CBBH at the annual meetings related to the Economic Reform Program for the period 2025 – 2027

Prepared by: Belma Čolaković, Ph.D.

Head of the Office of the Chief Economist

The representative of the Central Bank of Bosnia and Herzegovina (CBBH), Chief Economist, Belma Čolaković, Ph.D. attended, as part of the delegation of Bosnia and Herzegovina, at the technical meeting of the Economic and Financial Committee (EFC-Alternates). The Committee is a body of the European Union, established with the aim of promoting coordination among the Union's member states. The Committee provides opinions, at the request of the Council of the European Union (EU) or the European Commission (EC). The papers for the Council include assessments of the economic and financial situation, coordination of economic and fiscal policies, information related to financial market issues, exchange rate policies, and relations with third countries and international institutions. The Committee also provides a framework for the preparation and maintenance of the dialogue between the Council and the European Central Bank (ECB).

Specifically, regarding the assessment of the situation in third countries, the EFC meeting is an integral part of the assessment of the Economic Reform Programme (ERP) that each candidate country for EU membership submits annually, for a period of three years. The document is prepared in accordance with the methodology and structure approved by the EC, and presents a medium-term framework for the country's macroeconomic and fiscal parameters. The ERP also provides an overview of the progress that the country has made in the year since the previous meeting, following up on previous recommendations. The meeting is only one in a series, which concerns the assessment of the quality and credibility of the ERP of the candidate country, and the process culminates in a joint statement of the EU institutions and senior officials of the candidate country at meetings in May, which contains concrete proposals for the country,                                                                                                                                                                         in order to accelerate the EU accession process and bring the quality of life of the population closer to the EU average during the accession negotiations process. The EFC meeting is preceded by a series of meetings, following the submission of the ERP, between the EU institutions (EC, ECB and Eurostat) and the institutions of the candidate country (primarily the central banks and ministries of finance), with particular emphasis on the degree of fulfilment of the recommendations from the previous year, macroeconomic trends and projections, and the initiated reform processes, including expectations and constraints regarding their implementation, especially in the segment of their financing possibilities.

The EFC meeting itself is attended by delegations of the candidate countries for EU membership, on the one hand, and the EC, ECB, Eurostat, and the EU Member States, on the other. Each candidate country for membership is represented by its central bank and ministry of finance, and it is possible that the delegation has two more members, in the second row, as observers. Interventions per country are strictly limited to five minutes per institution, with an additional five minutes for a review, comments and questions from a representative of one of the member states, regarding the submitted ERP. The country delegation then has an additional three minutes to answer specific questions. Finally, the other attendees are given the opportunity to ask the country delegation questions. Each delegation then provides a statement on whether they agree with the draft joint statement and conclusions with recommendations, which will be formally adopted and published at high-level meetings in May. The draft joint statement is prepared by the EC and the ECB, after assessing the submitted ERP and a series of meetings at the beginning of the year with the institutions of the candidate country for membership, and they, after harmonizing their positions, can submit comments and suggestions for possible changes or clarifications. The EC and the ECB do not have to adopt these suggestions, because, ultimately, it is about their assessment of the country's progress and the credibility of the arguments and information presented in the ERP. However, the EU institutions accept reasoned comments, and there are, as a rule, no incorrect statements in the draft. The essence is that these meetings are not a place to debate extensively with the EU institutions about the specificities of the country, but to adopt recommendations for the country's priority activities, within the mandate of the EFC, which will be a signal to the EU institutions of the country's commitment to membership, and provide measurable results on progress in the EU integration process.

At this meeting, the EU institutions also unfortunately noted that only Bosnia and Herzegovina, out of the eight delegations present, had not submitted the ERP document for the period 2025-2027 on time. BH Council of Ministers only adopted the draft ERP in mid-March, and the document was submitted to the EU institutions two months late. This is the third year in a row that BH, the only candidate country for membership, has not submitted the key, annual progress document on time, and the assessment was submitted as a document with significant room for improvement. Consequently, the signal is sent to the EC institutions that the country takes the EU integration process less seriously, compared to other candidate countries for membership, and significantly less time is left for the EU institutions to provide constructive and concrete proposals for improvement. On this occasion, we would like to especially thank the representative of the Ministry of Finance of Lithuania, who, despitevery short deadline for commenting on the submitted ERP, took a very serious approach to commenting on the document submitted by BH, and asked very specific questions to the BH delegation.

Immediately before each EFC meeting, the EU institutions submit two questions to each of the candidate countries, one for the central bank and one for the ministry of finance. The questions for the central bank are usually prepared by the ECB. This year, the question to which the CBBH responded during its five-minute intervention is: “How do you assess the prospects and risks related to inflation, including the quality of inflation measurement, the expectations of domestic sectors and institutions, related to inflation, all in the context of the limited space for monetary policy action. What other policies do you consider relevant for achieving price stability?” Of the questions that the representative of Lithuania had for our delegation, the Central Bank took up questions related to the potential effect of the increase in the minimum wage on price competitiveness and, indirectly, economic growth in the medium term. An additional question, before the member states, was: "To what extent has BH started to meet the recommendations from the FATF report from December 2024, and how to prevent the country from possibly regressing on the lists of this organization?"

Regarding the issue of the quality of inflation measurement in BH, we pointed out that, based on the Law from 2002, the only institution responsible for official price measurement at the BH level is the Agency for Statistics of Bosnia and Herzegovina, based on inputs provided by the Entities’ Institutes of Statistics. However, wishing to contribute to the fulfilment of earlier recommendations of EU institutions, the CBBH has recently started, for analytical purposes, to officially publish our estimate of core and price inflation in the services sector. So far, we have only published our nowcast of core and the inflation in the services sector, as for data for February 2025, we are also publishing estimated historical index values.

In the coming days, the CBBH, as part of the country delegation, will give its consent to the final draft of the joint statement. We will publish the statement in its entirety, after it is adopted at the meetings in May, where the CBBH will also have its representative, in the segment that concerns BH. Our goal is to underline how important the EU integration process of the country is, how much serious work lies ahead of all of us, and how, at least, we should not make it any more difficult by untimely reactions or by failing to submit documents in the required format.