Front Matter

Front Matter Page

© 2005 International Monetary Fund

June 2005

IMF Country Report No. 05/198

Bosnia and Herzegovina: Selected Economic Issues

This Selected Economic Issues paper for Bosnia and Herzegovina was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed on May 11, 2005. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the government of Bosnia and Herzegovina or the Executive Board of the IMF.

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Front Matter Page

INTERNATIONAL MONETARY FUND

BOSNIA AND HERZEGOVINA

Selected Economic Issues

Prepared by Peter Doyle, Daniel Kanda, John Norregaard, Graham Slack, Iva Petrova (all EUR) ; Nombulelo Wandwasi (FAD), and Joerg Zeuner (PDR)

Approved by European Department

May 11, 2005

Contents

  • I. Introduction and Overview

  • II. Market Indicators of Confidence in the KM and the Banking System Since 2000

    • A. Introduction

    • B. Institutional Background

    • C. Confidence in the KM

    • D. Confidence in the Banking System

    • E. Prospects

    • F. Concluding Remarks

  • Figures

  • II. 1. Currency in Circulation and Commercial Bank Deposits (In millions of KM)

  • 2. Spreads between Bosnian and Euro Area Interest Rates

  • 3. Indexation of Bank Lending

  • 4. Growth of Credit to the Private Sector (In percent)

  • 5. Bank Responses to Regulatory Tightening (In millions of KM, except where otherwise stated)

  • 6. Gross International Reserves and Reserve Money

  • 7. Indicators of Financial Deepening

  • 8. Demand and Time and Saving Deposits and their Interest Rates

  • 9. Spread Between Deposit and Lending Rates

  • Tables

  • II. 1. Cross-Country Indicators of Financial Depth, 2003

  • III. International Experience with Credit Booms and Large Current Account Deficits

    • A. Introduction

    • B. Background

    • C. International Comparisons

    • D. Conclusion

    • References

  • Figures

  • III. 1. Balance of Payments Developments, 2000–04 (In percent of GDP)

  • 2. Bank Credit to Non-Government, 2001–04 (eop stocks; as percent of GDP)

  • Tables

  • III. 1. Private Sector Credit-to-GDP (in percent) in the last year of a three-year Credit Boom and the First Year of a Banking Crisis in Selected Transition Countries in the Region

  • 2. Current Account Deficits of more than 15 Percent for at least 3 Consecutive Years (in percent) and Years of “Large Devaluations”

  • IV. The Corporate Sector

    • A. Introduction

    • B. How Weak is the Corporate Sector ?

    • C. How Did the Corporate Sector Get to this Point?

    • D. Why Has Revitalization Proved so Difficult?

    • E. Lessons from Earlier Revitalization Initiatives

    • F. Conclusions

  • Boxes

  • IV. 1. Voucher Privatization and Debt Rescheduling in Bosnia

  • Text Tables

  • IV. 1. Profitability, 2002

  • 2. Unit Labor Cost Components 2002=100

  • 3. Federation: Profitability after Labor Shedding, 2002

  • 4. Sales Revenue/Assets, 2002

  • 5. Sales Revenue/Assets, 2002 (By Sectors)

  • 6. Liquidity, 2002

  • 7. Debt Structure, 2002 (In percent)

  • 8. Large Company Restructuring

  • Tables

  • IV. 1. Growth of Value Added (In percent, in real terms)

  • V. Non-Observed Activity

    • A. Introduction

    • B. International Treatment of Non-observed Activity

    • C. NOA in Bosnia and Herzegovina

    • D. New Estimates of NOA

    • E. Concluding Observations

    • References

  • Boxes

  • V. 1. Non-Observed Activity–Concepts

  • 2. Two Indirect Methods

  • Figures

  • V. 1. Structure of NOA in 2001

  • 2. Estimates of NOA, 1999–2003

  • 3a. Size of NOA Based on 96 Countries

  • 3b. Size of NOA Based on 22 Transition Economies

  • 3c. Size of NOA Based on 44 Low Middle Income Countries

  • 3d. Size of NOA Based on 22 Post-conflict Countries

  • Text Tables

  • V. 1. GDP Adjustment for NOE in Transition Economies

  • 2. NOA Estimates in Transition Economies

  • 3. Pooled Regression with Robust Standard Errors, 1999–2002

  • 4. NOA in Transition Economies Relative to the Rest of the World

VI. Fiscal Sustainability and Budget Spending

  • A. Introduction

  • B. Domestic Claims

  • C. Restitution and Other Claims on Government

  • D. Consolidated Government Expenditure

  • E. Conclusion

Text Tables

VI. 1. Public Debt (in percent of GDP)

2. Costs of Priority Projects

  • VII. The Value Added Tax

    • A. Introduction

    • B. Tax Policy and Administration in 2003

    • C. Steps taken Towards the VAT

    • D. VAT Structure

    • E. Next Steps

  • Boxes

  • VII. 1. Indirect Tax Structure in BiH Before the Indirect Tax Reforms

  • 2. The Single Account

  • Figures

  • VII. 1. Tax and Customs Policy Determination and Administration in BiH Before Indirect Tax Reform (2003 and earlier)

  • 2. Tax and Customs Policy Determination and Administration in BiH After the Indirect Tax Reform

  • 3. Illustrative Example of the Distribution of Revenues from the Single Account

  • Tables

  • VII. 1. Estimated Revenue Loss Due to Tax Fraud in BiH

  • VIII. State-Building

    • A. Introduction

    • B. Background

    • C. Assessment

    • D. A Better Approach

  • Boxes

  • VIII. 1. The State and EU Stabilization and Association Agreement

  • 2. Police Reform

  • Figures

  • VIII. 1. The Evolution of the State

  • 2. The Size of the State

  • 3. Average Budget Monthly Gross Remuneration, including Benefits, 2004

  • 4. Monthly Gross Remuneration, including Benefits, 2004

  • Text Tables

  • VIII. 1. State Government Responsibilities in the DPA

  • Tables

  • VIII. 1. Future State Institutions and Functions

  • IX. Consolidated Cantonal and Municipal Fiscal Balances

    • A. Introduction

    • B. Background and Assessment

    • C. Issues

    • D. New Arrears and Use of Privatization Receipts

    • E. Borrowing Rules

    • F. Borrowing Rules in Steady State

    • G. Transitional Issues

  • Boxes

  • IX. 1. Approaches to Borrowing Rules for Sub-National Levels of Government

  • Tables

  • IX. 1. Summary of Present Sub-entity Borrowing Rules

  • 2. Cantonal and Municipal Revenue and Debt Service, 2003 and 2005

  • X. Fiscal Sovereignty

    • A. Introduction

    • B. Background

    • C. A National Fiscal Council

    • D. Conclusion

  • Annex: Issues for Discussion