Presentation by Mr. Zlatko HurticAdviser of Chairman of B&H Council of Ministers

Thessalonica, May 27-28, 2005

ANNUAL PROGRESS REPORT ON IMPLEMENTATION OF MID-TERM DEVELOPMENT STRATEGY (PRSP)

BOSNIA AND HERZEGOVINA

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• Mid-term Development Strategy approved in March 2004 by governments and parliaments

• Supported by Civil Society

PROCESS

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GENERAL GOALS

• to create conditions for sustainable and balanced economic development

• to speed up EU integration

• to lower unemployment

• to decerease level of poverty

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SPECIFIC TARGETS

• to decerease public expenditure level in GDP

• to increase private sector share in GDP

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MAIN PRIORITIES

Economic Policy Planning and Monitoring Unit (EPPU) has been established to:

a) monitor implementation of measures from Action Plan

b) monitor indicators (MDGs)

c) continue with economic research

d) prepare six-month and annual reports on implementation of B&H MTDS

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IMPLEMENTATION MECHANISM

PROGRESS REPORT

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STATUS OF IMPLEMENTATION for period August 2003 – April 2005

Source: Report on implementation of Action plan of MTDS 2004-2007 for period August 2003-March 2005

In realization28,31%

Completed or

continuously implemented

66,83%

Not in realization

4,86%

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IMPLEMENTATION BY GOVERNMENTS

74,07% 74,05%

68,57%

Council of Ministers of B&H FBiH Government RS Government

Source: Report on implementation of Action plan of MTDS 2004-2007 for period August 2003-March 2005

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IMPLEMENTATION BY PARLIAMENTS

92%

76%

96%

National Assembly of RS Parliamentary Assembly of B&H Parliament of FBiH

Source: Report on implementation of Action plan of MTDS 2004-2007 for period August 2003-March 2005

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IMPLEMENTATION OF MACROECONOMIC FRAMEWORK AND PRIVATE SECTOR GROWTH

MEASURES

94%85%

80% 77% 75% 74% 73%63%

57%

0%

20%

40%

60%

80%

100%

Macroeconomic and fiscal framework Anti-corruption

Development of statistical system Public sector reform

Foreign trade Business environment

Labor market Privatization

Financial sector

Source: Report on implementation of Action plan of MTDS 2004-2007 for period August 2003-March 2005

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PERCENTAGE OF SUCCESS IN IMPLEMENTATION OF MEASURES IN AREA OF

SECTORAL PRIORITIES

100%100%100%

77%71%

67% 64% 63%

50% 48% 47%38% 36%

22%

0%

20%

40%

60%

80%

100%

120%

Water management De-mining

Geneder equality Forestry

Social policies and pension system Environment

Health system Tourism

Agriculture Inrastructure

Anergy system Education

ICT Industry

Source: Report on implementation of Action plan of MTDS 2004-2007 for period August 2003-March 2005

ECONOMIC TRENDS

ECONOMIC GROWTH OF B&H IN COMPARISON TO THE REGION IN 2004

Source: IMF World Economic and Financial Surveys, World Economic Outlook, April 2005

* Serbia and Montenegro

7,2%8,3%

2,3%

3,8%

5,9%5,7%5,7%

0

2

4

6

8

10

BiH

Bulgar

ia

Alban

ia

Croat

ia

FYR Mac

edonia

Roman

ia

SCG*

%

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REGIONAL CPI COMPARISON

2,40,6

2,3 1,8 1,2

15,3

11,3

2,9

0,4

6,1

2,1

-0,3

11,9

9,5

-202468

1012141618

in %

2003 2004

Source: IMF World Economic and Financial Surveys, World Economic Outlook, April 2005, IMF Staff Report, Article IV Discussion Paper 15

FISCAL DEFICIT

-7,5

-8,9 -9,0

-4,9

-3,7

-1,3 -1,1

-10

-8

-6

-4

-2

0

1998 1999 2000 2001 2002 2003 2004

in %

GD

P

Source: Medium Term Development Strategy IMF Staff Report, Article IV Discussion Paper 16

9,79

9,21

8,97

8

9

9

10

10

2002 2003 2004

in %

GD

PWAGE BILL CUT

Source: Ministry of Finance and Treasury of BIH, FBiH and RS Ministries of Finance, IMF Staff Report, Article IV Discussion Paper, FBiH and RS Medium Term Expenditure Framework, 2005-2007 17

DEFENSE EXPENDITURES CUT

3,3

2,2

1,00,7

2,0

0,9

0

1

2

3

4

2002 2003 2004

in %

GD

P

Federation of BiH Republic of Srpska

Source: FBiH and RS Medium Term Expenditure Framework, 2005-2007 18

CURRENT ACCOUNT DEFICIT

-21,7

-17,7 -17,3

-25

-20

-15

-10

-5

0

2002 2003 2004

in %

GD

P

Source: IMF Staff Report, Article IV Discussion Paper 19

INTEREST RATES DECLINE

18

14

10,89,2

8,2

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004

in %

Interest rates

Source: Central Bank of Bosnia and Herzegovina 20

BANKS DEPOSIT GROWTH

13,917,2

27,1

0

10

20

30

40

50

60

70

80

2002 2003 2004

in %

Source: Central Bank of Bosnia and Herzegovina 21

CORPORATE / HOUSEHOLD LENDING

43,4

77,5

113,6

35 33,6

-39,4

30,6

26,2

29,9 33,3

-50

-30

-10

10

30

50

70

90

110

130

2000 2001 2002 2003 2004

% o

f g

row

th

CorporateLending

HouseholdLending

Source: Central Bank of Bosnia and Herzegovina 22

FOREIGN DIRECT INVESTMENT GROWTH

0

75

150

225

300

375

450

1998 1999 2000 2001 2002 2003 2004

in m

illi

on

€

Source: Central Bank of Bosnia and Herzegovina 23

USAGE OF RAILWAY TRANSPORT IN BIH

37984200

4658

8736

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2001 2002 2003 2004

In 000 of tons

Source: Statistical office FBiH, Statistical office RS 24

EXPORT / IMPORT RATE OF GROWTH

-10

0

10

20

30

40

50

2000 2001 2002 2003 2004

in % Imports

Exports

Source: Central Bank of Bosnia and Herzegovina 25

INDUSTRIAL PRODUCTION GROWTH

24

11 10

3

15

4,8

23,32218

12

-11

-3

5,79,7

-15

-10

-5

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003 2004

in %

Federation of BiH Republic of Srpska

Source: Central Bank of Bosnia and Herzegovina, FBiH and RS Institute of Statistics 26

EMPLOYED AND UNEMPLOYED (including grey economy) in %

21,119,6

21,4

36

40,942,7

0

5

10

15

20

25

30

35

40

45

2002 2003 2004

Unemployed

Employed

Source: Living in BiH, Wave 4 27

WAGES

86,92110,44

140,61157,99

177,42193,78

215,77

168,22191,22

211,16227,01

246,95267,92 270,98

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003 2004

in €

Federation of BiH Republic of Srpska

Source: BiH Statistics Agency, FBiH and RS Institute of Statistics 28

PENSIONS

88,96 89,98 86,9196,63 98,16

103,79

44,48

58,7953,68

61,3568

84,87

0

20

40

60

80

100

120

1999 2000 2001 2002 2003 2004

in €

Federation of BiH Republic of Srpska

Source: Central Bank of Bosnia and Herzegovina, FBiH and RS Institute of Statistics 29

POVERTY DECLINES

19,5

17,8

16

17

18

19

20

2002 2004

%

Source: BiH Statistics Agency, FBiH and RS Institute of Statistics, EPPU 30

• Job loss: 20,700

• Job creation: 19,900

• Out of poverty: 69,000

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FOREIGN AID SHARE IN GDP

3.8%

6.9%

5.6%

4,0

4,5

5,0

5,5

6,0

6,5

7,0

7,5

2002 2003 2004

in b

illi

on

s €

GDP Foreign Aid

Source: IMF Staff Report for 2005, Article IV Discussion Paper 32

PRIORITIES FOR 2005

• VAT introduction

• Corporate restructuring

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