Senad Softić
PhD
Governor, Central Bank of Bosnia and Herzegovina
Conference:
Macroeconomic Imbalances and EU Convergence
07 November 2019
Welcome speech and opening of the Conference
Dear friends of the Central Bank of Bosnia and Herzegovina,
distinguished panelists, dear guests, dear colleagues, a very good
morning to all of you. It is my great pleasure to welcome you to
Sarajevo, to another international research conference of the central
bank, jointly organized with the USAID FINRA project.
A number of experts have agreed that large macro imbalances were the
main cause of the Euro area crisis. The EU has reacted with many
institutional and organizational changes. This process will continue and
our conference hopes to be a part of the efforts to discuss both the
macroeconomic imbalances and the EU convergence process.
I would mention some of the main macroeconomic imbalances:
excessive government deficits and debts, excessive bank credit
expansion, stock market and real estate bubbles, and large external
account surplus or deficits. All of them can result in serious economic
problems if unattended.
In Bosnia and Herzegovina, as you all know, we have a currency board
regime. We do not have independent monetary policy, nor can we use
nominal exchange rate as a policy tool. If action is needed, we must
rely on fiscal policy or use flexible labor markets to bring about the
necessary adjustment. Fiscal policy options can also be limited,
especially if there is a trend of ageing population or decrease in working
age population. In the case of structural imbalances, even fiscal policy
measures can be of reduced efficiency.
Policy makers must keep in mind the macroeconomic context. Let us
take, for example, the annual growth rates of credit in BH in 2006, 2007
and the first half of 2008. Just before the Global Financial Crisis (GFC),
loans to private sector were growing at the rate higher than 30 per cent
annually. Although it was viewed as a sign of overheating, the policy
makers also considered factors such as low initial levels of lending.
Today, such accelerated credit growth would be considered a serious
vulnerability.
Similarly, the path of the accession towards the EU is bringing
structural changes to a candidate country's economy. The convergence
process itself will generate imbalances that, if not addressed properly,
may be dangerous for macroeconomic stability. If the imbalances are
neglected, the country may, at best, stay in the accession process for a
long time. During the accession period, the legal framework and
institutional landscape of the EU continues to evolve, so, this may
trigger additional challenges in the process of economic convergence.
BH is far from formally reporting to the European Commission via the
defined framework for countries' identification of and reporting on
macroeconomic imbalances within the so-called European Semester.
For this conference, we have selected several topics that are relevant
for the Central and Eastern European EU member states, and the
Balkans. These will indicate the kind of challenges which might lie
ahead for BH and other candidate and potential candidate countries. In
addition, BH may better understand how fast real economic
convergence might happen. Today, we will also share with you some
findings of the key macroeconomic imbalances in BH. We have also
chosen two topics that are of special interest to central banks: the
harmonization between business and financial cycles, and the
determinants of real exchange rates. None is fully dependent on the
actions of central banks, but both have an impact on them.
Finally, I would like to express my gratitude to the authors and panelists
for accepting our invitation to come and share their key messages with
us.
Ladies and gentlemen, it is our wish that this conference contribute to
improvement of macroeconomic policymaking in Bosnia and
Herzegovina and productive and professional dialogue with institutions
of the European Union. I am certain that this conference will build new
and enhance the existing ties between the researchers and policy
makers. It should help us all to better understand the mechanisms
between various macroeconomic segments and different policy
makers.
Allow me to finish by wishing you all a successful and interesting day.
Thank you so much for your attention.