Bosnia and Herzegovina: Economy

Bosnia and Herzegovina was among the poorer areas of the old Yugoslav Federation and remains one of the poorer countries in Europe. For the most part, agriculture remains in private hands, but farms have been small and inefficient, and net food imports increased dramatically in the aftermath of the 1992-1995 war. Many industries are still overstaffed, reflecting the legacy of the centrally-planned economy, though limited privatization has improved efficiency in certain sectors. Under Tito, military industries were widespread in Bosnia, which hosted a large share of Yugoslavia's defense plants. During the war, 3 years of interethnic strife damaged or destroyed much of the economy and infrastructure in Bosnia, caused the death of about 100,000 people, and displaced half of the population.

Considerable progress has been made since peace was reestablished following the Dayton Accords. Still regarded as a transition economy, Bosnia and Herzegovina (BiH) sees the long-term goal of EU membership as a driver to further economic growth and development. Due to Bosnia and Herzegovina's strict currency board regime, which links the Konvertibilna Marka (BAM or KM) to the Euro, inflation has remained relatively low and, as a result, the BAM is one of the most stable currencies in Southeast Europe. The banking sector has been fully reformed, with a significant inflow of foreign banks (foreign ownership currently stands at 85% of the banking sector) providing businesses with easier access to capital and a better range of banking services. Lending has slowed significantly since 2008.

Per capita GDP in 2009 was U.S. $4,700, with a total nominal GDP of approximately U.S. $17.1 billion (source: World Bank). While official unemployment is approximately 40%, "unofficial" estimates of unemployment that include the large gray economy are approximately 18%-22%. Bosnia and Herzegovina's most immediate task remains economic revitalization. The country needs meaningful progress in structural reforms to strengthen the basis for sustained, private sector-led growth. In order to improve the business climate, private sector growth--especially small and medium enterprises (SMEs)--and foreign direct investment (FDI) acceleration are needed to spur increased economic growth and job creation. Creating a single economic space will be key to attracting increased foreign investment. Privatization has been slow, and unemployment remains high.

BiH's top economic priorities are: acceleration of EU integration; strengthening the fiscal system; public administration reform; World Trade Organization (WTO) membership; and securing economic growth by fostering a dynamic, competitive private sector. To date, work on these priorities has been inconsistent. The country has received a substantial amount of foreign assistance and will need to demonstrate its ability to implement its economic reform agenda in order to advance its stated goal of EU accession. In 2009, Bosnia and Herzegovina undertook an International Monetary Fund (IMF) standby arrangement, necessitated by sharply increased social spending and a fiscal crisis precipitated by the global economic downturn. The program aims to reduce recurrent government spending and to strengthen revenue collection.

Sources:

CIA World Factbook (March 2012)
U.S. Dept. of State Country Background Notes ( March 2012)

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