OKUN’S LAW AND ASSESSMENT OF STIMULUS TO THE ECONOMY OF BOSNIA AND HERZEGOVINA

Effects of corona virus pandemics are omnipresent in national economy of Bosnia and Herzegovina. Output and unemployment are probably the most important variables for measuring negative effects of the pandemics from macroeconomic perspective. Different organisations, both national and international, have announced their autumn and winter prognoses of these variables for 2020. None of them are optimistic. Bosnian economy has been hit by the worst recession in the last two decades. International Monetary Fund approved US$ 361 million in urgent support to BiH in 2020 to alleviate the COVID-19 negative economic consequences. This paper investigates potential economic impact of that financial support with application of simple arithmetic. In the paper the Okun’s law is used as methodological framework to assessing effects of the IMF rapid financial instrument. Relationship between real economic growth and change in unemployment rate is estimated for BiH economy and it served as a basis for analysis of potential impact of the IMF financial support. Findings of the paper show that the IMF financial support effect amounts to about 3.7% of GDP of BiH. Effects on the unemployment rate are estimated to 2.3 percentage points less from what it would otherwise have been. Since the early estimations of the GDP in BiH indicated deep recession in 2020 this financial support proved to be insufficient stimulus to BiH economy. Decision makers in the country should be aware of their responsibility for providing larger stimulus packages in order to avoid bad economic and social outcomes in the near future