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- GDP (PPP):
- $40.5 billion
- 2.8% growth
- 1.3% 5-year compound annual growth
- $10,492 per capita
- Inflation (CPI):
- FDI Inflow:
Bosnia and Herzegovina’s economic development has been driven by reconstruction efforts. Trade has been an engine of growth, but the overall entrepreneurial environment remains one of the region’s most burdensome, hindering the emergence of a dynamic private sector. In an effort to modernize the labor market, a new labor law intended to introduce more flexible working practices was adopted in July 2015.
Inefficient and high government spending, weak protection of property rights, and widespread corruption discourage entrepreneurial activity. The rule of law is weak, and local courts are subject to substantial political interference. Intrusive bureaucracy and costly registration procedures reflect a history of central planning. The informal economy remains quite large.
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 official results of a 2013 census, published in 2016, showed that the two entities remain ethnically split. A Stabilization and Association Agreement signed by Bosnia and Herzegovina and the European Union took effect in June 2015. In February 2016, Bosnia formally applied to join the EU. Bosnia also received a NATO Membership Action Plan in 2010 and is one of three official candidates for NATO membership.
Largely unreliable property registries leave transfers open to dispute and create a major barrier to the development of real property and mortgage markets. The complex system of government lends itself to deadlock and has bred a large informal economy. The judiciary remains susceptible to influence by nationalist political parties and pressure from the executive branch. Inefficiency and corruption are widespread at all levels of government.
The top income and corporate tax rates are 10 percent, but various governing entities have different tax policies. The overall tax burden equals 38.1 percent of total domestic income. Government spending has amounted to 47 percent of total output (GDP) over the past three years, and budget deficits have averaged 2 percent of GDP. Public debt is equivalent to 45.5 percent of GDP.
Regulatory inefficiency still impairs the business environment and limits the private investment needed for faster economic growth. Obtaining business licenses and launching a business remain vulnerable to bureaucratic delays. The recently adopted labor code is intended to enhance labor market flexibility. The government subsidizes energy and, according to the World Bank, targets its agricultural subsidies poorly.
Trade is important to Bosnia and Herzegovina’s economy; the value of exports and imports taken together equals 91 percent of GDP. The average applied tariff rate is 1.7 percent. The government’s official policy is to treat foreign and domestic investors equally under the law. Foreign-owned banks account for over 80 percent of banking assets. Long-term lending is still hindered by insufficient enforcement of contracts.