Okun's law and assessment of stimulus to the economy of Bosnia and Herzegovina

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