 ECONOMY |
 Macroeconomic overview |
Bosnia and Herzegovina has recently made a prominent improvement in transition to the market economy. The bases for reforms are there, including the one of the customs regime, harmonization of the tax policy, and the first steps to comprehensive privatization.
| GDP - Growth |
The continuation of rapid growth of GDP has been estimated for future period, with expectations to redouble it, regardless the negative influence of the Kosovo conflict and developments in the neighbouring countries. The estimated GDP per capita for 1999 was US$ 1.027.
| Monetary policy and exchange rate |
Monetary reserves of the Central Bank of Bosnia and Herzegovina have more than redoubled since August 1997, when a common currency, the Convertible Mark (Konvertibilna marka KM), was established. The Convertible Mark has been accepted in the whole country. The increased use of the common currency is expected to uphold the integration of the payment system throughout the country. The Currency Board decision to fix the Convertible Mark to the Deutsche Mark in a 1 to 1relation has been so far functioning in a good manner. As a result of such a monetary policy, the inflation in the Federation is approximately 0%, and in the Republika Srpska about 6%. Moreover, banks from Switzerland, Hungary, Croatia, Slovenia, Czech Republic and Slovakia do accept KM. Of course the Euro is also an official currency in use in the country.
| Balance of payments and trade balance |
The deficit and a negative trade balance are likely to stay in the near future. One third of the deficit is caused by the import of construction materials. Two thirds of the deficit from 1999 (before the financial assistance of US$ 1.40 millions, which is 25% of GDP) were financed from reconstruction and humanitarian outlays. The borrowing from the IMF and the World Bank is expected to cover the half of the remained deficit.
| Debt and debt repayments |
The state reserves are in a rapid growth and, at the present, they stand for two thirds of the export value. The internal borrowing, at all levels of the authorities in Bosnia and Herzegovina, is prevented by the Currency Board provision. Simultaneously, the IMF strict requirements are to limit borrowing from abroad.
The agreements with the Paris and London Club were made in 1998, while in 1999, the proportion between the debt and GDP was 67%. Most of the debt is subject to the reconstruction process and the repayment rate is decreasing year after year. External debt rate is not the main risk related to it, but whether it will be ensured for the debt repayments to be transferred to the State budget. | | Legal framework |
Economic laws in Bosnia and Herzegovina have been decentralized, with the major responsibilities being transferred to the Entities. In accordance with its Constitution, Bosnia and Herzegovina is responsible for economic relations with foreign countries, which is regulated by the laws on foreign economic policy, customs investments. Recently, there have been efforts made in harmonizing the tax system and tax rates for the whole country. The Entities are responsible for designing the legal framework for economic companies and their business operations. Within this framework, the Federation BiH passed a new Law on economic companies in 1999, while the Law on direct foreign investments was passed much earlier. All necessary regulations for privatization of state-owned enterprises were passed and their realization has started.
Since the State proclaimed the socially owned enterprises as state-owned ones (that is, the State took over capital which was not privatized) in 1993, there is a division of responsibilities between the Federation and its Cantons for such enterprises. Complying with this procedure, the Federal Agency for Privatization and the Cantonal Agency for Privatization are both responsible in the procedure of privatization of enterprises. The list of enterprises to be privatized either under the responsibility of the Federal or Cantonal Agency for Privatization is defined by the Parliament of the Federation.
Taking into account the complex structure of the State and its Entities, establishment of economic companies direct foreign investments and the very privatization of enterprises are subject to a number of regulations and very often, long procedures which have slowed down the whole process. Recently, there have been some important activities undertaken to eliminate unnecessary procedures, aimed to create conditions for domestic and foreign investors to invest efficiently. In addition, the Government of the Federation and the cantonal Governments is now establishing a special system designed for giving incentives for investors to open new business and employment.
As requested by persons who show their interest, the Cantonal Agency for Privatization and an Enterprise shall provide a complete outline of regulations that are relevant for economic operations and privatization of enterprises. |
