Front Matter

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© 2007 International Monetary Fund

August 2007

IMF Country Report No. 07/269

Bosnia and Herzegovina: Selected Issues

This Selected 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 June 29, 2007. 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 Issues

Prepared by Mali Chivakul, Milan Cue, Graham Slack (all EUR), Samir Jahjah (PDR), and Wojciech Maliszewski (FAD)

Approved by the European Department

June 29, 2007

Content

I. Overview

  • II. External Balance Sheet and the Current Account Adjustment Required to Stabilize Net Foreign Liabilities

    • A. Introduction

    • B. The External Balance Sheet

    • C. Methodology and Assumptions

    • D. Main Results

    • E. Conclusion and Policy Implications

  • Tables

  • 1. External Balance Sheet, 2006

  • 2. Composition of Net External Position

  • 3. Projected External Balance Sheet (at end 2012)

  • 4. Assumptions on Real Rate of Returns and GDP Growth

  • 5. External Balance Sheet (at end 2017)

  • 6. External Balance Sheet (at end 2022)

  • III. Debt Sustainability and the New Borrowing Rules

    • A. Introduction

    • B. Methodology

    • C. Results

    • D. Conclusions

  • Text Boxes

  • 1. Debt Laws

  • 2. Fiscal Pressures and Financing Assumptions

  • Figures

  • 1. Borrowing Rules with Three-Year Planning Horizon

  • 2. Borrowing Rules Five-Year Planning Horizon

  • 3. Probability of Exceeding limits in Borrowing Rules with Three-Year Planning Horizon

  • Annex

  • Projection Model

  • IV. Unemployment and Labor Market

    • A. Introduction

    • B. Basic Facts

    • C. Explaining Unemployment

    • D. Policy Implications

  • Tables

  • 1. Estimates of Unemployment Rates

  • Figures

  • 1. Labor Market Outcomes, Regional Comparison, 2001–05

  • 2. GDP and GDP Gap, 2000–06

  • 3. Labor Tax Wedge Comparison, 2004

  • V. An Assessment of Economic Cohesion

    • A. Introduction

    • B. Evidence of Economic Convergence

    • C. Evidence of Economic Integration

    • D. Institutional and Legislative Barriers to Integration

    • E. Conclusions

  • Figures

  • 1. Entity Convergence

  • 2. ULCs, and Financial Deepening

  • 3. Descriptive Statistics for Cantons

  • 4. Unemployment

  • 5. Company Mobility

  • VI. Credit Growth, Bank Soundness, and Banks’ Foreign Liabilities

    • A. Introduction

    • B. Recent Developments in the Banking Sector

    • C. Empirical Investigation

    • D. Conclusions and Policy Implications

  • Tables

  • 1. Financial Soundness Indicators, 2001–06

  • 2. Main Foreign Banks

  • 3. Maturity Matching Requirements

  • 4. Changes in Reserve Requirements

  • 5. Credit Growth Regressions

  • 6. Distance of Default Regressions, with year-on-year Credit Growth

  • 7. Distance to Default Regressions, with quarter-on-quarter Credit Growth

  • 8. Banks’ Foreign Liabilities Regressions

  • Figures

  • 1. Credit Growth, January 2001–07

  • 2. Central and Eastern Europe: Credit to GDP Ratio and Credit Growth, 2000–06

  • 3. Developments in Market Structure

  • 4. Key Features of the Credit Expansion

  • 5. Financing of Credit Expansion

  • Appendices

  • 1. Data Sources and Definition

  • 2. Regional Comparison of Empirical Results

  • 3. Prudential Regulation: International Examples