Higher consumption and investment in people is the key to economic growth

16.11.2021. / 16:57

Sasa Stevanovic

Writes: Sasa Stevanovic

The end of the year is approaching. Financial accounts are being reduced, preparations are being made for the next period. The ITA announced a figure in which public revenues recorded record amounts. Public revenues are always largely the result of economic activities.

In Republika Srpska, in the first 10 months, indirect taxes increased by 25 percent or 280 million KM. Direct for 217 million KM. In total, more than 500 million KM were collected in the first 10 months than in the previous year. Economic growth is between 10-12 percent, and inflation is around 3 percent.

Citizens participated in economic growth by paying a higher price level of about 3 percent. If we look at the economic wealth that was created in 2020 in the amount of 11.1 billion KM, only on the basis of a higher price level, economic growth will amount to 330 million KM. Higher price means less purchasing power. The previous year is a year that indicates that the economic fabric has been preserved, primarily the number of jobs – employment.

Most jobs have been guaranteed to be preserved. Unlike the Republika Srpska, employment in the United States has not yet been reached since before the pandemic. The United States is the economic system that has provided the most comprehensive, comprehensive program to combat kovid-19 in economic terms.

Total support is about 25 percent of GDP. The money was distributed to everyone, the so-called the concept of money from a helicopter. Although jobs were not guaranteed, this year concepts are being developed in that direction. He is experimenting with modern money theory. If this succeeds, many economic postulates will change and we will adapt. Also, the economic system of the Federation of BiH has not yet reached the level of employment before the pandemic. The current level of staff in August was 524,000 compared to 530,000 before the pandemic.

Unlike the last crisis of 2008/09. when the Republic took eight years to restore the number of employees it had in 2008, this crisis did not affect the decline in employment. One key factor of productivity is preserved, and that is labor.

The year went extremely well. Growth of industrial production, growth of exports of 30 percent, growth of consumption, announced growth of wages, growth of tax revenues. Although the economic growth will be close to 12 billion KM, in the first half of the year the growth amounted to 500 million KM, and the political situation has become more complicated since August. The impact on economic expectations was devastating. Citizens have reduced spending, faith in the future and optimism, which job preservation and wage growth may have aroused. Inflation and inflationary expectations have complicated business and further reduced purchasing power. Without the growth of salaries in the previous three years of 15.8 percent, it would be even lower. We would not have a precondition for cohesion in society. The level of capital in the system is a record.

Deposits in BiH increased by three billion in the first nine months. The economic system of the Republic in the previous 15 years provides information on its functioning. What is the key to economic growth and how to make plans for the future? The fact that the gross value added of the Republic in that period 2005-2020. year grew at a rate of 4.9 percent, while growth in the European Union was 2.3 percent. The fact that it took place in the conditions of the world economic crisis 2008/09, the crisis of the Eurozone 2012, the floods in 2014 and the current crisis caused by kovid-19.

The fact is that the economy participated in the creation of gross value added in 2005 with 42 percent, while in 2020 it participated with 56 percent. Although the total gross value added grew at a rate of 4.9 percent at the level of the Republic, the growth of the gross value added of the economy itself was 7 percent. Period from 2014-2017. is the period of the highest growth rate of the economy. In 2020, the economy did not have a decline in gross value added, the Republic recorded a decline of -0.23 percent, while the decline in the European Union was -4.06 percent.

The intensity of the shock was about 18 times higher in the European Union. Aid to the economy is eight times less in the Republic. These are all messages of economic models present in Republika Srpska.

As expected, the biggest role in the fight against the economic crisis is provided by the public sector. Although the economy and businessmen, believing in the messages of the state, profited, preserving their economic fabric, the level of shock that was not recorded in the previous 100 to 150 years was a challenge.

It is on this belief between the levels of the public and private sectors that the result is formed. The level of debt has risen as expected and currently accounts for 52 percent of gross value added. The economic system of the Republika Srpska was at the level of debt of 57 percent in 2015, and at the level of debt of 59 percent in 2005. There is already experience above the current debt level limit.

A deficit of around 600 million KM was realized. A deficit of some is always a surplus of others. If the state is in deficit, either the economy or the population is in surplus for that level. Standard measure and correct policy in crisis situations.

The republic issued debt abroad, for the second time. This means that every year for the next five years, international rating agencies will monitor the fiscal position of the Republic and give their ratings. In August 2021, the level of rating B was confirmed. It is a non-investment rating level, which is speculative, but it is a rating level that indicates that the probability that the Republic will go bankrupt in the next year is 1.65 percent, and in the next five years 5, 8 percent. Every year we can monitor this information and treat it adequately. The amount of debt on the foreign market was issued at a price of 4.75 percent. As of August 11, if you want to buy that debt, you cannot achieve a higher yield of 3.14 percent.

In Europe, where the annual inflation as of October 2021 is 4.1 percent, every buyer of that bond will achieve a negative real yield. A negative real return for some is a positive real return for others. Inflationary expectations affect debtors and entrepreneurs, and have a bad effect on creditors and savers. In the years behind us, there was a lot of discussion in the media about this show. The discussion was primarily political, less economic, and it is good to discuss, and best if the voice has a profession.

It is good to discuss important topics in public. The debt of this and the future generation is certainly one of them. In 2020, Republika Srpska paid 1.2 percent of GDP in the name of interest. This year, it will pay about 1.15 percent of GDP. Discussions are taking place on whether the Republic will pay 1.2 percent or 1.15 percent in the name of interest. The situation in which inflation in the Republic is 3% gives a new dimension to the debate. Every year, economic policy goals are set, one of the main ones being to increase the competitiveness and productivity of the economy with the aim of increasing wages.

The competitiveness of the economy is certainly measured by the share of exports in GDP. Exports increased from 1.1 billion to 4.2, as expected at the end of 2021. Exports increased fourfold, while in the same period the economy doubled, as did imports. The competitiveness of the economy is twice as high, while the productivity of the economy has increased 2.5 times. This was reflected in an increase in wages and an increase in private consumption. Exports and private consumption are the key to a higher economic war. Aggregate demand is managed by the economy in the short run. It is not yet known with certainty in which direction the health and economic crisis will move. In uncertainty, the ally is short-term thinking. Private investment satisfies either domestic or foreign demand. As domestic or foreign demand grows, we increase private investment. The fact that the money supply is growing at a rate of 8.8 percent in an economy that is growing at a rate of 4.7 percent in the absence of higher inflation means only one thing, and that is that the money turnover in the system is decreasing.

The fact that the Republika Srpska in the period 2005-2020. invested around 5.4 billion KM in public investments, without these public investments the turnover would be even smaller. Ever since Keynes, public investment has been a recipe for raising the level of economic activity. Times have changed a lot.

Currently, the biggest public investment should be in people, in their standard of living. The ideas contained in the book “The Myth of Deficit” will influence the economic policy of the economically strongest country in the world. They put these ideas into the plan of the common man and guarantee the job. Investing in people invests in current or future consumption. The biggest turnover of money is in spending. Consumption is most localized among young people and the elderly population. Everyone else is saving. Saving in the conditions of negative interest rates has its challenges, and long-term ones are the biggest. No one can say for sure about future inflation. Former chief economist of the IMF, Olivia Blanchard, claims that inflation of 4% is an economically good level for developed countries. Consequently, for those who are less developed, even 7% is not much. One fact to keep in mind: inflation between three and seven percent in small open economies that have characteristics like Republika Srpska has a positive effect. It motivates savings owners to dispose of it in the form of assets that are least harmed by inflation, it has a positive effect on entrepreneurs because they reduce the relative price of debt and entrepreneurs are motivated to risk more. The key problem of these inflationary expectations is the preservation of purchasing power. Purchasing power decreases the most among low-income earners, retirees and young people.

Discretionary measures – measures that take place only when necessary can influence both the preservation of purchasing power and the acceleration of the economy. If in the previous 15 years we managed to double the level of economic activity, the average salary by 105 percent, the average pension by 112 percent and based on that we collected enough information for management, and we did not achieve the same growth rate in 10 years, we did not succeed much. . The starting position is more than good, the growth of the economy recorded in 2007 and 2008, we have not lost jobs. The challenges are of a different nature.

The challenges are on the side of accumulating money and the lack of investment alternatives, the loss of optimism in the future. There is greater harmony in poverty than in wealth. As our purchasing power grows, as prosperity grows without the spiritual development of this society, dissatisfaction grows. When we manage to double the economy in 10 years, then we will be at the lower limit of high-income countries. The growth rate required is about 7 percent. If we analyze the previous 15 years and the attitude of the media towards economic events, the narrative of the economy, anyone can draw a conclusion by reviewing the press or TV content of that time. The economic narrative of fellow economists is often negative. The negative narrative achieved a growth of 5 percent in the previous period, the period of fiscal shock, economic crisis, eurozone crisis, floods and the crisis caused by kovid-19. In 15 years five crises.

By investing in crisis management, in the prevention of crisis situations, while preserving the experience and people from that period, with a moderate narrative economy, while reducing everything negative in that period, a growth of 7 percent is possible. With a positive narration, more is possible.

With a growth rate of 7 percent per year, we will have a twice as big economy in 10 years, twice as much purchasing power, twice as much salary and twice as much pension. Whether we will be twice as happy is a matter of personal perception. Wealth and salary do not bring happiness, although it is easier in the material sense. Real wealth is gained by a bigger family and more harmonious relationships between people. The ideal of economic growth inherits the ideal of economic development, when there is more money it is a prerequisite for better development. Which direction the trends will take us depends on our adaptation to them. To begin with, the goal of increasing the salary of each employee annually by 100 KM next year means adjusting to trends and the basis for economic growth twice in the next 10 years.

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Source: Capital.ba – Informacija je capital by www.capital.ba.

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