#1UNITED NATIONS BOSNIA AND HERZEGOVINA UN Socio-economic Impact Assessment of COVID-19 crisis in Bosnia and Herzegovina Presentor: Velimir Šonje, Lead Economist COVID-19 RESPONSE#2Motivation Policy design in response and recovery to COVID-19 over the period of 12 to 18 months Provide medium- and longer-term policy recommendations Use this crisis as a catalyst for a forward-looking recovery agenda. 2#3Contents (UN's five pillars) Pillar I: Pillar II: . Pillar III: Pillar IV: Pillar V: Health First (COVID-19) Macroeconomic Response and Multilateral Collaboration Economic Response and Recovery - Jobs, SMEs and Informal Sector Workers Protecting People and Basic Services: No one Left Behind Education, Non-Covid-19 Health and Poverty Incidence and Social Protection Social Cohesion and Community Resilience 3#4Pillar I: Health First - findings. 50 250 Number of cases 100 150 200 300 350 400 450 0 4-Mar-20: 10-Mar-20 16-Mar-20 22-Mar-20 28-Mar-20 3-Apr-20 9-Apr-20 15-Apr-20 21-Apr-20 27-Apr-20 3-May-20 Figure 1. Distribution of COVID-19 positive and trendline in Bosnia and Herzegovina, September 13th (Sources: IPH FBIH, IPH RS, FMH, MOCA) 9-May-20 15-May-20 21-May-20 27-May-20 2-Jun-20 8-Jun-20 14-Jun-20 20-Jun-20 26-Jun-20 2-Jul-20 8-Jul-20 14-Jul-20 Confirmed cases -Epidemic curve 20-Jul-20 26-Jul-20 1-Aug-20 7-Aug-20 13-Aug-20 19-Aug-20 25-Aug-20 31-Aug-20 6-Sep-20 12-Sep-20 4#5Pillar I: Health First - recommendations . • Factors which led to summer rise in number of infections Strengthen management, and improve coordination for crisis management Support entity and cantonal Institutes of Public Health in FBiH in enhancing their dual-track surveillance system and establishing Rapid Response Teams Capacities for COVID-19-related case identification and testing Full implementation of infection prevention and control measures in all healthcare facilities, Develop, apply, and regularly update institutional protocols. Shift medical experts and materials among health institutions to optimize capacities vis-à-vis demand for health care. Improve supply chain management. Address particular needs of vulnerable. Communicate continuous provision of services through community information platforms. . COVID-19 vaccine preparations 5#6COVID-19 Pillar II: Macroeconomic Response - findings Figure 3. Real GDP level (left) and growth (right) pre and post Figure 13. Share of highly impacted sectors in emloyment 40 5 35 Index 2017=100 114 112 3,6 3,1 2,7 110 108 106 I 4 30 3,5 3 -7.1% 2 25 I I 1 20 i-8% 0 | do 15 104 102 100 -1 T -2 10 -3 Households as employers Art, entertainment, recreation Real estate Accommodation and food Transportation and storage Wholesale and retail trade 5 98 96 94 92 2017 -4 0 -5 2019 -5,0 2020 -6 2021 Source: IMF 2018 Albania Serbia BiH N. Macedonia Kosovo Montenegro Source: The World Bank, own calculations Pre-COVID IMF WEO Oct2019 Post-COVID IMF WEO April2020 Real GDP growth IMF WEO 2020 • ● Mitigation 1: large public sector (blessing and a curse; short vs long run) Mitigation 2: economic structure • Mitigation 3: sustainable fiscal position with public debt likely below 40% of GDP 6#7Pillar II: Macroeconomic Response - findings Figure 10. Number of registered unemployed persons between March and June 2020 450.000 400.000 Main policy actions: • • • Budget restructurings Tax deferrals Stabilization funds Wage subsidies (job retention measures) Commitment to tax reforms (FBiH) and reduction of para-fiscal charges • Debt relief measures and ban on dividend pay-out for banks 350.000 300.000 • 250.000 325.989 325.816 325.540 306.963 • 200.000 150.000 100.000 50.000 0 84.658 86.808 88.811 88.772 6.649 6.785 6.847 6.988 March 2020 Source: Agencija za rad i April May 2020 June zapošljavanje BiH, Tabelarni pregled Brčko DC RS FBiH • Authorities have to plan for a less favourable macroeconomic scenario ● IFIs assistance 7#8Pillar II: Macroeconomic Response - recommendations. Extend employment protection schemes and establish more systemic income support measures Keep social transfers elevated • Develop and implement a mid-term economic recovery program at state and entity government levels Increasee public investment in sustainable infrastructure, green energy and similar projects Make restructuring of the public sector, including SOES, core component of the program • Use external financing envelope to plan for more adverse scenario Strengthen public finance management and procurement 8#9Pillar III: Economic Response and Recovery - findings. 60 50 40 30 20 10 10 0 Figure 14. Employment rate 15+ in South East Europe • • Highest vulnerability of women owned small businesses Measures for job retention did not address informal sector workers (estimates range between 15 and 30% of official employment) Deepening structural divide among sectors Very low investment rate (<20% of GDP) before crisis Underdeveloped capital markets Huge lag behind the peers in terms of digitalization Lack of structural reforms Bulgaria Romania Serbia to 40% Montenegro Croatia N.Macedonia + highest youth unemployment rate in SEE, close Turkey Italy Greece • Source: Eurostat, Agency for Statistics of BiH BiH • 6#10Pillar III: Economic Response and Recovery - measures • • • • Wage subsidies - job retention measures phased out after lockdown relaxation • Coverage of labour taxes and contributions for workers in enterprises most affected by fall in revenues (20%) Below radar: young workers, women owned small businesses, informal sector workers Active labour market policy still in the nascent stage, development helped by the World Bank Tax measures: postponement of corporate tax advances, commitment to labour taxation reform and reduction of para-fiscal charges Credit guarantee schemes (for SMEs only) • RS € 25 million (EBRD) FBiH € 50 million (IFIs) Lack of power for loss coverage, lack of scope, lagging far behind impact of similar schemes in more developed countries Measures were very short term under assumption of recovery coming early in 2021 which may not be the case Missing: • Link between short term response and mid-term recovery plan in the context of structural reform • Equity investment promotion schemes • SOEs reform • Public administration reform • Industrial policy (digitalization and Industry 4.0) 10 10#11Pillar III: Economic Response and Recovery - recommendations Employment: • • • • • Develop a comprehensive employment policy, in line with EU orientations and ILO standards. Complete thorough labour market analysis pre and during COVID-19 shock, Strenghten active labour market measures Specific measures for vulnerable workers Create incentive for turning informal into formal employment in line with international labour standards Competitiveness: Build, and timely implement a comprehensive mid-term development plan Anticipate the skills needs of key industries and assess the needs for workforce training, re-skilling and up-skilling. Adopt fundamental long-term industrial policy documents covering critical areas of energy, industry 4.0 and digitalization. Reform state-owned enterprises (depoliticization, professionalization and privatization). Enhance guarantee schemes • Implement equity and quasi-equity investment schemes • Secure country-wide response. 11#12Pillar IV: Protecting People and Basic Services - findings Regional trends in Human Development Index 2000-2018 - Education Health (non- COVID) BiH Bulgaria Croatia Montenegro North Macedonia Romania Serbia Slovenia 0.902 0.837 0.816 0.816 0.816 0.799 0.825 0.769 0.759 0.750 0.741 0.712 0.672 2000 0.709 0.711 0.669 2018 2000 2018 2000 2018 2000 2018 2000 2018 2000 2018 2000 2018 2000 2018 Source: UNDP. http://www.hdr.undp.org/en/data Social protection Figure 22. Healthy life expectancy in 2019 in selected countries of SEE 75 73 71 69 67 65 71,9 63 61 Human development index reflects: ● Life expectancy ● • Years of schooling GNI per capita at purchasing power parity GINI index (indequality adjusted) years 59 67,4 66 66 65,7 65,3 64,9 64,7 Italy Greece Turkey 69,9 67,9 67,5 Source: World Development Indicators Albania Croatia N. Macedonia Montenegro H!8 Serbia Bulgaria Romania 12#136 5 4 № 3 2 1 0 Croatia Turkey *All countries 2017 except Serbia 2015 and Croatia 2018 Pillar IV: Protecting People and Basic Services – education findings Figure 19. Public spending on education in % of GDP* Figure 20. PISA 2018 scores - 1600 1400 BiH Bulgaria Italy Serbia Greece Romania Source: Eurostat and UNDP • Generally low educational outcomes vs inputs and skills' gap • Only quarter of children in pre-schooling programs . • Estimates that 35% of students have inadequate equipment, internet access and/or learning space at home Lack of standards and experience regarding digital teaching content - relying on bottom up initiative Risk of inequitable access OECD average Italy Croatia Turkey Greece Serbia Romania Bulgaria 1200 489 468 472 468 452 448 426 424 415 416 1000 398 365 800 489 Science 487 464 454 451 448 430 436 600 430 437 406 Math 366 400 Reading 200 487 476 479 466 457 439 428 420 421 405 403 353 0 Montenegro Albania BiH Kosovo Source: OECD 33 13#14Pillar IV: Protecting People and Basic Services - education recommendations Invest in digital connectivity for every child and increase quality of e-learning. • Emphasise needs of most vulnerable children • Align long-term plan for educational reform with COVID-19 reality. Modernize and adapt VET curricula and lifelong learning provision to the needs of the labour market Invest in pre-school education keeping in mind its indirect effect on gender equality as it helps participation of young women in the labour market. Protect and increase education sector financing 14#15Pillar IV: Protecting People and Basic Services – nonCOVID related health findings Figure 23. Health expenditures by financing scheme in % of GDP 2018 in selected countries of SEE - Figure 24. Economic cost of atmospheric air pollution in % of GDP 2016 12,0 10,0 2,8 10 9 8 7 8,0 2,6 20 Out of pocket expenses 2,0 di 65 4,5 0,2 0,7 0,0 d 6,0 Voluntary insurance schemes 4 2,9 0,5 3,6 3 1,1 0,1 0,1 4,0 6,2 62 4,5 2,0 69 6,4 4,3 333 Government compulsory scheme 45 5,7 4,4 20 1 8,2 6,9 Kosovo N. Macedonia BiH 0,0 Source: Eurostat Greece BiH Italy Bulgaria Croatia Romania Source: World Bank • • • Huge health costs relative to GDP, including out of pocket expenses Decentralized financing and management (13 health funds) HDR found great danger of lack of insurance coverage for up to 20% of people and catastrophic health expenses of certain vulnerable groups of seriously ill patients (which is a social problem) . Both entities committed to work with the World Bank on the health system reform 15#16- Pillar IV: Protecting People and Basic Services – nonCOVID related health recommendations Prioritize programmes in the primary health care including options for development of telemedicine. Research secondary pandemic mortality due to lockdown and ensure continuity of health services. Perform in-depth research of out of pocket health expenses and use the results to adjust social assistance Implement health sector reform based on best international practice in order to ensure short- term and long-term financial sustainability while keeping universal open access system. Coordinate and inform industrial policy measures with assessment of external social benefits of reduction of air pollution. Internalise expected health benefits in investment plans. 16#17Pillar IV: Protecting People and Basic Services - poverty incidence and social protection findings Structural weaknesses in the social protection system + COVID-19 impact: • WB estimate: expected range of the number of persons likely falling into poverty is between 35,000 and 85,000, with 50-60% currently not covered by social protection programs 16.8% of the population receives some form of social transfer besides pension: social assistance, unemployment and disability benefits. About 30% of households in BiH declare pension to be the main source of family income BiH has the highest proportion of expenditure on veterans, survivors and disability benefits in the Western Balkans region. This weighs over resources for spending on family and child benefits. Cost of administration of the social protection system in relative terms is by far the highest in the region Coverage is low compared to other countries in Europe and Central Asia region. The current system is uneven and inadequate to keep vulnerable out of poverty. 17#18Pillar IV: Protecting People and Basic Services – - poverty incidence and social protection recommendations Eliminate excess administrative burden • Improve shock-responsiveness of the social assistance system (cash contingency, institutional preparedness, etc) Reform social assistance targeting system so that the benefits are based on needs and not on the status of beneficiaries. Reform unemployment benefits system Prevent cuts in public spending in areas such as education, health and social protection. Ensure fiscal sustainability and preserves preconditions for economic growth. 18#19• Pillar V: Social Cohesion and Community Resilience - findings Figure 25. Rule of law and control of corruption in selected EU member states and Southeast Europe • • • 0,4 0,3 0,2 0,1 0 -0,1 -0,2 Croatia Greece -0,3 -0,4 -0,5 -0,6 Source -0,7 World Bank Montenegro Bulgaria Serbia BiH N. Macedonia Turkey Kosovo Albania Control of corruption Rule of law Weak social assistance on top of complaints revealed by the survey of local coummunities Fear of emigration of youth: feeling that it leads to permanent development gaps (local communities "left on its own". Serious challenges related to corruption and clientelism: nepotism in employment in the public sector. • 78% respondents distrust or tend not to trust governments. • 88% view government handling of anti-corruption as unsatisfactory (recent procurement case). . Decline of cross-ethnic friendships in the last decade (reflects political divisions in the post-conflict situation). Anti-corruption Action Plan during pandemic was adopted, implementation is key. 19#20Pillar V: Social Cohesion and Community Resilience - recommendations Government transparency and Public Administration Reform (PAR): Improve transparency and implement anti- corruption programs. Accelerate digitalization and e-governance, Implement merit as criteria for employment professional public in open and administration. Implement territorial fiscal equalization Social dialogue and equity: Strengthen data-driven policy formulation and continuous monitoring of policy effects. Implement recovery programs via the broad participation of citizens, Provide support to marginalized groups including through appropriate, transparent and well targeted funding to civil society organizations. Transparent elections and media space: . Prevent hate speech, stigmatization, discrimination and the rhetoric of division and fear, enhance media literacy mechanisms in order to make local development more equitable. 20 20#21Thank you! 21