The COVID-19 pandemic is a global unprecedented event since the Spanish flu pandemic in 1918. The IMF addressed this pandemic-caused economic fallout as the worst crisis since the Great Depression. Entire continents are in lockdowns just with essential services and activities. Unlike the global financial crisis that derived from a financial sector, this pandemic-caused crisis is shock in real economy, both on the demand and supply side. During previous crisis, especially during global financial crisis, most governments responded with austerity measures and fiscal consolidation. This time it is different. Governments worldwide approved additional expenditures, tax cuts, government bond issuance and borrowing in order to mitigate economic consequences of the looming crisis. One of the pandemic's result is dramatic increase of indebtedness that could affect efficiency of fiscal and monetary responses created before to fight against crisis. This sudden and strong COVID-10 shock especially effects developing countries and emerging markets, but also advanced countries with already limited fiscal space. The COVID-19 pandemic-caused crisis evoked again fear of debt crisis and expanded a number of countries with indebtedness problems. Bosnia and Herzegovina as developing country with complex state structure and its own macroeconomic, political, institutional problems is not spared of negative effects of the pandemic. In order to save economy when recovery from the previous crisis is still in swing, Bosnia and Herzegovina did emergency measures to support economy. Increase of government spending in addition to reduced tax revenues have created the need for budget rebalance and additional borrowing. The aim of this work is to show macroeconomic situation and problems in the EU countries, countries in the region and especially in Bosnia and Herzegovina before the pandemic as well as current problems, their reactions to COVID-19 pandemic and necessary financial support that could cause increase of indebtedness.
Indebtedness in the Time of the Covid-19 Pandemic – Case of Bosnia and Herzegovina