COVID-19 - Economic Perspective for Bosnia and Hercegovina

Report Part II
Publication Cover

The Covid-19 crisis poses a generational challenge for economists. The world is in recession, and projections of the rate of economic decline are changing from week to week. The only certainty is absolute uncertainty, which makes any planning difficult, from the micro levels of the family and businesses all the way to states and global reactions. For a significant number of countries in the world, but also Bosnia and Herzegovina, additional uncertainty is introduced by the elections (American, ie local for our country), which complicates the entire crisis. Due to all the above, within the second report of the FNF Foundation, entitled Covid-19, the economic perspective of Bosnia and Herzegovina, we try to offer reviews and solutions with a long-term perspective in the (post) Covid-19 era. As in the first report, measures for all levels of government in Bosnia and Herzegovina are listed, but now they are not short-term intervention measures, but long-term frameworks for action. A particularly important part of this report concerns the perceptions of the domestic public regarding Covid-19. As might reasonably be expected, the public is more concerned about the economic rather than the health consequences of the Covid-19 crisis. This is especially important to keep in mind if the authorities decide on a new lockdown by the end of the year, which, according to existing indications, is a very possible scenario, especially after the November elections. The main problem of the economy of Bosnia and Herzegovina at this time, according to research, is a drastic reduction in demand and (potential) ban on certain businesses. In this way, there was a real reduction in supply and an artificial reduction in demand, which created a number of other, structural problems within the economy. Special challenges await us in the last quarter of this year and the first quarter of next year, which is why a special part of the report refers to the so-called. “Thinking outside the box.” This is necessary from two mistakes in the actions of the BiH authorities during the pandemic. The first refers to the simple copying of measures from other countries, without any analysis of their justification in accordance with the specifics of the domestic market, while the second concerns the general delay in action. “Thinking outside the box” implies a new view of the phenomenon of the existing crisis, with a focus on measures that should protect the domestic economy in the long run - industrial protection, the digital transformation of the economy and society and the like. Decentralized organization of the state provides the possibility to implement such measures partially, by entities, cantons, municipalities/cities, if it is not already possible to implement it at the level of the entire state. The report concludes with a warning of the “new normal” and the need for adaptation, as well as recovery forecasts. In the event of a stronger increase in exports during 2021 and 2022, growth is expected to be 4.1% in 2021 and 4.3% in 2022. In this scenario, in mid-2022, the BiH economy would return to the state before COVID. In the event of weaker export growth, a war of 2.1% in 2021 and 3.0% in 2022 is expected. In this case, the domestic economy would return to the state before COVID in the first quarter of 2023. Covid-19 stole a minimum of three years of economic growth, which means they need for recovery is all the greater. With the right measures, the recovery can go with double-digit growth rates, however, at this moment we are more likely to return to the creeping growth of the domestic economy.