March 27 (SeeNews) - Bosnia and Herzegovina needs profound structural and energy reforms, and improved coordination between all levels of government to bolster growth and progress towards becoming a fully functioning market economy, achieving EU membership and smoother transition towards EU living standards, the World Bank said.
Over the longer term, BiH remains with an economic growth issue that will get worse over time, if left unaddressed, the global lender said on Tuesday in its latest comprehensive economic analysis, Country Economic Memorandum.
Bosnia and Herzegovina still faces challenges as its cumulative real GDP growth lags behind that of its regional peers, and living standards are at about one-third of the EU average, the World Bank said.
The country is losing an important share of its labour force, is ageing, and stagnating in terms of export sophistication, the World Bank noted, adding that these factors are likely to be further aggravated by worsening export competitiveness as the European Union’s carbon border adjustment mechanism becomes increasingly binding.
At the current pace of structural reform implementation, Bosnia cannot sustain its current economic growth trajectory of around 3%, it said. Instead, it is estimated that trend growth would decelerate to 1.4% by 2040. "To turn these downside secular pressures on real output growth around, Bosnia and Herzegovina would need to implement deep structural reforms to enable a more private sector-led and productive economy," the World Bank said, adding that at the same time, the country should reduce its dependence on coal.
The World Bank believes that structural reforms aimed at bolstering total factor productivity carry the greatest promise for the country's economic prospects. These can take the form of re-initiating the transition to a market economy through state-owned enterprise privatization, restructuring, or bankruptcy, especially of smaller and medium-sized firms, and particularly in cases where there is no clear rationale for public ownership.
According to the analysis, reforms and further progress are needed across five strategic areas sound macroeconomic management and digitalization; labour market development, unleash firms’ productivity potential; ease access to finance and enhance competitiveness through energy and extraction policies. Concrete measures recommended under these areas aim to improve fiscal policy dialogue, increase efficiency and productivity in firms, promote business entry, and facilitate exports to the EU.
"The upcoming CBAM is expected to have a significant impact on Bosnia and Herzegovina’s exports, particularly in sectors reliant on coal and high carbon emissions," the World Bank said. This underscores the urgency of transitioning towards renewable energy and aligning with international standards to enhance competitiveness, it added.
The CBAM is the EU's tool to put a fair price on the carbon emitted during the production of carbon intensive goods that are entering the EU, and to encourage cleaner industrial production in non-EU countries.
The CBAM will apply in its definitive regime from 2026, while the current transitional phase lasts between 2023 and 2026. This gradual introduction of the CBAM is aligned with the phase-out of the allocation of free allowances under the EU Emissions Trading System (ETS) to support the decarbonisation of EU industry.
EU leaders decided to open accession negotiations with Bosnia last week, eight years after the country applied to join the bloc.