Download 1996-1998 lessons and accomplishments

1996-1998 LESSONS AND ACCOMPLISHMENTS
REVIEW OF THE PRIORITY RECONSTRUCTION PROGRAM AND
LOOKING AHEAD TOWARDS SUSTAINABLE DEVELOPMENT
Prepared by: The European Commission and World Bank, May 1999
Executive summary
Just over three years after the end of the war, Bosnia and Herzegovina has made
significant strides in solidifying peace and bringing about greater prosperity for its citizens. The
country has successfully capitalized on the large flows of donor assistance to rebuild its economy
and jump-start growth. By end-1998, donor funds totaling US$4.2 billion had been firmly
committed, and US$2.8 billion had been disbursed in support of the Priority Reconstruction
Program and related peace implementation activities. This donor support, combined with the
commitment of the people and authorities of Bosnia and Herzegovina, has brought important
achievements in each of the areas targeted by the program.
• Reconstruction of physical assets has been the most highly successful aspect of the
program, with most bottlenecks in infrastructure removed, and many community and other
services restored.
• The reconstruction effort – including targeted programs to jump-start economic activity -- has
also fueled high growth rates and brought a tangible re-start of economic activity. The
achievements in this area are moderated however by the fact that recovery is fragile.
Unemployment remains high, economic growth continues to be linked primarily to
reconstruction, and refugees and the internally displaced have not yet returned in the numbers
hoped.
• Modest achievements have been made over the last three years in building and
strengthening institutions and initiating the policy reforms of transition. Here, the
challenges are among the most complex of all of Bosnia and Herzegovina’s postwar tasks;
nevertheless, success is the essential precondition to safeguarding hard-won initial gains in
the other two areas. Over the next several years the authorities and their donor partners must
focus on the unfinished items of the institution building and policy reform agenda in order to
ensure that the economic recovery momentum begun by reconstruction can be maintained.
• Finally, there have also been important achievements in the peace implementation activities
necessary for ensuring reconciliation and a fertile ground for reconstruction and recovery.
To complete the Priority Reconstruction Program, external financing requirements in
1999 total US$1 billion. Priorities include community and social services in support of refugee
return (housing, water and wastes, heating, health, education and landmine hazard management);
completion of network infrastructure reconstruction; targeted economic restart initiatives
(such as credit lines to small and medium-sized enterprises, credit and inputs for agriculture and
employment generation programs); provision of fiscal support for recurrent expenditures,
including social assistance; and deepening institutional and policy reforms in support of private
sector development and social sustainability in order to prepare all sectors to be effective players
in a robust market economy.
As Bosnia and Herzegovina enters the last year of a successful reconstruction program,
the key questions facing its policymakers and international partners as they look to the future are
how to sustain growth in the face of an inevitable decline in external concessional assistance, and
how to ensure that the benefits of this growth are expanded to allow for a broad-based increase in
living standards. Bosnia and Herzegovina will enter the 21st century with newly rebuilt physical
assets, and a relatively healthy economy. The country has the opportunity, moreover, to learn
from the lessons of other transition economies. The measures to ensure rapid success are linked
to more efficient use of scarce domestic and foreign resources. Reforms are most needed in three
areas to enable the country to grow as a thriving market economy:
• Continued strengthening of economic institutions and sound macroeconomic management,
including a medium-term fiscal strategy that aims to smooth the adjustment as donor aid
flows decline.
• Active private sector development, including policies aimed at stimulating private
investment, banking sector reform, privatization of enterprises and banks and the start of
utility privatization, and labor market reform.
• Development of Bosnia and Herzegovina’s human capital and establishment of a fiscally
affordable and equitable social protection system.
However, it is also clear that while much of the job of reconstruction has been completed,
there are important remaining reconstruction needs from the legacy of war that need to be
addressed, and that are likely to complicate and perhaps slow Bosnia and Herzegovina’s
transition. Notable among these are housing, community services in return areas, demining and
continued interim support of social assistance and economic restart programs.
Continued stabilization and reform will be essential in the coming years to ensure
sustainable recovery and growth. Provided these measures are taken, Bosnia and
Herzegovina’s GDP could recover to about two-thirds of its pre-war level by early in the
next decade. But the country will need continued partnership with donors to reach this
objective. Given continued remaining reconstruction and other development financing
needs concessional donor assistance will remain important in the medium-term.