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- GDP (PPP):
- $31.6 billion
- 1.7% growth
- 2.2% 5-year compound annual growth
- $8,133 per capita
- Inflation (CPI):
- FDI Inflow:
Bosnia and Herzegovina’s economic freedom score is 57.3, making its economy the 103rd freest in the 2013 Index. Its overall score is the same as last year, with improvements in the management of public spending and labor freedom offset by declines in monetary freedom and fiscal freedom. Bosnia and Herzegovina is ranked 38th out of 43 countries in the Europe region, and its overall score remains below the global and regional averages.
After several years of modest economic growth, Bosnia and Herzegovina’s economic performance has deteriorated, partly because of the global economic slowdown but mainly due to the lack of progress in improving regulatory efficiency and open-market policies. A large number of companies remain under state control, and privatization has virtually stalled.
Protection of property rights is poor, and corruption is widespread. The rule of law is weak, and local courts are subject to political interference and lack the resources to prosecute complex organized crimes effectively. Bureaucracy and costly registration procedures reflect a history of central planning. High public spending is a large burden on the economy.
The 1995 Dayton Agreement ended three years of war in the former Yugoslavia and finalized Bosnia and Herzegovina’s independence. The presidency rotates among three elected members every eight months inside a four-year term. The incumbents are Željko Komšic (Social Democrat) for the Croats; Nebojša Radmanovic (Alliance of Independent Social Democrats) for the Serbs; and Bakir Izetbegovic (Party of Democratic Action) for the Bosniaks. Under a loose central government, two separate entities exist: the Republika Srpska (Serbian) and the 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. Bosnia is one of Europe’s poorest countries. Agriculture remains inefficient, and even with limited privatization, large sections of industry remain overstaffed.
The complex system of government lends itself to deadlock and prevents reform. Property registries are largely unreliable, leaving transfers open to dispute. Efforts to update real estate property laws and develop new registries are stalled. The judicial system does not cover commercial activities adequately. Contracts are almost unenforceable, and implementation of laws protecting intellectual property rights is inadequate. Corruption remains prevalent.
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 (VAT) and a property tax. The overall tax burden is equivalent to 38.5 percent of GDP. Government expenditures amount to about half of total domestic output, resulting in chronic budget deficits and growing public debt.
Despite some steps to reform the cumbersome regulatory framework, lingering bureaucracy and lack of transparency often make the formation and operation of private enterprises costly and burdensome. The labor market is not efficient, and the unemployment rate, particularly among youth, is one of the highest in the region. Due to Bosnia and Herzegovina’s strict currency board regime, inflation has remained relatively low.
The trade-weighted average tariff is 1.8 percent, and the country has free trade agreements with many other countries in the region. Myriad state and municipal administrations make up a non-transparent bureaucratic system that makes investment less appealing. 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.