Foreign Trade Deficit Does Not Endanger the Stability of the Convertible Mark

Although the foreign trade deficit is one of the biggest problems of BH economy, it still does not endanger the stability of KM, said Governor of the Central Bank of Bosnia and Herzegovina (CBBH) Kemal Kozarić.

The fact that foreign reserves are increasing continuously, that in first quarter of 2005 they have reached their highest level since the CBBH's establishment, that the CBBH has around KM 179, 7 million of free foreign reserves, shows that the foreign trade deficit is not financed by the foreign reserves. Namely, this deficit is financed from remittances of BH citizens living abroad, spending of financial resources of representatives of the international community in BH, credits and donations, which are reducing, and by incomes generated in the grey economy which are spent in the formal sector.

Governor agrees with the position of the World Bank (WB), according to which, imbalance between import and export is a large problem for BH economy, but it still does not represent a danger for the stability of BH currency and the Currency Board Arrangement.

However, if BH authorities at all levels fail to continue the implementation of the started reforms and fail to solve three basic problems of BH economy, large foreign trade deficit, high unemployment rate, as well as the reform of the public sector, which is financed at the expense of development, this could, in the long-term, represent the danger for a stability of BH. It is significant to point out the need for the so-called "economic patriotism", that is, for the larger consumption of locally produced products.

The CBBH has been constantly warning about these three extremely negative macroeconomic indicators, so it considers the statement given by the Director of WB Office in BH Dirk Reinermann as the warning to BH authorities that reforms have to be fully implemented so that BH, besides preserving stability, can also achieve the necessary development.