BOSNIA AND HERZEGOVINA

Bosnia and Herzegovina (BiH) is a multi-ethnic country, with an asymmetrical and complex governance structure. The Dayton Peace Agreement of 1995, that put an end to the armed conflict in Bosnia and Herzegovina (April 1992–December 1995), and the 1995 Constitution divided Bosnia and Herzegovina into two entities: The Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS), to which was added a third entity in 1999: the autonomous District of Brčko.

According to the 1995 constitution, the collegial presidency is composed of three members from the constituting nations: one Bosniak and one Croat from the Federation of Bosnia and Herzegovina (FBiH) and one Serb from the Republic of Srpska (RS), all three directly elected. The head of state is the Chairman of the Presidency, and the government is led by the Chairman of the Council of Ministers. Legislative power is vested in a bicameral parliament, composed of the House of Representatives with 42 members, and of the House of People, with 15 delegates. Among the members of both chambers, two-thirds are elected from the FBiH and one-third from the RS. Moreover, the FBiH and the RS each have their own constitution, government and parliament (houses of representatives), with directly-elected members. The parliaments of FBiH and RS both have commissions dedicated to local governments’ participation in policy-making.

While the BiH constitution does not mention the autonomy of local governments, it sets the power of the three constituent entities to organise their own territories. As a result, three parallel systems of local self-government exist. The Federation of Bosnia and Herzegovina (FBiH) is a federation composed of 10 self-governing cantons and local authorities at the municipal level, according to the 1994 Constitution enacted prior to the Dayton Peace Agreement. The constitution and the 2006 Law on Principles of Local Self- Government of the Federation establish the responsibilities of the cantons and municipalities but do not explicitly recognise the autonomy of local governments. In 2013, an amendment to the Law on Principles of Local Self- Government was attempted in order to strengthen the cantonal body, but it was met with the resistance of local authorities.

The Republic of Srpska (RS) was established by its 1992 Constitution as a unitary state, a territorially unified legal entity, with a single-tier of subnational government, composed of municipalities. The RS Constitution recognises local self-government as one of the fundamental principles of the Republic (art. 5) and assigns a set of responsibilities to the municipalities although it does not address their autonomy. A Law on local self-government was adopted in 2016, which provides for mandatory consultation between the RS National Assembly and the RS Association of local authorities, as an NGO representing all cities and municipalities. With the objective to continue reforming local self-government, the RS government and the Association of local governments are currently jointly developing the Local self-government development strategy in RS for 2022‒2028 and the Training Strategy for civil servants and elected officials in local government units 2022-2026.

The District of Brčko is a former municipality, established in 1991 by an international arbitration tribunal, over a territory that used to be divided between the two entities (FBiH and RS). Since then, it is a condominium over which FBiH and RS formally agree to share equal dominium and exercise their rights jointly, without owning it. State legislation directly applies to the district, and its fields of competences are nearly the same as the ones of the entities.

The interests of cities and municipalities are promoted at the assemblies by the Association of Municipalities and Cities of FBiH (SOGFBIH: Savez Opčina I Gradova Federacije Bosne i Hercegovine) and by the Association of Municipalities and Towns of the RS (Gradova Republike Srpske). The associations are also in charge of encouraging cooperation and exchange of experiences across local governments.

The process towards integration with the European Union, since the Stabilisation and Association Agreement signed in 2015, has provided the country with large financial and technical support for its development and regional integration. BiH applied for EU membership in February 2016, and the European Commission adopted its opinion on the EU membership application in May 2019, identifying 14 key priorities for Bosnia and Herzegovina to fulfil in view of opening EU accession negotiations. These priorities include the need to fundamentally improve the institutional framework, by ensuring the clear allocation of competences across levels of government and to improve the functioning of public administration towards a coordinated countrywide approach to policymaking.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	REGIONAL/STATE LEVEL	TOTAL NUMBER OF SNGs (2021)
80 Municipalities and cities (općina) in FBiH 64 Municipalities and cities (opština) in the RS	10 cantons (kantoni) in FBiH	2 entities (one federal state and one unitary state) + District of Brčko
Average municipal size: 23 268 inh.
141	10	3	154

OVERALL DESCRIPTION: BiH has an asymmetric governance system, composed of three entities independently divided between cantons and cities/municipalities.

REGIONAL LEVEL: The Federation of Bosnia and Herzegovina (FBiH) represents 51% of the BiH total surface area and around 63% of the total population, which has a Bosniak and Croat majority (estimates). It has a three-tier federal government organisation, composed of ten federated units, the cantons, and municipalities and cities.

The Republic of Srpska accounts for 48% of the total territory and 35% of the total population, with a Serbian majority. It has a single level of local government constituted of 56 municipalities and 8 cities (a decrease from 80 in 1996). In addition, the RS is divided into seven planning regions, for statistical purpose only. Territorial Development Plans are developed for the RS according to regional and sub-regional divisions.

The Brčko District, with around 95 000 inhabitants, is a special unit of local self-government with its own institutions, laws and regulations, powers and status.

INTERMEDIATE LEVEL: In FBiH, cantons were established by the 1996 Law on Federal Units, and have their own constitution, parliament (unicameral assembly) and judicial powers. They are headed by a premier (premijer), assisted by cantonal ministries and agencies. Cantons all have specific laws so as to ensure equality amongst citizens from various ethnicities.

Among the cantons, three have a Croatian majority, two a mixed Croatian and Bosniac population, and five a Bosniak majority. Their size varies from 26 000 for the smallest canton (Bosnian-Podrinje Canton Goražde), up to 480 000 for the two most populated cantons, Tuzla Canton and Sarajevo Canton (which thus accounts for around 40% of the FBiH population). Cantons are further divided into 80 cities and municipalities as local self-government units.

MUNICIPAL LEVEL: Municipalities usually consist of an urban area and its surrounding villages and rural areas. The status of “cities” is granted to municipalities with more than 30 000 inhabitants, and an urban core with at least 10 000 inhabitants. In addition, according to Article 5 of the Federal Law on the Principles of Local Self-Government, a city of "special historical and cultural significance" may be declared a city. Cities amalgamate and co-ordinate policies among urban municipalities (in RS, since 2016, cities are distinct entities which cannot be composed of municipalities). As of 2022, there were 29 cities in total in all BiH (20 in FBiH and 9 in the RS), an increase from 17 in 2013.

The average municipal size in 2019 is relatively high compared with averages of the EU27 (5 172 inhabitants) and South-Eastern Europe (19 569 inhabitants). Municipalities range from small municipalities of around 1 000 inhabitants to larger ones of around 125 000 inhabitants. Sarajevo is both the FBiH and federal capital, while Banja Luka is the de facto capital of RS. Sarajevo is situated both in the FBiH and RS, distributed on both sides of the internal boundary called the Inter-Entity Boundary Line (IEBL).

Municipalities and cities all have municipal assemblies, and local executive power is vested in the mayor. Municipal councillors are elected by direct universal suffrage for four years, same as the mayor in FBiH (except for a few exceptions), while in RS, the mayor is appointed by the municipal assembly. In addition, local governments are governed according to each entity’s constitution, which provide for different competences and local autonomy.

HORIZONTAL COOPERATION: Inter-municipal co-operation (IMC) is allowed by the laws on principles of local self-government in both FBiH and RS, for performing the tasks of common interest. IMC projects are primarily targeted to the water sector and tourism promotion. However, due to their low revenue, municipalities usually do not use their scarce resources for joint purposes or joint projects within IMC arrangements. Thus, most IMC arrangements are initiated and heavily financed by external donors.

The Constitution of BiH provides that the entities have powers in all areas not expressly attributed to the federal government, which is responsible in all matters regarding the sovereignty of the nation.

According to the FBiH constitution, the cantons are competent in all areas that are not expressly attributed to the entity of FBiH, although they share some responsibilities. The constitution also lists several competencies that are specifically assigned to the cantons (such as developing and implementing regional policies), and provides the legal grounds for the attribution of power to municipalities (further specified by each canton through laws on local self-governments), including the possibilities for the cantons to delegate specific responsibilities to the latter (e.g. education, culture, tourism, local business and charitable activities). This delegation of responsibilities is mandatory when most of the population in a municipality is from a different ethnicity from that of the canton.

In the RS, local governments have both exclusive and shared competences. Municipalities have exclusive competences in all fields of local interest, and their shared competences encompass pre-elementary, primary and secondary education, health, public safety, civil affairs registry, culture, urban planning, trade, tourism and local media. The City of Eastern Sarajevo (RS), which consists of 6 “joint” municipalities, has a special status, with additional responsibilities in public transport, fire brigade, secondary school education, promotion of tourism, and traffic signalization.

Municipalities and cities are encouraged by existing local government laws to establish companies, institutions and other organisations to help them manage, finance and improve local infrastructures and services.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	Cantonal level (FBiH)	Municipal level
		FBiH	RS
1. General public services (administration)		Assessment of the implementation of policies in healthcare, social welfare, education, culture and sport	Civic affairs registry; Management of natural resources
2. Public order and safety	Police forces	Advisory role regarding public order and safety of people and property; Recovery from natural disasters	Firefighting; Municipal police
3. Economic affairs / transports	Cantonal tourism policy	Economic development and employment; Maintenance of local roads and bridges; Public car parks; Local public transport	Trade and tourism; Employment; Local roads and streets; Gas supply
4. Environment protection	Environmental policy	Parks; Wastewater treatment; Solid waste disposal	Environmental protection; Sanitation
5. Housing and community amenities	Housing policy; Land-use; Building regulations for residential buildings	Spatial Planning; Urban and implementation plans; Zoning; Housing policies and construction; Cemeteries; Street lighting; Water supply	Spatial, urban and regulation plans; Land-use planning; Construction sites; T=Regulations on building and business premises
6. Health	Health policy	Public hygieneMaintenance of Primary Health (Ambulatory) and Secondary Health Care (1st tier Hospitals) Facilities	Public health (geriatric centres)Maintenance of Primary Health (Ambulatory) Care Facilities
7. Culture & Recreation	Development and implementation of cultural policy	Management of cultural institutions (shared); Construction of ​​cultural and sport facilities	Theatres and galleries; Sport and culture halls
8. Education	Development of educational policy	Pre-school educational policy; Public institutions for preschool education and elementary educational institutions	Maintenance of facilities of pre-schools and special art/sport schools
9. Social Welfare	Social welfare policy	Support to orphanages (shared); Social welfare payments (shared); Maintenance of homes for people with disabilities (shared)	Centres for social work

Scope of fiscal data: Municipal level only in RS and FBiH. Fiscal data for the Entities and the cantons are not included.

SNA 2008

Availability of fiscal data: Medium

Quality/reliability of fiscal data: Medium

GENERAL INTRODUCTION: The budget process in Bosnia and Herzegovina is regulated by the Global Framework of Fiscal Balance and Policies in Bosnia and Herzegovina (GFFBP), adopted by the Fiscal Council of Bosnia and Herzegovina every three years. Given the strong fiscal decentralization in BiH, the structure of expenditures presented in the GFFBP is indicative for each level of government, and each entity determines the final structure of expenditures and revenues in its own Framework Budget Documents and annual budgets. Public finance reforms are currently being discussed, as part of the drafting of a comprehensive Strategy for Public Financial Management in BiH for the period 2021-2025.

The fiscal powers of the central government in BiH is relatively weak compared to the two entities of FBiH and RS, although they have been increasing over the past decades, with good revenue performance ahead of the COVID-19 crisis. At the subnational level, each entity has its own Ministry of Finance and laws concerning financial and fiscal rules. In FBiH, the bulk of fiscal power lies in the cantons, while it lies in the entity in RS. Subnational public finance is regulated by the Law on Public Revenue allocation in FBiH, and the Law on the Budget System in RS. Local governments in each entity are therefore evolving in two different subsystems and are treated differently. Overall, they dispose freely of their own resources in accordance with the law at the entity level.

Several laws were adopted in the RS in 2015-2016 regarding the local government system and local taxes, the latest being the 2016 Law on self-government, which organised the tasks of legal representation of local governments before courts regarding property and legal disputes on the collection of tax revenue, fees and charges.

Subnational, state and local government expenditure by economic classification
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational government
Total expenditure	777	4.9%	10.5%	100%
Inc. current expenditure	575	3.7%	8.9%	74.1%
Compensation of employees	220	1.4%	12.2%	28.4%
Intermediate consumption	140	0.9%	11.9%	18.1%
Social expenditure	78	0.5%	3.1%	10.1%
Subsidies and current transfers	125	0.8%	14.9%	16.1%
Financial charges	11	0.1%	9.4%	1.4%
Others	0	0.0%	0.0%	0.0%
Incl. capital expenditure	202	1.3%	21.7%	26.0%
Capital transfers	48	0.3%	41.0%	6.2%
Direct investment (or GFCF)	153	1.0%	18.9%	19.7%

EXPENDITURE: Subnational government expenditure levels as a share of total expenditure and GDP in BiH are relatively low compared to the EU27 average (respectively 34.3% and 18.3% in 2020). Current expenditure represents 74.1% of subnational government total expenditure, among which staff expenditure accounts for 28.4% of subnational government expenditure.

DIRECT INVESTMENT: In BiH, municipalities and cities account for 18.9% of total public investment, but if we take into account the regional entities FBiH and RS, the share of subnational government investment in total public investment amounts to almost 42% of total public investment, based on a study from the Network of Association of Local Authorities of South-East Europe (NALAs). Municipal investment is targeted to enhancing basic services, especially in rural areas. Investment priorities listed in the 2022-24 Economic Reform Programme are focused on energy and road infrastructure.

To support subnational government investment, there is a Law on Public Procurement at the BiH level, accompanied by a Public Procurement Agency (with non-binding opinions) and a Procurement Review Body. There is no unified law on PPP in BiH, and their use remains limited. The BD and the RS adopted laws on PPP in 2007 and 2009, and FBiH drafted a Law on PPP in 2009 which remains in the adoption process. In addition, the cantons in the FBiH have their own set of PPP laws. The laws establish that the oversight of PPP projects should be conducted by the relevant Commissions for Concession. However, they remain weak regarding monitoring and risk sharing provisions, and the existence of several legal regimes in the country tends to discourage cross-entity concessions and PPPs.

ⓘ No detailed data available for this country

Subnational government spending allocation varies according to each entity. Overall, BiH municipalities and cities tend to spend a large share of their budget on general public services, healthcare and social protection, as well as on subsidies to municipal utilities. Local financing of basic services relies primarily on funds from local tariffs and fees determined locally, and therefore service delivery is very uneven across cities and municipalities, in particular regarding waste, water, roads and sanitation. In FBiH, healthcare services are primarily funded by cantons, derived from cantonal health insurance funds.

Subnational, state and local government revenue by category
2020	Dollars PPP / inhabitant			% GDP			% general government			% subnational government
Total revenue	708	4.5%	10.7%	100%
Tax revenue	391	2.5%	11.6%	55.3%
Grants and subsidies	119	0.8%	-	16.8%
Tariffs and fees	177	1.1%	-	25.1%
Income from assets	21	0.1%	-	2.9%
Other revenues	0	0.0%	-	0.0%

OVERALL DESCRIPTION: BiH has a relatively high degree of fiscal decentralisation despite its small territory. While fiscal data for the federated entities are not included in the figures in the table above, the FBiH and the RS make up around 52% and 30% respectively of total public revenue, against 15% for the federation, and the District of Brčko makes up the rest.

Shared tax revenue represents the most important source of subnational government revenue in BiH. They are collected by the central level and then divided between the central state, the entities and the Brčko District according to a formula stated in the Law on Indirect Taxation in BiH. Then, the allocation of indirect taxes within each entity as well as the regulation of local taxes are regulated by each entity’s legislation. In RS, local tax revenues are regulated by the 2004 Law on the Budget System and collected by the RS tax administration. In FBiH, revenues of local government units are regulated by the 2006 Law on Principles of cantonal and local governments and the 2009 Law on Public Revenue Allocation.

In 2020, tax revenues accounted for 55.3% of local government total revenue, followed by tariffs and fees with 25.1% and grants and subsidies (16.8%), while property income (revenue from assets) accounted for 2.9% of subnational government total revenue. Communal fees and charges account for another significant part of local revenue.

TAX REVENUE: The most important source of subnational government (SNG) revenue in BiH comes from the sharing of the VAT (69.0% of SNG tax revenue and 38.1% of SNG total revenue in 2020), as part of the intergovernmental transfer scheme. It is followed by the sharing of the PIT (17.4% of SNG tax revenue and 0.4% of GDP in 2020), and the local collection of property taxes (12.6% of SNG tax revenues and 0.3% of GDP in 2020, below the OECD average of 1.0% of GDP). SNG revenues in BiH are regulated by each entity’s laws, while the central government has authority on VAT and most shared taxes. The Brčko District raises local taxes and receives a share of VAT and shared taxes.

In RS, besides the share of the VAT that is redistributed across subnational authorities depending on their size, cities and municipalities also receive 25% of the shared taxes on PIT generated within their jurisdictions. Other local taxes include the property tax, tax on citizens’ income from agriculture and forestry, and local business registration tax. In 2015, following amendments to a new law on the property tax, the tax base was defined as the estimated market value of the property as of 31 December of the preceding year. The new law also outlines the characteristics of the properties which are exempt from taxation. Through its 2021 Fiscal Consolidation Programme, the RS is reviewing the list of local taxes. While several local taxes have been abolished or diminished in 2022 (abolition of the communal tax, exemption from the payment of the fee for agricultural land-use changes, and reduction of the special RS tax), the RS entity plans to increase revenue from the property tax in the future by improving the registration of properties and the tax collection system.

In FBiH, subnational government tax revenues are composed of both own-tax revenue, for which local units can set the rate in accordance with the law, and shared tax revenue. Municipalities in the FBiH are entitled to at least 34.46% of the PIT revenues that are collected within its territory, whereas the other 65.54% remains with cantonal governments. In the Sarajevo canton, this share corresponds to 1.79% for municipalities and 98.12% for the canton. Municipalities are also entitled to the property tax, whose regulation varies across cantons. It is administered by cantonal governments, which set its base and rate, and it is then redistributed to local governments, each entitled to receive the funds collected within its jurisdiction.

GRANTS AND SUBSIDIES: Grants to local governments stood for 16.8% of subnational government revenue in 2020, among which 76.6% were current grants, and the remaining 23.4% were capital grants. All VAT revenue, custom fees, excise fees and road fees flow into a single account at the central level, before being transferred to each entity, which then share them among the municipalities as unconditional transfers. Before the grants are redistributed, each entity first deduces its own external debts from the VAT revenues, creating considerable variations in the grant allocation from one year to another.

In the FBiH, grants from the central government are split according to fixed percentages: 51.23% to cantons, 8.42% to cities and municipalities, 0.25% to the city of Sarajevo, and the remaining 36.2% to the budget of the FBiH. The share allocated to the municipalities is further distributed according to a formula that takes into account the population size (68%), and other coefficients related to the territory (5%), school-age children (20%), and the municipality’s development index (7% of relative wealth). In addition, municipalities also receive conditional grants, either from the FBiH entity or from the cantons. The grants tend to be used for investment projects.

In the RS, 24% of the grants from the central government are allocated to municipalities, 72% to the budget of the RS, and 4% to public enterprises. Grants to municipalities include an unconditional transfer allocated according to the following formula: 75% on a per capita basis, 15% based on the territory and 10% based on the number of secondary school students. In addition, underdeveloped and extremely underdeveloped municipalities receive an equalisation transfer, calculated based on a series of criteria including: the total per capita revenues of registered businesses (35%), total budget revenue (25%), population density (20%) and the unemployment rate (20%). Municipalities are also entitled to conditional grants for investment expenditure.

OTHER REVENUE: Tariffs and fees are the second biggest source of revenue for local governments in BiH after tax revenue. Their share in subnational government revenue is well above the EU27 average (10.3% in 2020). Their allocation is very heterogeneous across municipalities, due to low supervision and regulation of fee collection.

In the FBiH, local governments are entitled to fees and charges, whose levels are set by the council in accordance with the law, as well as revenue from property use and sales, and from companies and other legal entities owned by local governments. There is no unique system or precise rules for the setting of fees and charges, nor the collection process, which often leads to disparities across jurisdictions. According to the Register of Fees and Charges released in 2017 with USAID, there exist approximately 350 different fees in FBiH, with an average of 20 fees per municipality. In 2020, they accounted for around 34.3% of municipal revenues.

In the RS, local fees and charges constitute 20.8% of municipal revenue. They include fines, municipal administrative fees, communal fees, municipal fees for the use of natural and other resources of general interest and land development fees. They are collected by the entity, and either redistributed entirely to the local administration, or shared between the RS government and municipalities (for instance, 15% of road fees go to local governments).

Subnational, state and local government fiscal rules and debt
2020	Dollars PPP / inh.			% GDP			% general government debt			% SNG debt			% SNG financial debt
Total outstanding debt (consolidated?)	592	3.8%	7.5%	100%	-
Financial debt	340	2.2%	5.9%	57.5%	100%
Currency and deposits	0	-	-	0.0%	0.0%
Bonds / debt securities	31	-	-	5.3%	9.2%
Loans	309	-	-	52.2%	90.8%
Insurance pensions	0	-	-	0.0%	-
Other accounts payable	252	-	-	42.5%	-

FISCAL RULES: The fiscal council of BiH, established in 2008, oversees all fiscal activities of the various entities and ensures their compliance with the budgetary calendar. It is comprised of representatives from all entities in BiH and is chaired by the Council of Ministers. Its main attributions include the co-ordination of fiscal policies in the country and the setting of fiscal targets and debt ceilings for territorial institutions (RS, FBiH, District of Brčko). Subnational fiscal rules in BiH are determined at the entity level (FBiH and RS) and apply only in the territory of a particular entity. The introduction of fiscal rules in the District of Brčko is envisaged by the Strategy for the Reform of Public Financial Management of the Brčko District for the period 2021-2025.

In RS, the 2015 Law on Fiscal Responsibility led to the creation of a fiscal council with the authority to request local government authorities to release their fiscal information. Article 6 of the Budget Law also stipulates that the budget of the RS government units shall be balanced. In 2021, the RS also adopted the Public Financial Management Strategy for 2021-2025.

In FBiH, articles 42 and 43 of the Law on the Budgets requires that a budget for any given fiscal year must be either in surplus or balanced, except in the case of a natural disaster. In case of a deficit, a government shall offset the negative balance through planning and executing surpluses in the subsequent three fiscal years.

DEBT: The FBiH and RS regional entities account for the larger share of subnational government debt in BiH: the FBiH accounted for 32.6% of total public debt in 2020, against 67.4% for the RS, and less that 0.1% for the Brčko district. In FBiH, the entity government accounts for 76% of domestic public debt, against 24% for the cantonal governments and city and municipal administrations. In RS, the entity government represents 75% of the public domestic debt, and the municipal and city debt accounted for 16.1% in 2020.

Regarding cities and municipalities only in BiH, their debt reached 3.8% of GDP in 2020. Financial debt accounted for 57.5% of total local debt, i.e., 2.2% of GDP and 5.9% of the total public debt, in addition to other accounts payable. Local financial debt was mostly composed of loans (91.0%), with a small share of bonds (9.2%).

In FBiH, according to the 2010 Law on Debt, Borrowing and Guarantees, municipalities and cities can contract long-term debt if their debt service payment in a given year does not exceed 10% of the previous year’s revenues. In specific cases, municipalities and cities need permission from the federal Ministry of Finance to borrow.

In RS, municipalities and towns can borrow to finance capital investment expenditures by up to 10% of the actual revenues generated in the previous fiscal year. They can also borrow from the RS to cover a short-term deficit due to unpredicted current expenditures or because of a fluctuation in revenues, with the agreement of the Ministry of finance. A municipality’s total borrowing obligations cannot exceed 20% of the actual revenue generated by the municipality in the previous fiscal year.

TERRITORIAL MANAGEMENT OF THE CRISIS: The central government in Bosnia and Herzegovina acted quickly to contain the spread of the virus after the first COVID-19 case was declared in March 2020. A state of emergency was declared in late March (including measures such as lockdown and restriction of citizen movements). It was lifted progressively, first in RS and then in FBiH. The complex organisation of the country, and in particular its decentralised organisation of healthcare, complicated the management of the pandemic across levels of government and across the territory. The regional entities have independent health protection systems: while public health care in RS is centralised, each canton in the FBiH has its own health insurance fund and corresponding cantonal ministry of health. According to the Network of Association of Local Authorities of South-East Europe (NALAs), key challenges to respond to the crisis have been the lack of a legal and regulatory authority enabling subnational governments to take initiatives, as well as the lack of technical equipment, financial resources and co-ordination.

At the entity level, the FBiH and RS governments have allocated around BAM 50 million (0.15% of GDP) in health services and other related services for dealing with COVID-19, including for purchasing medical supplies and equipment, transfers to hospitals, and covering healthcare costs for vulnerable groups.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Governments at the central and regional levels have responded quickly to support businesses and households cope with the pandemic. At the entity level, FBiH and RS have taken measures to support citizens through social subsidies and wages compensations for employees and price control measures. The RS announced the distribution of BAM 30 million to assist local communities through a Solidarity Fund. They also intervened to support businesses, through decreases in rents, loan guarantees for companies in strategic economic sectors, or postponement of business taxes. The FBiH also established an Economic Stabilisation Fund to mitigate negative consequences of the pandemic, via the Development Bank of FBiH, and adopted the Law on Mitigation of Negative Economic Consequences, then the Decree on Intervention Measures to Support Vulnerable Sectors of the FBiH Economy. Finally, the District of Brčko also passed the Law on Mitigation of Negative Economic Consequences Caused by the State of Natural Disaster Due to COVID-19 in the BD, which prescribes several tax exemptions schemes.

At the municipal level, according to a survey from NALAs, municipalities have provided cash transfers to vulnerable groups, provided food and hygiene products, protective materials, and support for childcare and other care services. Several municipalities have also contributed to support economic stakeholders and preserve employment: The Municipality of Kakanj put in place a program to help small businesses (up to 10 employees) by co-financing part of the social contributions to the minimum wage and co-financing of utility bills. It also adopted fiscal relief measures, granting exemptions for local fees and charges. The Municipality of Novo Sarajevo has launched a call for proposals to businesses “Co-financing of employment - Job for All”; it also subsidised loan processing costs and interest rates to private companies and entrepreneurs; provided financial support for self-employed entrepreneurs and one-time assistance for demobilized war veterans; and financially supported public cultural and sports institutions.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The crisis had a strong impact on government at all levels, and local governments in BiH felt the financial consequences of the crisis acutely due to the large responsibilities that they bear in the health and social sectors. However, sound revenue performance and low level of public debt at the central government and subnational governments’ level prior to the COVID-19 crisis left some room in fiscal policy to counter the negative impacts of the COVID-19 crisis in BiH.

Subnational government revenue decreased by 5% between 2019 and 2020 (in real terms). The revenue categories that decreased the most were revenue from assets (-18%), tariffs and fees (-12%), and to a lesser extent tax revenue (-5%). Subnational government revenue from the property tax decreased by 7%. On the other hand, transfers from the central government increased by 29% between 2019 and 2020, but this could offset only partially the overall decrease in subnational government revenue.

In parallel, subnational government expenditure increased by 8% between 2019 and 2020 (in real terms). Subnational government investment in particular increased by 27%, while compensation of employees increased by 6% and current social expenditure by subnational governments increased by 8%. In terms of functional classification, expenditure has risen the most in the area of public healthcare (including hospital maintenance, supply of protective equipment, etc).

These trends have caused a scissor effect, which led subnational governments to increase their recourse to borrowing, through both loans (+30% between 2019 and 2020, in real terms) and bonds (+26%), within the limits set by the subnational borrowing framework determined by the entities.

ECONOMIC AND SOCIAL STIMULUS PLANS: While local governments in BiH have not been involved in the designing of a national COVID-19 recovery strategy, they are targeted by several international projects initiated by development partners to support them throughout the recovery. In 2020, the Association of Municipalities and Cities of Republika Srpska, with the support of NALAs and GIZ, started implementing the project "Strengthening local capacities for the implementation of the 2030 Agenda". The project aims to support local governments in five countries of the Western Balkans to improve the economic, social and cultural human rights of their citizens, in particular the most vulnerable population groups following the COVID-19 crisis. Another project was launched by the BiH government in 2021, funded by the Government of Switzerland and the Government of Sweden, entitled “Strengthening the role of local communities in BiH”. It aims to improve the quality of life of BiH citizens, through strengthening local infrastructure and services and increasing democratic accountability and social inclusion.

The new EU Enlargement Package and the adoption of the Economic and Investment Plan post-COVID both aim to address structural weaknesses and reforms for recovery in the Western Balkan region. The plan will mobilise up to EUR 9 billion of IPA III funding for 2021-27, mostly directed towards key productive investments and sustainable infrastructure in the Western Balkans. To support municipalities throughout the recovery, discussions are on-going around the creation of a revolving fund for applications to the EU and international projects, developed through cooperation with the FBiH Government and the FBiH Development Bank.