#Restart21 (26012)

Regular Economic Report for the first half of 2022

Semi-annual Economic Report for Bosnia and Herzegovina January - June

The economy of Bosnia and Herzegovina entered the year 2022 with a series of uncertainties, but also with optimistic expectations that the COVID-19 pandemic has finally passed and that the normalisation of economic activities will continue. "There is no more time to lose: 2022 must be the year of social and economic recovery in Bosnia and Herzegovina" is the author's text of the resident coordinator of the United Nations in Bosnia and Herzegovina. The given title best reflects the stated optimism, but also a number of other, concrete data such as the one on foreign trade exchange. In the period January-February 2022, Bosnia and Herzegovina exported goods worth 2.69 billion KM, which is 41 percent more than in the first two months of 2021. At the same time, imports amounted to 3.78 billion KM, which is 44 percent more than in the same period of the previous year.

However, the continuation of the half-year period brings a series of challenges that are still relevant today. The report recognises the following:

• Energy crisis
• Inflation
• Labour market

As part of the previous FNF reports and reviews, the focus was placed on the explanations of the initial rise in prices, which was the result of the total aid package in the world, which amounted to about 10.4 trillion dollars. The initial intention of countries around the world was to stimulate consumption and economic recovery of those countries by printing money and giving financial aid to citizens. Nevertheless, the overly bulky aid package, which was directed to the consumption of other durable goods whose supply could not be increased in the short term, led after a year and a half to negative effects through the appearance of inflation, as a result of reduced supply. In addition, inflation in the US arose due to other reasons, due to the tight labour market, unlike in Europe, where mainly the pressure on price growth arose as a result of the energy crisis and the food crisis.

Limiting the purchase of bonds and raising interest rates to the expected level of around two percent by the end of this year will lead to a slowdown in the economic movements of many countries, including Germany itself, which is our main foreign trade partner. If by any chance the European Central Bank has to raise interest rates even higher, then countries like Italy will be in even bigger problems, entering a phase when it will no longer be possible to simultaneously talk about meeting the goal of price stability and defending over-indebted economies. This mechanism of raising interest rates will also affect existing loans agreed at a variable interest rate, so loan instalments will be higher for citizens and the economy in Bosnia and Herzegovina.

The report shows all the negative effects of inflation on the economy of Bosnia and Herzegovina. Of particular concern is the energy crisis that will mark the end of the year. The report showed that employees expect more pay, especially those from the private sector. The question is how employers will respond to this request. That is why now is the right time to carry out the necessary reforms of the fiscal burden on work, especially in the FBiH, where it is significantly lagging behind in this matter. When it comes to solutions, it is necessary to work on economic and social innovations to relieve the burden on the economy and citizens. A number of such solutions are listed in the report. The authors of the report are sceptical about their implementation in the upcoming period due to the October elections. It is likely that work will be done on it only after the elections.

Report is available in local languages only.