Monetary and fiscal policy response during COVID-19 crisis in Bosnia and Herzegovina : constraints and potentials

Bosnia and Herzegovina (BiH), as a small open economy, does not have adequate monetary and fiscal policy capacity to react during crisis. With a currency board as a monetary regime there is almost no room for monetary policy intervention. However, there are potentials in the financial system, which are not used due to undeveloped financial infrastructure. Limitations in monetary policy put additional pressure on fiscal policy, but current complex constitutional and institutional structure results in high and inefficient public spending. With an introduction of fiscal discipline measures, and the development of financial infrastructure, BiH could be better prepared to react to crisis and accelerate development. In this paper we examine constraints and potentials of both monetary and fiscal policy response during COVID-19 crisis in BiH.