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- GDP (PPP):
- $38.1 billion
- 0.8% growth
- 0.8% 5-year compound annual growth
- $9,833 per capita
- Inflation (CPI):
- FDI Inflow:
After several years of modest growth, Bosnia and Herzegovina’s economic performance has deteriorated, partly because of the global economic slowdown but mainly due to lack of progress in improving regulatory efficiency and open-market policies. The state still controls a large number of companies, and privatization has virtually stalled.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 58.6 (down 0.4 point)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 108th
- Regional Ranking: 39th in Europe
- Notable Successes: Monetary Freedom and Trade Freedom
- Concerns: Rule of Law and Management of Government Spending
- Overall Score Change Since 2012: +1.3
The 1995 Dayton Agreement ended three years of war in the former Yugoslavia and finalized Bosnia and Herzegovina’s independence. Two separate entities exist under a loose central government: the Republika Srpska (Serbian) and Federation of Bosnia and Herzegovina (Muslim/Croat). The European Union signed a Stabilization and Association Agreement with Bosnia and Herzegovina in 2008. Bosnia also received a NATO Membership Action Plan in 2010 and is one of four official candidates for NATO membership. The country is one of Europe’s poorest. There has been some privatization, but agriculture and industry require modernization. Corruption is widespread, and the central government’s weakness makes it difficult to implement reforms. The country was hit by violent unrest and protests in February 2014 and severe flooding in May 2014. Unemployment is extremely high, especially among youth.
Although public procurement is one of the main sources of corruption and fraud in Bosnia and Herzegovina, the government largely ignored a significant anti-corruption movement’s calls for reforms in 2014. The complex system of government lends itself to deadlock, prevents reform, and has bred one of the region’s largest informal economies. Property registries are largely unreliable, leaving transfers open to dispute.
Bosnia and Herzegovina’s various governing entities have different tax policies. The top income and corporate tax rates are 10 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 37.6 percent of GDP. Government expenditures that amount to about half of total domestic output result in chronic budget deficits and growing public debt.
Despite some steps to reform the cumbersome regulatory framework, bureaucracy and lack of transparency often make the formation and operation of private enterprises costly and burdensome. The labor market is inefficient, and the unemployment rate, particularly among youth, is one of the region’s highest. The government subsidizes energy and, according to the World Bank, targets its agricultural subsidies poorly.
Bosnia and Herzegovina’s average tariff rate is a relatively low 1.5 percent. State-owned enterprises dominate the telecommunications and energy sectors. The legal and regulatory environment deters some foreign investment. The financial sector is underdeveloped. About 80 percent of banking capital is privately owned, but a lack of contract enforcement and an insecure regulatory environment limit credit availability.