#RESTART21

Regular Economic Report - Q3

The third quarter was particularly challenging for the BiH economy. The third FNF report follows the economic developments in this quarter, but also various estimates of the rate of economic growth in 2021. These rates differ significantly according to the forecasting institution, ie the month in which the specific forecast is made. The key to all forecasts is to be based on the vaccination rate, as announced in previous reports. Therefore, the low vaccination rate in Bosnia and Herzegovina - compared to the developed countries of the world, but also the countries of the region - determines the forecast of low growth rates for this and next year. The recovery is certain, however, still in the form of creeping economic growth of two to three percent per year, which is simply not enough for citizens / the economy. The key challenges identified in the report relate to rising prices, the energy crisis, budget instability, low vaccination rates, political uncertainty, and the lack of sound economic reforms. Of particular concern is the rise in prices, which follows the macroeconomic part of the Report. According to the data from the Household Budget Survey in Bosnia and Herzegovina, the expenditures of one household amounted to 1,419.48 KM. Of this amount, 30.8% refers to food and beverages, 9.4% to electricity, gas, water, and other fuels, and 10.0% to transport. A comparison of price movements in 2021 with prices in 2019 shows that over the past two and a half years there has been a significant increase in the prices of many groceries, which ultimately reduces the real purchasing power of the population, especially low-income workers. Within the framework of this report, a survey of citizens' attitudes towards taxes and non-tax benefits in Bosnia and Herzegovina was conducted. An appropriate sample (272 respondents) was used in the study using the CAWI and MAWI methods. The results of the research show that the respondents are still aware of the importance of taxes, the need to pay them, and the benefits they provide to the whole society. The report offers an appropriate conclusion and a series of recommendations for decision-makers. In line with the economic developments in the third quarter of this year, the following recommendations were formulated:

• Existing vaccination practices throughout Bosnia and Herzegovina need to be improved. In particular, this includes the establishment of a system of incentives for vaccination, then facilitation of the vaccination process and the elimination of queues, as well as honest and open communication on the importance of vaccination to get out of the current crisis as soon as possible. It is necessary to work together with employers in order to increase the number of vaccinated workers. Crisis staffs at various levels of government are responsible for these measures.
• It is necessary to establish a working body at the state level that will consider the issue of Bosnia and Herzegovina's membership in the Open Balkans initiative. This working body should monitor the developments related to the Open Balkans initiative and propose solutions in the form of (non) accession to this initiative.
• It is necessary to activate commodity reserve systems in order to protect marginalized sections of the population. This primarily refers to all those who have a minimum income or are unemployed and socially disadvantaged.

When it comes to primary research, we recommend following measures:

• Tax rates, mostly among the population, are perceived as too high, given that they mean a loss and a cost that people perceive more than gains. This is especially true of VAT, as a "visible" tax, the amount of which is particularly sensitive to those who perceive it on a daily basis through the purchase of food, to which those with the lowest personal incomes and females are particularly sensitive. This suggests that if the authorities want to achieve a positive social response, they should, instead of promoting the introduction of a progressive tax rate, which means higher taxation of those who earn more, consider reducing the VAT rate on basic foodstuffs and medicines.
• Citizens are aware of the importance, needs and benefits of taxes. However, at the same time, they express a negative attitude towards taxes and non-tax benefits, which is a consequence, in addition to the feeling of loss, non-transparency in their spending, serving taxes only to the ruling elites and inefficiency of public administration financed from tax and non-tax benefits. A significantly higher level of transparency in the spending of budget funds at all levels of government and more efficient public administration are a precondition for talking about changes in the fiscal system in the future. Citizens and businesses need to see clearly the benefits of potential tax increases in the future.
• The abolition of most parafiscal levies is perceived as a great facilitation of business operations. Such a decision would create a very good message for the authorities in the direction of better perception of the entire business environment, which would certainly result in the medium term through increased business dynamics that would compensate for public sector revenues that such a decision would reduce in the short term.
• Parafiscal levies must be realistically calculated on the basis of the company's profit and spent exclusively for the purposes for which they are intended. Parafiscal benefits must be sectoral, in terms of payment and spending, and it is important that the effects are felt throughout the territory in which these funds are collected.

Report is available in local languages only.