in the counterfactual scenario 
could  have  occurred  in  the  form  of  running  arrears  and  other  forms  of  delaying 
expenditure rather than permanently reducing them. This would then lead to the need for 
generating resources to eliminate the arrears, which would imply the need for additional 
borrowing. The conditions of this funding might not match those available under the IMF 
SBA and EU MFA programmes. Set against such a  counterfactual, the long-run net MFA 
and  IMF  impact  on  external  debt  sustainability  could  be  close  to  zero  or  even  slightly 
positive. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

4 

Impact of the MFA on Structural Reforms 

The Memorandum of Understanding signed in November 2010 defined a number of policy 
conditions  that  needed  to  be  met  to  enable  disbursement  of  MFA  tranches.  This  section 
provides  an  assessment  of  the  impact  of  the  MFA  on  structural  reforms.  The  analysis is 
based  on  extensive  desk  research  and  interviews  with  key  stakeholders  among  the  BiH 
authorities, European Commission, the IMF and the World Bank as well as consultations 
with  a  wider  group  of  stakeholders  (e.g.  economists,  think  tanks,  business 
representatives) during two workshops held in Banja Luka and Sarajevo. 

The policy reform conditions attached to the MFA are presented in Table 19.  

Table 19. Conditions attached to the MFA operation 

Tranche 

Area of reform 

MFA Condition 

First 

Co-ordination of fiscal 
policies 

First 

Second 

Second 

Public Finance 
Management 

Public Finance 
Management 

The approval of Global Framework for Fiscal Policies by the Fiscal 
Council, including an overview of total revenue, expenditure and 
financing consolidated for BiH and disaggregated for the State, 
FBiH, RS and Brĉko District.  

The Government Budget Management Information System will be 
tendered. 

The draft Law on Fiscal Responsibility will be approved by the 
government of the FBiH.  

Public Finance 
Management – co-
ordination of policies 

The Heads of the Central Harmonisation Unit in the Ministry of 
Finance of the FBiH and the State level will be appointed. In 
addition, Coordination Board for Public Internal Financial Control 
(PIFC) will be established. 

Second 

Public Finance 
Management  

The new cash management system for public finances in the FBiH 
will be put in operation.  

Second 

Debt management 

An updated overview of public domestic debt will be produced by the 
FBiH. 

Second 

Financial supervision 
– co-ordination  

Enhanced surveillance of the banking system will be continued 
including quarterly stress tests of the banking system that will be 
performed by the Central Bank of BiH and two Banking Agencies.  

Second 

Statistics – co-
ordination  

The Agency for Statistics of BiH and the Statistical Institutes of the 
RS and the FBiH will agree on modalities of the cooperation in order 
to develop quarterly national accounts in accordance with the 
requirements of the ESA 95 system and commitments under the 
Stabilisation and Association Agreement.  

Second 

Public Finance 
Management 

Two rulebooks on the new chart of public financial accounts will be 
adopted by the Ministry of Finance of RS. 

Second 

Pension reform 

Strategy on pension reforms will be adopted by the Parliament of 
RS. 

4.1  Reform Context  

The  Council  decision  on  MFA  assistance  took  place  when  the  BiH  reform  agenda  was 
gaining  momentum.  This  was  driven  by  the  pressure  resulting  from  the  crisis  situation 
and  recommendations  of  the  international  financial  institutions  (IMF,  World  Bank)  and 
agreed structural reform conditionality linked to the budgetary support. Reform progress 
slowed  during  2010  in  the  pre-election  period,  especially  since  the  macroeconomic 
situation in 2010 turned out to be better than earlier anticipated. Following the elections 
and up until early 2012, public policies were negatively affected by the lack of the State-
level  government.  After  mid-2012  reform  efforts  intensified  again,  although  progress 
remained slow relative to the existing challenges. The October 2014 elections again acted 

54 

 
 
 
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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

as  a  barrier  slowing  reforms,  for  example  delaying  the  eighth  review  under  the  IMF’s 
SBA84.  

During  2010-2011,  limited  structural  reforms  were  implemented  in  the  area  of  public 
finance management. High labour taxation continued to hamper job creation and labour 
market  participation,  while  increasing  the  incentives  for  the  existence  of  the  informal 
labour  market.  The  privatisation  process  stalled,  in  particular  due  to  unfavourable 
international market conditions and lack of investors’ interest. There was slow progress in 
the planned restructuring and liquidation of socially-owned enterprises.  

MFA reforms focused predominantly on areas that are highly relevant for macroeconomic 
stability:  public  finance  management  (PFM)  and  financial  sector  stability.  A  distinctive 
feature  of  the  construction  of  the  MFA  conditionality  for  BiH  was  that  four  conditions 
directly  supported  the  co-ordination  of  policies  and  actions  between  Entities  and  Entity 
and State-level institutions.  

In  particular,  the  requirement  to  approve  a  Global  Framework  for  Fiscal  Policies  was 
important in this respect. This is because it comprised budget frameworks of all levels of 
government  (central  and  the  two  Entities)  and  aimed  at  enhancing  transparency  and 
coherence  of  fiscal  policies  in  the  country.    In  practice  this  is  the  main  mechanism  of 
fiscal  policy  co-ordination  within  the  country,  although  the  document  is  often  seen  as 
needing improvement.   

Another example of a condition that aimed at stimulating co-operation and co-ordination 
of  actions  between  Entity  and  central  level  institutions  was  the  requirement  to  develop 
quarterly  national  accounts  (something  that  did  not  exist  before  and  for  which  Entity-
level data were needed).  

The choice of the policy conditions in the area of public finance management was mainly 
based  on the findings of the  operational assessment of financial circuits and procedures 
in BiH carried out in November 2009. For example, the assessment explicitly referred to: 
the  weaknesses  of  the  public  cash  management  system  used  in  FBiH;  the  need  of  the 
amendment  of  the  Law  on  Fiscal  Responsibility  in  FBiH;  strengthening  of  the  ex-ante 
internal  control  (establishment  of  the  Coordination  Board  for  Public  Internal  Financial 
Control  (PIFC);  and  improvement  in  the  public  Entities  financial  reporting  standards 
(adoption of two rulebooks on the new chart of public financial accounts by the Ministry 
of Finance of RS).  

The  conditions  attached  to  the  MFA  operation  were  agreed  in  consultation  with  other 
Commission  services,  notably  DG  ELARG.  They  were  also  discussed  with  the  IMF  (in 
Sarajevo  and  during  videoconferences  with  IMF  headquarters  in  Washington,  DC)  and 
with the World Bank. This was to ensure that  there were no  contradictions between  the 
objectives promoted and supported by various donors, as well as to enable reinforcement 
of  various  conditions.  The  conditionality  was  also  negotiated  with  BiH  authorities  and 
there  was  consensus  among  authorities  on  appropriateness  of  this  process.  Separate 
negotiations  were  held  with  representatives  of  the  State  and  Entity-level  ministries  of 
finance  as  well  as  joint  meetings  where  the  European  Commission  side  insisted  on 
achieving a joint agreement of all involved parties. 

There was a high level of cross-conditionality between the MFA and the IMF programme 
(7  out  of  10  MFA  conditions  reflected  areas  of  reforms  also  promoted  by  the  IMF  either 
directly  as  a  prior  action/  structural  benchmark  in  its  programme  or  indirectly,  via  the 
provision  of  Technical  Assistance).  For  instance,  the  approval  of  Global  Framework  for 
Fiscal Policies by the Fiscal Council (in 2009) was a prior action in the 2009 IMF SBA and 
the practically identical MFA condition concerned subsequent year(s).  

84 Following the mission in September 2014 IMF staff team in its statement said that: “The authorities need more 
time to implement policies that had been agreed under the SBA. This includes policies aimed at reining in 
government spending not directly related to addressing the impact of the floods; improving tax compliance and 
fighting tax fraud; and strengthening financial sector stability and enhancing banking supervision. We hope to see 
strong progress in the implementation of these policies in order to pave the way for consideration of the eighth 
review under the SBA by the IMF Executive Board.”” 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

The  analysis  of  structural  conditions  presented  in  this  section  focuses  on  the  following 
elements:  

  The nature and scope of the conditionality attached to the MFA operation; 
  The rationale for each condition; 
  The implementation of the conditionality by the BiH authorities; 
  Evidence for reform impact; and  
  Evidence of MFA contribution to the reform progress. 

The figures and tables below provide an assessment of the following aspects of structural 
reforms conditionality. They present: 

  The intervention logic underpinning the selection of conditions as reconstructed by 

the evaluation team; 

  The expected outputs, i.e. actions or products expected as the fulfilment of 

conditions; 

  The level of implementation, i.e. actions related to fulfilling conditions; 
  The level of implementation deficit, i.e. whether there is any evidence on 
implementation problems, e.g. discrepancy between de jure and de facto 
situation; 

  The immediate outcomes, i.e. what benefits were expected quickly after fulfilment 

of conditions and whether there is any evidence of their materialisation; 
  The longer-term outcomes and impacts, i.e. what changes / benefits were 
expected in the longer-term and whether there is any evidence of their 
materialisation; 

  The domestic ownership of reforms and donor support, i.e. to what extent reforms 
were part of the domestic policy agenda and which other actors promoted reforms 
in a given area; and  

  The MFA value added, i.e. to what extent any effects can be attributed to the 

MFA. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 25. 

Intervention logic of the condition on reforms related to the Global Framework of Fiscal Policies 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Condition 1.1 (first tranche): The approval of Global Framework for Fiscal Policies by the Fiscal Council, including an overview of total revenue, 
expenditure and financing consolidated for BiH and disaggregated for the State, FBiH, the RS and Brĉko District. 

Implementation  

The Global Framework of Fiscal Policies for 2013-2015, which served as a basis for the 2013 government budgets, was approved 
by the Fiscal Council on 15 June 2012. 

Evidence of 
Implementation 
deficit 

It 2010 and 2011, the Fiscal Council failed to adopt the framework within the deadlines85. The main issue was the allocation of 
revenues from indirect taxes and the amount of funds allocated to the State-level budget. In addition, the agreement on the 
Framework adoption was impeded by the prolonged political stalemate in the country following the 2010 general elections86. The 
Global Framework for Fiscal Policies was eventually adopted in June 2012, shortly after the formation of the new central 
government.  The authorities agreed on a medium-term expenditure ceiling for the State-level budget. According to the reached 
agreement, endorsed by the Fiscal Council, expenditures of the State institutions are to remain fixed over the medium-term at 
BAM 950 million (representing 3.2 per cent of the estimated countrywide GDP in 2011). The allocation from the Single Account of 
the Indirect Tax Authority – making the bulk of State budget revenues – is to remain constant at BAM 750 million. 

While the Frameworks have since been agreed, there remains large room for improvement in the quality of the document that to 
some extent just compiles independently produced fiscal projections. 

According to some of the stakeholders interviewed, “this conditionality was implemented by the authorities in letter, but not in 
spirit.” 

Relevance 

High. Despite its weaknesses the Framework is the only document setting up the medium-term framework for fiscal policies in a 
highly decentralised fiscal system. It contains: (i) fiscal objectives e.g. revenue projections and targets by level of governments; 
(ii) macro-economic analysis and policy on indirect taxes; and (iii) upper limits of debt. 

Importance 

High The IMF (as part of the 2004 SBA) was instrumental in the setting up of the Fiscal Council. While the IMF had a Belgium like 
arrangement in mind, what was implemented in practice was quite different (according to stakeholders, the Fiscal Council is 
essentially a “rubber stamping” body). 

The Global Framework for Fiscal Policies was therefore, seen as an important tool to make the Council work.  It provides a 
medium term fiscal framework setting out the country’s spending priorities, expected expenditure, revenue and deficit. 

85 in the absence of which the FBiH and RS, adopted their 2012 budgets (in January 2012 and December 2011, respectively) in violation of the country’s legal framework for a 
second consecutive year. Source: European Commission (2012) 2012 Economic and Fiscal Programmes of Albania, Bosnia and Herzegovina: EU Commission’s overview and 
country assessments, Occasional Papers 97,  June 2012. Available at: http://ec.europa.eu/economy_finance/publications/occasional_paper/2012/pdf/ocp97_en.pdf  
86 European Commission, 2012. Note on Bosnia and Herzegovina’s compliance with the conditionality for disbursing of the first loan instalment under the European Union MFA.  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Despite its weaknesses the Framework supports more organised budget planning and provides more transparency and coherence 
in fiscal policies. Operational Assessment indicated improvement in the budget preparation, in particular at the FBiH level, as an 
area of high priority. For instance, it drew special attention to the absence of sufficient transparency and the fact that Budget 
Beneficiaries tended to request much higher allocations. These allocations were also ‘…a subject of political influence and 
bargaining’87.  

Domestic 
ownership & 
donor support 

The IMF was strongly involved in the creation of the Fiscal Council.  The 2009 IMF programme included the condition (‘prior 
action’) of the Council agreeing the Global Framework and this was achieved in 2009. MFA ‘borrowed’ this condition from the IMF. 
Reaching an agreement on the Framework has been difficult for internal political reasons. In particular, the estimation of proceeds 
from indirect taxation serving as a basis for further redistribution between Entities was a problematic/controversial issue. Forming 
the State-level government after the long stalemate following 2010 elections acted as a trigger for eventually reaching the 
agreement on the Framework.  

Added Value of 
MFA 

The MFA condition is believed to have played a politically reinforcing role. The condition is best seen as an element of international 
support / pressure on BiH stakeholders to introduce more elements of fiscal policy coordination, and improve transparency and 
predictability of budgeting. As such it could claim some degree of success.  

Evidence of 
benefits 

The preparation and adoption of the 2013 State and Entity budgets happened before the expiration of previous budget years – a 
clear improvement over past practice.  

Evidence of long-
term Impacts 

Global Frameworks have been agreed in 2013 and 2014.Timely preparation and adoption of the 2014 budgets has happened. 
Expected benefits mainly relate to more predictable and coherent fiscal policy planning enabling making strategic socio-economic 
policy choices. These benefits are not currently visible.  

87 PwC, 2010. Bosnia and Herzegovina Operational Assessment.  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 26. 

Intervention logic of the condition on the common Government Budget Management Information System 

Condition 1.2 (first tranche):   The Government Budget Management Information System will be tendered. 

Implementation  

The common Government Budget Management Information System (GBMIS) project was tendered in April 2011. The authorities 
and the selected tenderer signed a contract in July 2011 and the implementation of the project began. The system has been 
operational since January 2013. 

Evidence of 
Implementation 
deficit 

Although it has been operational since January 2013, the system is still not optimal and needs adjustment88.  

88 Information provided by the Ministry of Finance of RS 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Relevance 

The GBMIS is standardised at all levels of government (central and the two Entities). It aims at harmonising the treasury 
information systems, reducing current fragmentation and increasing the effectiveness and efficiency of budget management. Prior 
to the MFA there was already a system in place, though it had limited capacities. 

Importance 

Low. System would allow the production of annual and mid-term fiscal projections.  

Domestic 
ownership & 
donor support 

The authorities received some bilateral assistance (funding from Sweden and UK) to improve the system89. 

Added Value of 
MFA 

The system would have been implemented even without MFA conditionality, though it is believed that the programme speeded up 
the process. 

Evidence of 
benefits 

The system as it currently stands functions well90 and allows the staff responsible for the budget management to see when budget 
users (i.e. municipalities) start providing the information (i.e. regarding expected expenditures) and whether the required 
information is complete. This gives the Ministry, inter alia, more time for the budget preparation including ability to send specific 
inquiries to budget beneficiaries to clarify the data. However, the Ministry acknowledged that the system (as of January 2015) still 
requires some upgrade.   

Evidence of long-
term Impacts 

Improved efficiency and accuracy of budgets - once the system is fully upgraded, it shall reduce the resources and time needed 
for the budget management and in parallel increase the accuracy of the information provided by the budget beneficiaries.  

89 Information provided by the Ministry of Finance of RS 
90 As stated by the Ministry of Finance of FBiH in January 2015. 

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and Herzegovina 

Figure 27. 

Intervention logic of the condition on drafting new fiscal responsibility law in FBiH 

Condition 2.1 (second tranche): The approval of the draft law on Fiscal Responsibility by the government of the FBiH. 

Implementation  

The government of the FBiH integrated the provisions of the draft Law on Fiscal Responsibility into the draft FBiH organic budget 
law. This is considered as strengthening the impact given that the latter law is of higher order and applies to all levels of 
government in the FBiH. The new draft organic budget law was adopted by the government of the FBiH on its session on June 13, 
201391. The passing of the law was adopted by the Parliament in December 2013 and entered into force in early 2014.  

Evidence of 
Implementation 
deficit 

None. Possibly too early to assess given that the law entered into force only in early 2014. 

91 DG ECFIN, December 2012. Note on Bosnia’s and Hercegovina’s compliance with the conditionality for disbursing of the first loan instalment under the European Union 
Macro-Financial Assistance. 

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and Herzegovina 

Relevance 

High. The budget process in FBiH was complex, non-transparent and highly fragmented leading to lack of co-ordination and 
inefficiencies. FBiH level governments had limited tools to monitor, control and enforce limits on lower levels of government, 
extra-budgetary funds, and public companies. OA (2010) made several recommendations as regards strengthening the capacity 
of budget preparation in FBiH. 

Importance 

High. The new law was needed to put limits to the excessive fiscal decentralisation within FBiH and the lack of a mechanisms 
effectively constraining planning of budgets.  

The three important elements of the law were: 

  Setting up of a coordination body for FBiH; 

  It applies to all levels; it prohibits borrowing for current spending; and 

  Specifies and imposes reporting requirements. 

Domestic 
ownership & 
donor support 

The IMF was strongly involved: IMF staff provided assistance at the stage of drafting the law by the government. A stronger 
condition requiring passing of the law by the parliament became part of 2012 IMF programme conditionality (this was one of the 
structural benchmarks of the 2012 IMF programme - see letter of Intent).  

The original deadline (March 2013) for this structural benchmark was extended several times.  

The consultative process during the work on the draft involved cantons, municipalities and the parliament. Different positions of 
domestic stakeholders were sought given that the draft law was changing the relative powers of FBiH Ministry of Finance and 
lower levels of governments. 

Added Value of 
MFA 

Reinforced reform mainly led by the IMF. Combined IMF and EU conditions provided much needed political weight to the reform.  

Evidence of 
benefits 

The law has been in place since early 2014.  It provides a better legal framework for work on 2015 budget, but it is still too early 
to identify and assess specific benefits already materialising. 

Evidence of long-
term Impacts 

The impact if the draft law on Fiscal Responsibility is expected in the future, as law entered into force only in 2014. Key benefits 
are likely to be related to improved fiscal policy co-ordination in FBiH and in particular better oversight and control of budgets 
from lower level of governments by the FBiH Ministry of Finance. The functioning of rules that should much limit the room for 
emergence of budget deficits should also improve, especially for unexpected budget deficits. This should improve fiscal policies 
and specifically should limit room for unjustified fiscal deficits. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 28. 

Intervention logic of the condition on the reform related to the appointment of the Heads of the Central 

Harmonisation Unit (CHU) in the Ministry of Finance of the FBiH and at the State level, and the establishment of 
the Coordination Board for Public Internal Financial Control (PIFC) 

Condition 2.2 (second tranche):  The Heads of the Central Harmonisation Unit (CHU) in the Ministry of Finance of the FBiH and the State level will be 
appointed. In addition, Coordination Board for Public Internal Financial Control (PIFC) will be established.   

Implementation  

The Head of the Central Harmonisation Unit (CHU) in the Ministry of Finance of the FBiH was appointed in March 2011. The 
permanent Head of the Central Harmonisation Unit in the Ministry of Finance at State level has been appointed in July 2012. The 
two Entities and the State have established the Coordination Board for Public Internal Financial Control (PIFC) in January 2011. 

Evidence of 
Implementation 
deficit 

This condition was formally met in the sense that the Coordination Board for PIFC was established and heads of CHU at the State 
and FBiH level were appointed. However, based on the available information the Coordination Board for PIFC has not met in 2012 
and 2013.   

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Relevance 

High considering very limited coordination of fiscal policies at Entities and State level. Also, as indicated in the Operational 
Assessment undertaken in 2010: ‘…at all three levels, no ex-ante control is carried out in the Treasuries’92.  

Importance 

High. The importance and potential positive externalities from this reform could have been very meaningful. However, due to 
complex socio-political configurations and general difficulties in dialog/coordination between Entities and the State, very limited 
progress has been made. 

Domestic 
ownership & 
donor support 

Added Value of 
MFA 

Evidence of 
benefits 

This reform was already on the agenda of the national authorities prior to the MFA. There was no other international donor who 
would explicitly push for the establishment of the Coordination Board for PIFC other than European Commission. 

The MFA played the major role in terms of contributing to the agreement on this condition. 

The benefits (as of November 2014) have been very limited so far and reduced almost entirely to the temporary dialog within 
Coordination Board of PIFC which took place in 2011 (11 meetings took place during that year) and the adoption of a few 
procedures of minor importance in the area of internal audit.   

Evidence of long-
term Impacts 

Uncertain. The Coordination Board for PIFC is an inactive body (no meetings took place since 2012) and there seems to be no 
evidences for the time being that this impasse can be broken.  

92 PwC, 2010. Operational Assessment of Bosnia and Hercegovina.  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Figure 29. 

Intervention logic of the condition on the reform related to the new cash management system for public 

finance in the FBiH 

Condition 2.3 (second tranche):  The new cash management system for public finances in the FBiH will be put in operation. 

Implementation  

The new cash management system for public finances in the FBiH has been in use since July 2010, allowing better planning and 
budget execution on the basis of the cash flow projections. The new system provides for obligatory registration of commitments, 
thus eliminates the significant shortcomings of the previous practice where lack of systematic commitment registration had 
impaired efficient cash management93. 

93 DG ECFIN, June 2013. Note on Bosnia’s and Hercegovina’s compliance with conditionality for disbursing the second loan instalment under the European Union Macro-
Financial Assistance.  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Evidence of 
Implementation 
deficit 

The system is still not fully operational. For example, although it allows the production of reports for previous periods, it still does 
not offer the possibility to produce cash flow forecasts/ projections. These have to be prepared manually in excel. 

The IT department in the Ministry of Finance of the FBiH stated that the system requires ‘a substantial upgrade which requires 
considerable resources’ both in human and financial terms. There is also a need for specifically tailored training to allow staff to 
use the maximum potential of the system. 

Relevance 

High. In the past, cash flow management was characterised by high uncertainty, especially due to significant number of 
unexpected commitments.    

Importance 

High. As indicated by the Operational Assessment: ‘…The absence of systematic commitment registration at the FBiH (and State 
level) heavily impairs efficient cash management.’ 

Domestic 
ownership & 
donor support 

No other donor support was identified, although there was high domestic ownership as the Ministry of Finance had been working 
on the system prior to the MFA.  

Added Value of 
MFA 

The role of the MFA in the implementation of the condition on the cash-flow management system was limited, given the high 
domestic ownership of this reform. 

Evidence of 
benefits 

Still limited as the system is not fully operational and there is a lack of appropriately trained staff for its usage.  

Evidence of long-
term Impacts 

  More efficient cash flow management allowing more accurate planning of revenue and expenditures and reducing the risk 

of ad hoc, more expensive borrowing to fill in the gaps stemming from inaccurate wrong cash management. 

 

Increased transparency and accountability of the public finance management system and for the future, the ability to 
produce cash flow forecasts as oppose to only overview of historical cash flows. 

Figure 30. 

Intervention logic of the condition related to the reform on updating the overview of public domestic debt in 

FBiH 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia 
and Herzegovina 

Condition 2.4 (second tranche): An updated overview of public domestic debt produced by the FBiH. 

Implementation  

A comprehensive overview of the total domestic debt of FBiH was produced by the FBiH Ministry of Finance on 31 March 2013. As 
of March 2013, the outstanding domestic debt of FBiH related to old foreign currency savings totals about BAM 873 million, 

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and Herzegovina 

representing approximately 58 per cent of total domestic debt of the FBiH94. 

Evidence of 
Implementation 
deficit 

While, the coverage of public debt data has been improving over time there is still an incomplete picture of public debt level in 
FBiH. 

Relevance 

High. The Operational Assessment assigned its recommendation calling for preparing a comprehensive overview of the total 
domestic debt a high priority. 

While a relative good picture is available at central level in FBiH, there is poor and untimely reporting at canton level. There are 
many unrecognised liabilities relating to war damage, liabilities from State operated enterprises and frozen bank deposits. The 
government has to recognise these liabilities, but has the option when to recognise them. 

Importance 

High. While known stock of public debt level remains modest by international comparison (around 45 per cent), uncertainty as to 
the true size of debt is a major concern.  The quality of these figure is a concern alongside the many unrecognised liabilities. 

Domestic 
ownership & 
donor support 

Added Value of 
MFA 

Evidence of 
benefits 

The IMF played an important role in supporting and encouraging FBiH government to improve debt data reporting.95  

The overview would likely have been produced in the absence of the MFA condition as a result of a completion of registrations of 
old foreign currency savings. The World Bank has also been involved with issues related to debt statistics (more at State level 
than Entity level) providing technical assistance to help improve coverage of debt data. 

Reinforced reform mainly led by the IMF. 

More complete picture of public debt of FBiH, specifically covering obligations related to old foreign currency savings totals. 

Evidence of long-
term Impacts 

It is hoped that over time various efforts and initiatives supporting building of comprehensive public debt data will enable 
complete information on public debt in BiH to be gathered, limiting market risk and enabling better informed debt management 
and improving the quality of fiscal policy. 

94 DG ECFIN, June 2013. Note on Bosnia’s and Hercegovina’s compliance with conditionality for disbursing the second loan instalment under the European Union MFA. 
95 Based on information provided during interviews with the representatives of the EU Delegation in BiH and advisors to the FBiH government.  

69 

 
 
                                           
Figure 31. 

Intervention logic of the condition on enhancement of financial supervision including quarterly stress-tests 

Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Condition 2.5 (second tranche): Enhanced surveillance of the banking system will be continued including quarterly stress tests of the banking system 
that will be performed by the Central Bank of BiH and two Banking Agencies. 

Implementation  

Banking sector surveillance has continued in co-operation between the Central Bank of BiH and the two Banking Agencies. Stress-
tests have started in 2009 and in more recent periods have been conducted regularly on a quarterly basis.  

Evidence of 
Implementation 
deficit 

None identified.  

Relevance 

Importance 

Medium to high. During the crisis and in the post-crisis period the condition of the banking sector has been one of the important 
factors determining financial risks and macroeconomic risk outlook. Stress-tests serve as a useful tool helping regular monitoring 
of the stability of the banking system and its resilience to potential adverse shock. The enhanced surveillance process started 
before the MFA conditions had been agreed. 

High. Although systemic stability of the banking system during the crisis was not really at risk, in the initial period after their 
introduction (2009) stress-tests were not conducted less frequently. A rising share of non-performing loans (14-15 per cent 
during 2013) has increased the importance of timely monitoring and surveillance and improvements of the risk management in 
the banking sector.  

Domestic 
ownership & 
donor support 

The co-operation between the Central Bank and the Banking Agencies has generally been good. The IMF played a leading role in 
the process of establishment and formalisation of the stress-tests. The support from the IMF included the methodological 
assistance and provision of the specific models used during stress-test exercises. USAID has provided technical assistance to help 
implement Basel II requirements. 

Added Value of 
MFA 

Limited. Stress-tests were already introduced prior to the agreement on the MoU of the MFA and the IMF played crucial role in this 
respect. MFA might have played certain role in establishment of the practice of running the stress test exercise on a quarterly 
basis. 

The IMF provided technical assistance to support implementation of stress tests and the methodology for the stress tests.  

Evidence of 
benefits 

Better information flow between agencies, Central Bank and banking institutions (for example regular meetings hosted by 
agencies where results from the stress-tests are shared). 

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More up-to date and accurate information about the banks’ situation. As the stress-tests based on the same methodology were 
introduced in other countries of the region with the assistance of the IMF, IMF and DG ECFIN haves now access to timely and 
comparable data from all countries of the region, including BiH. 

Evidence of long-
term Impacts 

Increased monitoring capacity and ability for the timely and adequate response in the event of the problems in the national 
banking sector. 

Figure 32. 

Intervention logic of the condition on cooperation between statistical institutes for developing quarterly 

national accounts 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Condition 2.6 (second tranche): The Agency for Statistics of BiH and the Statistical Institutes of the RS and the FBiH will agree on modalities of the 
cooperation in order to develop quarterly national accounts in accordance with the requirements of the ESA 95 system and commitments under the 
Stabilisation and Association Agreement. 

Implementation  

The State-level Agency for Statistics of BiH and the two Entity statistical offices agreed in 2012 to cooperate in the development 
of quarterly national accounts. In 2012 quarterly GDP data were published for the first time. 

Evidence of 
Implementation 
deficit 

Questionable quality of quarterly data (and consistency between Entity and State-level annual GDP figures), although there has 
been gradual improvement in this area.  

There are still large discrepancies in methodologies between the State and the Entities. Moreover, methodologies need to be 
aligned with Eurostat. 

Relevance 

The link between MFA objectives and this specific condition is indirect, although potentially relevant. A better statistical picture of 
the economy clearly matters for the ability to carry better informed economic policies that can support macroeconomic stability.  

Importance 

High. Creating conditions for access to data showing up-to-date picture of economic developments, which enables better informed 
policy making.  

Domestic 
ownership & 
donor support 

The IMF has worked with statistical institutions for a long time, in particular on quarterly national accounts. The condition related 
to statistics was unlikely to become part of IMF programmes (difficult to claim its ‘macro-criticality’). IMF support reinforced MFA 
condition by providing necessary technical assistance. Government of Japan provided funding for IMF technical assistance.  

Added Value of 
MFA 

Lack of sufficient co-operation between Entity and State level statistical organisations was driven politically and by institutions’ 
own interests.  

MFA condition is believed to have mobilised stakeholder effort in this area and accelerated the pace of work on quarterly GDP 
data.  

Evidence of 
benefits 

As a result of this cooperation, the three statistical offices managed to agree modalities enabling the production of quarterly GDP 
data. Data for the period 2006-2012 were published in June 2013. Since then quarterly national account are published on a 
regular basis by the Agency for Statistics of BiH. These are monitored and used by various stakeholders in BiH including 
policymakers. 

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Evidence of long-
term Impacts 

Expected to enable more informed analysis and forecasts of economic situations, and better informed policies leading to more 
favourable outcomes. 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Figure 33. 

Intervention logic of the condition on the reform related to the adoption of the two rulebooks on the new chart 

of public financial accounts by the Ministry of Finance of RS 

Condition 2.7 (second tranche): The adoption of the two rulebooks on the new chart of public financial accounts by the Ministry of Finance of RS. 

Implementation  

In late-2010 and early-2011, the Minister of Finance of RS adopted the following rulebooks: i) Rulebook on budget classification, 
content of accounts and implementation of control plan for users of budget revenues of Republika Srpska, municipalities, cities 
and funds and ii) Rulebook on financial reporting for users of Republika Srpska, municipalities, cities and funds. Both rulebooks 

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have been applicable since January 1, 201196. 

Evidence of 
Implementation 
deficit 

None.  

Relevance 

High. OA identified the development of the rulebooks/guidelines on internal control as a high priority. More specifically, it pointed 
out that ‘Not all budget users have developed their rulebooks on internal control or apply them properly’97.  

Importance 

High. The reform was seen by the Ministry of Finance of RS as ‘meaningful’ due to insufficient coherence and transparency of 
public financial accounts and need to reduce inconsistent practices in reporting applied by various public Entities.    

Domestic 
ownership & 
donor support 

The IMF was also involved in support of the fulfilment of this condition98. Yet, the IMF support was not provided within the 
framework of technical assistance and had less formal character (ad hoc guidance provided by IMF experts). 

Added Value of 
MFA 

It is highly plausible that the rulebook would have been adopted without MFA, yet the evidences suggest that MFA speeded up the 
process.   

Evidence of 
benefits 

  Approximation with the international financial accounting/reporting and internal control standards; 

  Approximation with the methodologies of Government Finance Statistics (GFS) classification; 

  Higher frequency of production of aggregated public finance account figures (on the monthly basis);   

  Better quality and more timely information for public administration units performing management control functions.  

Evidence of long-
term Impacts 

  Higher budget control capacities of Ministry of Finance of RS (and potentially some efficiency gains) as a result of increase 

in transparency and comparability of the public financial accounts data. 

96 DG ECFIN, June 2013. Note on Bosnia’s and Hercegovina’s compliance with conditionality for disbursing the second loan instalment under the European Union MFA. 
97 PwC, 2010. Operational Assessment of Bosnia and Hercegovina 
98 Interview with the Ministry of Finance of the RS 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Figure 34. 

Intervention logic of the condition on the pension reform strategy in RS 

Condition 2.8 (second tranche): Strategy on pension reforms will be adopted by the Parliament of RS 

Implementation  

The Parliament of RS adopted a pension system reform strategy in May 2010.  

Evidence of 
Implementation 
deficit 

The approved law reforming the pension system is less ambitious than initial versions – see World Bank (2012) Bosnia and 
Herzegovina, Challenges and Directions for Reform, A Public Expenditure and Institutional Review. According to the Bank’s 
assessment, the reformed law, while a step forward, is unlikely to bring the pension system to full fiscal sustainability. 

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Relevance 

Indirect link to MFA objectives. Pension reforms bring benefits mostly in the long-term perspective.  

Importance 

High. Pension system was not sustainable. Although the pension reform was not subject to separate analysis in the Operational 
Assessment, issues related to outstanding liabilities of the Federal Pension Fund as well as a high number of poorly verified benefit 
claims from war veterans were highlighted as burdens requiring attention.  

Domestic 
ownership & 
donor support 

The World Bank was involved in pension reform in both RS and FBiH.  

Added Value of 
MFA 

Very limited or none. The pension reform strategy was adopted before the signing of the MoU defining conditions. Nevertheless, 
stakeholders in RS indicted that in the debates concerning pension reform the argument of EU support for reforms could be used 
and that this mattered. 

This was also an IMF structural benchmark in the first review (which also included a similar condition for FBiH) 

Evidence of 
benefits 

In December 2011, a new pension law was endorsed. The law introduced a credit system, which is expected to stimulate longer 
working careers, established penalties for early retirement, extended the scope of the mandatory insurance scheme, and 
increased retirement age.  

Moreover, old-age pension reform was initiated also in FBiH. 

Evidence of long-
term Impacts 

Expected to be substantial, although the World Bank assessment of the version of the law that was adopted concluded that while 
it improved the situation, the law is still unlikely to bring the pension system to full fiscal sustainability99. 

99 World Bank (2012), Bosnia and Herzegovina Challenges and Directions of Reform. A Public Expenditure and Institutional Review, Report No. 66253-BA 

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1.  The approval of Global 

Framework for Fiscal Policies by 
the Fiscal Council, including an 
overview of total revenue, 
expenditure and financing 
consolidated for BiH and 
disaggregated for the State, 
FBiH, the RS and Brĉko District.  

2.  The Government Budget 
Management Information 
System will be tendered. 

Directorate-General for Economic and Financial Affairs 
Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Table 20. Summary of the main findings 

Condition 

The rationale for 
reform 

The main 
driver of 
reform 

Added value 
and role of MFA 

Month/ Year of 
implementation 

Evidence 
(level) of 
implementation 
deficit 

Evidence of 
benefits 

Net impact 
attributable 
to MFA 

Yes (high) 

Yes 

Limited 

To provide a medium-term 
framework for fiscal policies 
– sets the boundaries for 
State budget, lays out the 
country’s spending priorities 
and fiscal targets. 

IMF- prior action in 
2009 SBA 

Political reinforcing 
role 

Jun 2012 
(met before 
decision to extend 
MFA – Oct 2012) 

To reduce fragmentation 
and inefficiencies in existing 
budget management 
practices at the Entities and 
the State-level. 

Existing domestic 
ownership and 
bilateral assistance 
from SE & UK 

Operational 
reinforcing role 
(acceleration of 
pace of 
implementation) 

Jan 2013 

Yes (medium) 

Yes – very 
limited 

Limited 

3.  The draft Law on Fiscal 

Responsibility will be approved 
by the government of the FBiH.  

To promote fiscal 
sustainability. 

IMF 

Political reinforcing 
role 

Jun 2013 

4.  The Heads of the CHU in the 

Ministry of Finance of the FBiH 
and the State-level will be 
appointed. In addition, 
Coordination Board for PIFC will 
be established. 

To increase the fiscal 
coordination and 
cooperation between 
Entities and the State level 
institutions. 

High domestic 
ownership 

Political reinforcing 
role 

5.  The new cash management 

system for public finances in the 
FBiH will be put in operation.  

To increase the reliability of 
the cash flows 
management including the 

High domestic 
ownership 

Some reinforcing 
role 

Appointment of 
Heads 
State: Jul 2012 
FBiH: Mar 2011 
Establishment of 
Board 
2011 

(met before 
decision to extend 
MFA – Oct 2012) 

Jul 2010 
(prior to signature 
of MoU) 

None 

Could not be 
assessed within 
the scope of the 
evaluation 

Too early to 
identify and 
assess specific 
benefits as the 
law was 
adopted in 
early 2014 

Yes (high) 

None 

None 

Yes (low) 

Yes 

Limited 

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Condition 

The rationale for 
reform 

The main 
driver of 
reform 

Added value 
and role of MFA 

Month/ Year of 
implementation 

Evidence 
(level) of 
implementation 
deficit 

Evidence of 
benefits 

Net impact 
attributable 
to MFA 

increase in the cash 
commitments.    

6.  An updated overview of public 
domestic debt will be produced 
by the FBiH. 

Identified as a high priority 
in the Operational 
Assessment. 

Jointly promoted 
by the EU-MFA 
and IMF 

Some reinforcing 
role mobilising the 
authorities along 
with the IMF 

Mar 2013 

Yes (low) 

Yes 

Limited 

The public debt figure is 
questionable due to 
existence of many 
unrecognised liabilities. 

During the crisis and in the 
post-crisis period, the 
condition of the banking 
sector has been one of the 
important factors 
determining financial risks 
and macroeconomic risk 
outlook. 

Essential for 
macroeconomic 
surveillance and policy 
making. 

7.  Enhanced surveillance of the 

banking system will be 
continued including quarterly 
stress tests of the banking 
system that will be performed by 
the CBBH and two Banking 
Agencies.  

8.  BHAS and the RSIS and the 

FBiH will agree on modalities of 
the cooperation in order to 
develop quarterly national 
accounts in accordance with the 
requirements of the ESA 95 
system and commitments under 
the Stabilisation and Association 
Agreement.  

IMF 

Some reinforcing 
role mobilising the 
authorities along 
with the IMF 

2009 
(prior to signature 
of MoU) 

No 

Yes 

None 

2012 

Yes (high) 

Yes- very 
limited 

Limited 

Jointly promoted 
by the EU-MFA 
and IMF 

A political and 
operational 
reinforcing role is 
detected - MFA 
condition is 
believed to have 
mobilised 
stakeholder effort 
in this area and 
accelerated the 
pace of work on 
quarterly GDP 
data 

9.  Two rulebooks on the new chart 

of public financial accounts will 
be adopted by the Ministry of 
Finance of RS. 

To increase the 
transparency and 
coherence of the financial 
reporting and as well as 

Existing domestic 
ownership with 
some involvement 
(ad hoc, informal 

Some operational 
reinforcing role 
though domestic 
ownership seemed 

Late 2010/ early 
2011 

(met before 

None 

Yes 

Limited 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation to Bosnia and Herzegovina 

Condition 

The rationale for 
reform 

The main 
driver of 
reform 

Added value 
and role of MFA 

Month/ Year of 
implementation 

Evidence 
(level) of 
implementation 
deficit 

Evidence of 
benefits 

Net impact 
attributable 
to MFA 

increase of the efficiency of 
the internal control. 

advisory) of the 
IMF and the World 
Bank 

to be substantial 

decision to extend 
MFA – Oct 2012) 

10. Strategy on pension reforms will 
be adopted by the Parliament of 
RS  

To bring pension law in line 
with international standards 
and to make it sustainable. 

IMF (structural 
benchmark in first 
review); also 
supported by the 
World Bank 

Potentially, 
provided domestic 
political leverage 
to authorities to 
pursue a politically 
difficult reform 

May 2010 

Yes (medium) 

(prior to signature 
of MoU) 

No 

Potentially, 
yes- but have 
not been 
quantified 

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4.2  Conclusions 

The  selection  of  MFA  reform  conditions  was  carried  out  in  consultation  with  other 
European Commission services, the IMF and the World Bank and involved all relevant 
BiH  authorities.  There  was  a  broad  consensus  among  all  parties  involved  that  this 
process was carried out appropriately.  

The  degree  of  ambition  in  the  finally  negotiated  package  of  conditions  can  be 
described as low to modest. BiH authorities were often asked to effectively implement 
already  existing  legislation  (the  approval  of  the  amended  fiscal  responsibility  law  by 
the  government)  or  processes/systems  (e.g.  tendering  of  budget  management 
information  system).  Such  type  of  conditions  can  be  thought  of  as  a  reinforcing 
process  rather  than  a  new  process  attempting  to  achieve  real  changes  or  outcomes 
with independent policy roles. Another common observation was that most of the MFA 
conditions  followed  and  potentially  complemented  conditions  agreed  in  the  IMF 
programmes.  There  were  some  exceptions,  like  the  condition  related  to  the 
establishment of the Coordination Board for PIFC which had a clear ‘EU stamp’.  

The reform conditions were formulated in terms of outputs and not explicitly stating 
specific longer term objectives and expected outcomes. Therefore, it was much more 
difficult to verify actual impact of MFA conditions on reform processes in the targeted 
areas (i.e. the appointment of the Heads of the CHU in the Ministry of Finance of the 
FBiH and the State level and the establishment of the Coordination Board for PIFC).  

There  were  procedural  rigidities  of  the  MFA  instrument,  in  particular  the  limited 
possibility to amend conditions during the duration of the programme. In this context, 
it was encouraging to see that conditions defined in 2010 generally remained relevant 
until 2012-2013 when many of them were eventually fulfilled leading to disbursements 
of the loan tranches. Importantly, all of the procedures could have been met, despite 
initial  delays.  Therefore,  the  question  is  to  what  extent  the  MFA  speeded-up  the 
implementation process rather than acting as a primary catalyst for the reform. 

The  requirement  for  the  Fiscal  Council  to  agree  on  the  Global  Framework  for  Fiscal 
Policies was particularly interesting. The condition was identical to the IMF condition (it 
was  a  prior  action  in  the  2009  IMF  programme).  The  political  stalemate  made  it 
impossible  to  fulfil  this  condition  for  the  two  years.  The  agreement  was  eventually 
reached in 2012, but its attribution to MFA conditionality remains rather speculative.  

There  were  three  conditions  that  were  not  explicitly  formulated  by  any  other 
development  partner.  These  were:  the  agreement  on  the  modalities  of  the  co-
operation  between  Entity  level  and  State  statistical  institutes  in  order  to  produce 
regularly  the  quarterly  GDP  data;  tendering  of  the  Government  Budget  Management 
Information System; and the appointment of the Heads of  CHU and establishment of 
Coordination Board for PIFC.  

The  first  one  is  believed  to  have  mobilised  stakeholder  effort  in  this  area  and 
accelerated  the  pace  of  work  on  quarterly  GDP  statistics.  In  this  case,  MFA  condition 
reinforced  efforts  of  BiH  developments  partners,  especially  the  IMF  which  had  been 
providing technical assistance to statistical institutions in BiH. The IMF was particularly 
appreciative of the role of the European Commission within this condition.  The IMF is 
only able to include macro-critical conditions in its programmes. It is therefore useful 
from  its  perspectives  that  the  MFA  could include  conditions  that  are  highly important 
but not necessarily macro-critical. Overall, the interviewed IMF officials expressed the 
opinion that cross-conditionality between the IMF and MFA is important as it provides 
joint  leverage.  The  interviewed  representatives  of  the  EU  delegation  saw  the  joined 
approach  as  a  very  effective  way  to  ’get  the  place  at  the  negotiating  table’,  despite 
relatively low size of MFA assistance in comparison to the IMF packages.   

The  second  condition  concerning  the  tendering  of  Government  Budget  Management 
System  did  not  involve  any  international  donors,  although  once  the  system  was  set 
up,  there  was  evidence  of  some  bilateral  assistance  from  Denmark,  Sweden  and  the 

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UK.  This  bilateral  support  was  provided  in  order  to  improve  the  system.  In  the  last 
case, the EC was the only international partner supporting the reform.  

The condition for pension reform strategy in RS had already been met by the time of 
signing  the  MoU.  While  the  specific  contribution  or  value  added  by  the  MFA  appears 
minimal in this case, it may have had a positive effect. The information gathered from 
relevant  RS  authorities  suggests  that  the  inclusion  of  pension  reform  agenda  in  the 
agreement  with  the  European  Commission  was  used  as  an  argument  in  the  public 
debate  (i.e.  during  the  discussions  with  trade  unions  and  representatives  of  war 
veterans’  association).  This  helped  to  preserve  certain  provisions  of  the  reform. 
Therefore,  despite  its  de  facto  empty  content  (a  requirement  to  carry  an  action  that 
was  already  completed)  it  was  presented  as  way  of  signalling  EU’s  interest  in  the 
important policy reform area. This example illustrates also the multiplicity of channels 
of  influence  as  well  as  inherent  difficulty  in  attributing  progress  in  any  given  area  to 
specific MFA conditions.  

Finally,  the  MFA  conditionality  was  discussed  with  non-government  representatives 
during two workshops, one in Sarajevo and the second in Banja Luka. The majority of 
non-government stakeholders gathered in Sarajevo stated that the MFA conditionality 
could  have  been  more  ambitious  given  the  substantial  leverage  the  IMF  and  the  EU 
had  in  mobilising  national  authorities  to  pursue  the  reforms.  A  second  common  view 
during  both  consultations  related  to  the  selection  of  the  specific  conditions.  The 
absence  of  reforms  focusing  on  the  improvement  of  business  environment  in  the 
country, chronically weak by European standards, raised doubts whether selection was 
optimal.  Examples  of  business  environment’s  reforms  that  could  have  been  tackled 
included, inter alia, reduction of the number and duration of requirements to start the 
business,  streamlining  of  corporate  tax  regime  and  reduction  of  administrative 
requirements concerning hiring, in particular young people100.    

The  view  that  both  IMF  and  EU-MFA’s  approach  to  conditionality  had  softened  over 
time was presented. This is particularly evident in the case of the MFA. The 2002 MFA 
operation  in  BiH  was  more  ambitious  in  its  approach  to  reforms  as  it  included 
conditionality  relating  to  private  sector  development  and  the  business  environment. 
The ex-post evaluation of the 2002 MFA operation101 recommended the Commission to 
adopt  a  more  selective  approach  to  conditionality  respecting  the  principles  of  macro-
criticality and parsimony. 

100 It should be noted that these and other reforms related to the improvement of the business environment 
have been included in the priorities of the recent strategy ‘Compact for Growth and Jobs in Bosnia and 
Herzegovina’ promoted by the Delegation of the European Union to BiH. Document is available at: 
http://europa.ba/Live.aspx?lang=EN  
101 ECORYS (2007) Ex post evaluation of Macro-Financial Assistance to Bosnia and Herzegovina  

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation 
to Bosnia and Herzegovina 

5  Design and implementation issues 

The discussion in this section covers the timing of the operation, its design features 
and issues related to monitoring and implementation. 

5.1  Timing of the operation 

The  calendar  of  action  (Table  21)  shows  considerable  delays  at  various  stages  of  the 
MFA  operation  to  BiH.  These  were  mainly  in  the  implementation  of  the  operation 
rather than the preparation stage. More specifically, there was a time lag of around 26 
months between the signature of the Loan Agreement and actual disbursement of the 
first  tranche.  This  was  a  consequence  of  political  standstill  and  the  lengthy 
government formation after October 2010 general election as well as a failure to fulfil 
the  first  condition  of  the  approval  of  the  Global  Framework  of  Fiscal  Policies  by  the 
Fiscal  Council  of  BiH.  In  2010  and  2011,  the  Fiscal  Council  failed  to  adopt  the 
Framework within the deadline.  

Table 21. Timeline of the MFA operation 

Timing 

May 2009 

Event 

BiH request for MFA assistance 

November 2009  

Council approves MFA to BiH 

November 2010 

Signature of MoU 

November 2010 

Signature of Loan Agreement 

October 2012 

Commission decision on extending of the MFA availability until 
November 2013 

7 November 2012 

Expiration of the availability of the initially approved MFA  

February 2013 

Disbursement of the first loan tranche 

September 2013 

Disbursement of the second loan tranche 

5.2  Design of the operation 

The  unique  and  complex  socio-cultural  and  administrative  division  of  BiH  and 
interactions  between  the  Entities  had  to  be  reflected  in  the  architecture  of  the  MFA 
instrument  (e.g.  conditions  assigned  to  different  Entities  and  dividing  the  MFA  loans 
between Entity and State level). This made the preparation and implementation of the 
programme more challenging. The situation with the first tranche condition concerning 
the  approval  of  the  Global  Framework  for  Fiscal  policies  suggests  that  in  BiH,  the 
attractiveness  of  the  MFA  loan  was  not  sufficient  to  overcome  impasse  between 
different  political  factions.  This  may  be  due  to  the  relatively  limited  size  of  the  MFA 
and the loan form of the assistance.  

The size of the financial assistance provided through the MFA instrument was based on 
considerations of BiH’s residual financing needs. The assistance was provided entirely 
in  the  form  of  loan  reflecting  the  level  of  development  of  BiH  (classified  as  an  upper 
middle  income  country  by  the  World  Bank).  The  size  of  the  operation  appears 
reasonable  compared  to  needs  and  the  size  and  character  of  engagement  of  other 
development partners. The form of the loan was assessed as adequate given the level 
of  development  of  the  country  and  the  fact  that  it  has  been  receiving  substantial 
assistance often in the grant forms for several years. 

5.3  Visibility of the operation 

The visibility of the operation – beyond those involved in design and implementation – 
was tested through focus group discussions in Sarajevo and Banja Luka. The general 

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opinion of the participants was that the instrument lacked visibility and transparency. 
For instance, many participants were not aware that the MFA was provided by the EU 
on the request of the Bosnian authorities and that this ‘assistance’ was provided in 
loan format.  

5.4  Monitoring and implementation 

The monitoring of the operation was based  on progress reports on reforms submitted 
by  BiH’s  authorities,  and  field  missions  performed  on  a  regular  basis  by  DG  ECFIN 
officials.  The  latter  were  not  specifically  focused  on  MFA  monitoring,  but  initial 
interviews  confirmed  that  progress  of  MFA-related  conditions  was  part  of  mission 
agenda. 

There has been a major difference between the European Commission’s approach and 
the approach adopted by the IMF. These included frequent visits to the country and in-
depth  analysis  of  specific  reform  areas,  as  well  as  on-going  technical  assistance  in 
several fields. Several stakeholders expressed the view that more active involvement 
of  the  European  Commission  in  monitoring  the  implementation  of  reform  conditions, 
ideally  associated  with access  to  technical  assistance  could improve  the  effectiveness 
of the MFA conditionality. This appears plausible. However, finding an efficient way of 
implementing  such  a  change  could  be  challenging.  One  solution  would  require  more 
resources  enabling  a  more  active  involvement  of  the  European  Commission  either 
through the DG ECFIN country desk or through stronger reliance on EU Delegation. An 
alternative  approach  would  be  a  stronger  engagement  with  the  IMF  and  asking  the 
IMF to play a monitoring and support role also in relation to MFA conditions.  

It  is,  however,  not  obvious  that  this  could  work  be  for  all  future  MFA  operations. 
Instead,  a  decision  on  whether  more  active  monitoring  of  MFA  conditionality  is 
required (and if so how best to arrange it) would need to be taken on a case by case 
basis.  This  would  take  into  account  factors  such  as  domestic  ownership  of  MFA 
conditionality,  the  character  of  expected  difficulties  in  its  implementation,  the 
attractiveness  of  the  MFA  package  relative  to  the  needs  of  a  recipient  country. 
However, these factors often vary over time and it may be difficult to anticipate them 
at the time of design of new operations, adding a layer of complexity.  

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6 

EU value added 

This report has identified added value of the EU assistance provided in the form of the 
MFA operation in several areas that are described below.  

Financial  value  added.  Despite  the  substantial  delay  of  loan  disbursements 
compared  to  the  original  schedule,  the  fiscal  situation  in  2013  implied  substantial 
financing  needs  that  were  partly  met  by  the  MFA.  The  MFA  loans  were  highly 
concessional and simplified calculations carried out for this evaluation suggest that the 
additional cost of interest payments for borrowing that could be an alternative to the 
MFA could be in the range of  EUR 12  million over the 2013-2015 period. This means 
the  disbursement  of  MFA  loans  enabled  BiH  to  limit  its  public  expenditure.  The 
unanimous view of the State as well as the Entity level authorities – expressed during 
interviews – was that the main attractiveness of the MFA versus alternative sources of 
financing  (e.g.  domestic  issuance  of  T-bills  and  bonds)  was  the  cost  and  tenure  of 
financing. 

MFA  being  an  element  of  broader  international  assistance  (especially  IMF). 
The key argument here is that it is very difficult to analyse the MFA impact in isolation 
as  it  became  an  important  element  of  IMF  assistance.  The  IMF  interest  in  ‘burden 
sharing’  arguably  could  have  made  it  somewhat  easier  for  the  Fund  to  decide  on  the 
2012  programme  because  MFA  was  factored-in  as  contributing  to  closing  of  the 
financing gap. 

MFA as the only instrument providing de-facto budget support to BiH. The vast 
majority of substantial EU support for  BiH came in the form of IPA funds that finance 
individual projects. These funds do not flow through the State and Entity budgets and 
that  are  partly  spent  on  buying  goods  and  services  from  outside  the  country.  There 
are various reasons for such a design of the IPA that are not further analysed in this 
report.  However,  it  is  plausible  that  EU  leverage  in  terms  of  promotion  of  certain 
macroeconomic  policy  reforms  rises  significantly  with  an  instrument  that  has  a 
character of a budget support, such as the MFA. 

Showing the EU commitment to the country on the EU integration path. Given 
BiH’s status as potential EU candidate country, the degree of its economic integration 
with  the  EU  and  the  consequences  of  the  crisis  (emerging  more  from  within  the  EU 
than from BiH) justified EU engagement in and support for BiH. 

MFA  giving  the  EU  ‘place  at  the  table’  discussing  macroeconomic  strategies 
and  policies  in  BiH.  Domestic  macroeconomic  policies  play  an  important  role  for 
BiH’s  EU  aspirations  and  macroeconomic  dialogue  between  EU  members  is  an 
important  element  of  EU  governance.  However,  MFA  was  the  only  tool  effectively 
engaging EU institutions (especially EU Delegation) in such dialogue. 

Political  statement.  The  allocation  of  part  of  the  MFA  to  the  State  is  seen  as  an 
important political/ symbolic gesture indicating the EU’s desire to strengthen the State 
and  to  see  it  emerge  as  the  ‘one  common  address’  for  dialogue  with  the  BiH 
authorities.  It  is  argued  by  some  that  Sate  level  institutions  have  considerably 
weakened  in  recent  years  and  this  gesture  by  the  EU  was  perceived  as  an  important 
political signal by most stakeholders interviewed in the context of this evaluation (with 
the notable exception of RS authorities and non-governmental stakeholders who argue 
that State level spending is inefficient). By allocating part of the MFA to the State, the 
EU was also able to provide it with the necessary incentives to pursue reforms 

Promoting  coordination  between  the  State  and  Entities.  The  MFA  (and 
specifically,  the  conditionality  relating  to  Global  Fiscal  Framework,  development  of 
quarterly  statistics,  establishment  of  the  Board 
for  PIFC,  enhanced  baking 
surveillance)  is  perceived  as  an  instrument  that  has  helped  to  coordinate  policy-
making and foster dialogue between the State and the two Entities.  

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Contribution to promotion of certain reforms. As discussed in section 4, the MFA 
played a role in promoting certain reforms and in reinforcing such efforts from other 
stakeholders. The progress in these areas, even if it can only partly be attributed to 
the MFA opens the possibility of long-term benefits, apart from certain smaller gains 
that have materialised already.  

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7  Conclusions and lessons learnt 

This section sets out the main conclusions emerging from the evaluation and potential 
consideration for design of future MFA operations. 

7.1  Conclusions 

How would the economy of BiH have evolved in the absence of MFA (and 
IMF) assistance? 

The  most  plausible  adjustment  path  to  the  lack  of  MFA  would  be  higher  issuance  of 
domestic  debt  (both  in  the  FBiH  and  in  RS)  to  maintain  public  spending  at  observed 
levels.  The cost of domestic debt would be higher than the debt servicing cost of the 
MFA.  The  counterfactual  increase  in  the  costs  of  debt  servicing  is  however,  deemed 
too low to translate into broader macroeconomic implications, including the balance of 
payment position of the country. Higher public borrowing on the domestic market (in 
practice  from  BiH  banks)  could  crowd  out  some  funds  that  could  potentially  be 
channelled to private sector projects. Also, higher interest rates on government bonds 
and T-bills could have certain impact on interest rates  of loans  offered to the private 
sector. This might have certain negative impact on economic activity, but the scale of 
this effect would likely be negligible.  

The most plausible adjustment in the absence of both the MFA and the IMF SBA would 
be a fall of public spending. Assuming for simplicity that other sources of financing are 
not  affected  in  the  counterfactual  scenario,  the  required  adjustment  on  the 
expenditure side would need to be in the range of 0.9 per cent of BiH GDP in 2012 and 
around  1.7  per  cent  of  GDP  in  2013  and  in  2014.  Subdued  economic  activity  in  the 
counterfactual scenario would likely be associated with lower imports and hence lower 
current  account  deficit.  The  quantification  of  this  adjustment  is  difficult.  It  can  be 
speculated  that  income  elasticity  of  import  demand  may  be  at  least  around  1, 
suggesting counterfactual imports and current account adjustments to the tune of up 
to 0.5 per cent of GDP in 2012, and 1 per cent of GDP in 2013-2014. 

To what extent has the MFA assistance been effective in terms of the short-
term macroeconomic stabilisation of BiH? 

The  EU  MFA  operation  made  a  marginal  positive  contribution  to  macroeconomic 
developments in BiH in 2013. The economic growth dynamics in the period 2009-2014 
were  primarily  driven  by  factors  not  directly  related  to  the  MFA  operation.  The 
potential net effect of the MFA was two-fold. First, it is expected to have lowered the 
costs  of  public  debt  service  by  an  estimated  EUR  12.4  million  over  the  period  2013-
2015. Second, it may have made access to credit somewhat easier for BiH businesses 
(by  avoiding  any  crowding  out  effect  of  increased  domestic  borrowing  by  the 
government).  This  suggests  a  very  small,  but  positive  net  MFA  impact  on 
macroeconomic situation as well as external sustainability. 

The MFA was closely linked to the IMF programme. Given the significantly larger size 
of the IMF’s 2012 SBA, it is not surprising that the combined macroeconomic impact of 
these two  operations is found to have been  substantially stronger than the impact of 
the  MFA  alone.  The  two  programmes  combined  are  assessed  to  have  provided  a 
significant  boost  to  economic  activity  during  2012-2014.  Cumulative  impact  on  the 
GDP  level  by  end  of  2014  could  be  in  the  range  of  2.6  –  5.1  per  cent.  This  was 
primarily  driven  by  avoiding  the  significant  fiscal  adjustment  on  the  expenditure  side 
that would be necessary without external assistance. 

To what extent has the MFA contributed to returning the external financial 
situation of BiH to a sustainable path over the medium to longer-term? 

Given that the MFA was provided entirely in loan form, it contributed slightly to 
external debt accumulation and debt-servicing costs.  

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to Bosnia and Herzegovina 

To what extent has the MFA assistance been effective in terms of supporting 
structural reform in BiH? 

The selection of MFA reform conditions was based on policy dialogue with all relevant 
BiH  authorities  and  coordinated  with  other  European  Commission  services,  the  IMF 
and the World Bank. There was broad consensus among all parties involved that this 
process was carried out appropriately.  

The  degree  of  ambition  in  the  finally  negotiated  package  of  conditions  can  be 
described  as  low  to  modest.  BiH  authorities  were  asked  to  effectively  implement 
already  existing  legislation  (the  approval  of  the  amended  fiscal  responsibility  law  by 
the  government)  or  processes/systems  (e.g.  tendering  of  budget  management 
information  system)  for  several  conditions.  Most  of  the  MFA  conditions  followed  and 
potentially  complemented  conditions  agreed  in  the  IMF  programmes  with  a  few 
exceptions.  These  exceptions  included  the  condition  related  to  the  establishment  of 
the  Coordination  Board  for  PIFC  which  had  a  clear  ‘EU  stamp’.  With  the  benefit  of 
hindsight,  the  MFA  could  have  promoted  more  far  reaching  reforms  in  the  area  of 
private sector development /  improvement of business environment  rather than seek 
to reinforce/ duplicate  IMF conditionality (although one also has to bear in mind  the 
size  and  form  of  the  instrument  as  a  potential  incentivising  factor  when  designing 
conditionality).  

There is clear evidence of implementation deficit (gap between de jure reform and de 
facto reform) in case of 7 out of 10 conditions e.g. the Global Fiscal Framework which 
has been “implemented in letter, but not in spirit” to borrow the words of an informed 
stakeholder; the Coordination Board for PIFC which has been set up, but has not met 
in 2012 and 2013; the Strategy on pension reforms adopted in RS which does not go 
far enough in achieving full fiscal sustainability, to name a few.   

There have been some benefits from implementation of MFA conditionality: 

  The adoption of the two rulebooks on the new chart of public financial accounts 
by the Ministry of Finance of RS has resulted in better quality and more timely 
information  for  public  administration  units  performing  management  control 
functions; 

  A  more  complete  picture  of  public  debt  of  FBiH  is  now  available,  specifically 

covering obligations related to old foreign currency savings totals; 

  The  enhanced  surveillance  of  the  banking  system  including  quarterly  stress 
tests of the banking system has contributed to better information flow between 
agencies,  Central  Bank  and  banking institutions  (e.g.  regular  meetings  hosted 
by  agencies  where  results  from  the  stress-tests  are  shared).    As  stress-tests 
based  on  the  same  methodology  were  introduced  in  other  countries  of  the 
region  with  the  assistance  of  the  IMF,  the  IMF  has  now  access  to  timely  and 
comparable data from all countries of the region, including BiH. 

  Availability  of  quarterly  GDP  statistics  necessary 

for  macroeconomic 

surveillance and policy making. 

The  potential  gains  from  reforms  have,  however,    not  fully  materialised  due  to  the 
implementation  deficit  noted  in  several  conditions  (which  means  that  benefits  could 
not  be  optimised)  and  considering  the  short  time  that  had  elapsed  since  the 
implementation of some reforms (e.g. Law on Fiscal Responsibility). 

What  have  been  the  indirect  and/  or  unexpected  effects  of  the  MFA 
assistance? 

No indirect and/or unexpected effects were identified through this evaluation. 

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to Bosnia and Herzegovina 

To what extent has EU added value been maximised? 

This  evaluation  has  identified  the  following  elements  of  added  value  of  the  MFA 
operation: 

  The financing cost and tenure of the MFA loan were more favourable as 

compared to alternative sources of financing available to BiH authorities (e.g. 
domestic issuance of T-bills and bonds). 

  The availability of MFA loan made it somewhat easier for the IMF to secure 
board approval for the 2012 SBA (due to burden sharing with the EU). 

  MFA as the only EU instrument providing de-facto budget support to BiH.  

  Showing the EU commitment to a country on the path of EU integration. 

  Giving the EU ‘place at the table’ discussing macroeconomic strategies and 

policies in BiH.  

  The allocation of a part of the MFA to the State is seen as an important 

political/ symbolic gesture indicating the EU’s desire to strengthen the State.  

  The MFA is perceived to have helped to coordinate policy-making between the 

State and the two Entities and fostered policy dialogue. 

  The MFA played a role in promoting certain reforms and in reinforcing such 

efforts from other stakeholders. The progress in these areas, even if it can only 
partly be attributed to the MFA opens the possibility of long-term benefits, 
apart from certain smaller gains that have materialised already.  

7.2  Lessons learned 

A few lessons can be drawn from the MFA operation in BiH. Several of the points 
mentioned below echo recommendations that have been previously made as part of 
past evaluations of other MFA operations.  

  The European Commission should ideally be granted greater flexibility to adapt 
specific  MFA  operations  to  changing  context.  It  would  be  beneficial  if 
conditionality  could  be  adapted  to  evolving  circumstances  during  the  MFA 
implementation  period  (e.g.  dropping  already  fulfilled  conditions,  adjusting 
conditions  that  become  infeasible  /  controversial  in  view  of  changed 
macroeconomic and /or political realities). Although it is recognised that these 
recommendations would require high level political decisions. 

  The  relatively  short  time-span  of  the  MFA  instrument  implies  that  conditions 
will need to continue being specified in terms  of  expected short-term  outputs. 
However,  it  is  recommended  that  expected  longer-term  outcomes  and  impact 
of  conditionality  should  be  explicitly  and  precisely  articulated  to  strengthen 
domestic ownership, minimise the risk of implementation deficit (the difference 
between  de  jure  and  de  facto  reforms).  This  would  also  provide  the  basis  for 
future ex-post evaluations and follow-up through EU budget support.   

 

 

In  designing  conditionality,  the  Commission  should  try  to  strike  a  balance 
between  addressing  an  immediate  financing  need  and  the  desire  to  promote 
reform,  while  also  considering  the  size  and  form  of  the  instrument  as  a 
potential  incentivising  factor  for  the  recipient  country’s  authorities  to  pursue 
reform. 

In the case of BiH, the MFA substituted (more expensive) domestic financing. 
All available evidence (desk research, interviews with Bosnian authorities, IMF 
and Delphi) suggests that it could have been comfortably replaced by the 
additional issuance of domestic debt (combination of bonds and T-bills) by both 
Entities while the State had a budget surplus at the time of the operation. A 

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Ex-post Evaluation of Macro Financial Assistance (MFA) operation 
to Bosnia and Herzegovina 

more rigorous ex-ante assessment of the deficit financing options available to 
the authorities of the recipient country in future should be carried in future to 
ensure that the MFA is necessary/ critical for macroeconomic stabilisation and 
is not used by the authorities as source of low cost deficit financing. 

  Due  to  highly  complex  socio-political  structure  and  existing  tensions  between 
the State and Entities, potential delays and/ or risk of ‘half completed’ reforms 
was  an  issue  in  the  context  of  this  operation.  Therefore,  more  active 
involvement of the European Commission in monitoring the implementation of 
reform  conditions  could  be  considered.  Ideally  this  would  be  associated  with 
access to technical assistance. This could improve the effectiveness of the MFA 
conditionality.  One  approach  to  this  could  be  closer  alignment  with  the  EU 
delegation  and/  or  IMF  which  could  support  DG  ECFIN  in  monitoring  of  the 
implementation  process  (and  provide  technical  assistance  if  needed).  Another 
alternative would be closer involvement of DG ECFIN itself, for instance in the 
form of more frequent visits. The latter would be more resource intensive. 

  The  European  Commission  should  consider  putting  more  effort  into  improving 
the  visibility  and  transparency  of  the  MFA  instrument.  Efforts  should  be  made 
to  make  available  basic  information  about  the  operation  in  the  Commission’s 
local  press  releases  and  on  the  EU  delegation  website.  For  example,  the 
amount  of  assistance,  reasons  and  expected  benefits,  the  interest  rate  that 
applies to the loan, when the loan will be repaid and the conditionality attached 
to it could be published in a press release. 

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