ANALIZING DISEQUILIBRIUM IN THE BALANCE OF PAYMENTS: THE CASE OF BOSNIA AND HERZEGOVINA

Abstract

ABSTRACT

For many years, Bosnia and Herzegovina current account balance is in deficit. The goal of the research described in this paper was to investigate the causes and sources of financing this deficit. Hence, an analysis of disequilibrium measures in the balance of payments, for a period of the past five years, more precisely, from 2010 to 2014, was conducted. The analysis comprised the standard measures of disequilibrium, but also some nowadays not so frequently used measures such as the basic balance, the net liquidity balance and the official settlements balance.

The cause of the current account deficit is the merchandise trade balance deficit, which is higher than the sum of the balance of services, balance of primary income and balance of secondary income surpluses. This deficit is financed largely by foreign direct investment, but also by debt instruments based on other investment, because of which the country's external debt grows.

Given that the merchandise trade balance deficit was the main cause of Bosnia and Herzegovina current account deficit, in order to solve this problem, the country has to stimulate exports of goods and to lessen its import dependence. Simultaneously, the country needs to strengthen the balance of services surplus.

Keywords: the balance of payments, the basic balance, the net liquidity balance, the official statements balance, measures of disequilibrium;