2021 Index of Economic Freedom

Bosnia and Herzegovina

OVERALL SCORE62.9
WORLD RANK82
Rule of Law

Property Rights44.1

Judicial Effectiveness33.7

Government Integrity42.4

Government Size

Tax Burden93.8

Government Spending49.5

Fiscal Health97.1

Regulatory Efficiency

Business Freedom48.2

Labor Freedom67.8

Monetary Freedom84.1

Open Markets

Trade Freedom69.2

Investment Freedom65.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 3.3 million
  • GDP (PPP):
    • $49.7 billion
    • 2.7% growth
    • 3.1% 5-year compound annual growth
    • $15,792 per capita
  • Unemployment:
    • 18.4%
  • Inflation (CPI):
    • 0.7%
  • FDI Inflow:
    • $528.4 million

Bosnia and Herzegovina’s economic freedom score is 62.9, making its economy the 82nd freest in the 2021 Index. Its overall score has increased by 0.3 point, primarily because of an improvement in the tax burden score. Bosnia and Herzegovina is ranked 40th among 45 countries in the Europe region, and its overall score is below the regional average but above the world average.

Bosnia and Herzegovina’s economy remains moderately free for the fifth year in a row. The main impediment to greater economic freedom remains very poor performance on the rule-of-law indicators: property rights, judicial effectiveness, and government integrity. Adoption of policies to improve business freedom is likewise necessary but will require better cooperation between the country’s separate political entities.

IMPACT OF COVID-19: As of December 1, 2020, 2,727 deaths had been attributed to the pandemic in Bosnia and Herzegovina, and the economy was forecast to contract by 6.5 percent for the year.

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Background

The 1995 Dayton Agreement finalized Bosnia and Herzegovina’s independence. Two separate entities, the Republika Srpska (Serbian) and Federation of Bosnia and Herzegovina (Muslim/Croat), exist under a loose central government. Disagreement among Bosnia’s triumvirate presidency resulted in a 14-month delay in the formation of a government following elections in October 2018. The slow pace of reform has delayed accession to the EU. The economy relies heavily on exports of metals, energy, textiles, and furniture as well as on remittances, foreign aid, and Chinese infrastructure investment, particularly in the energy sector. The impact of ongoing migrant arrivals continues to strain resources. Additional challenges include high unemployment and the resilience of the country’s nascent tourism industry.

Rule of LawView Methodology

Property Rights 44.1 Create a Graph using this measurement

Judicial Effectiveness 33.7 Create a Graph using this measurement

Government Integrity 42.4 Create a Graph using this measurement

The difficulty of registering real property is generally acknowledged to be a significant barrier to the development of property and mortgage markets. A significant portion of real property lacks a clear title, and property registries are largely unreliable. The judiciary remains susceptible to political influence, and the backlog of cases is large. Legislation designed to combat corruption, which remains widespread and systemic, is poorly enforced.

Government SizeView Methodology

The top income and corporate tax rates are 10 percent, but various governing entities have different tax policies. The overall tax burden equals 20.4 percent of total domestic income. Government spending has amounted to 41.0 percent of total output (GDP) over the past three years, and budget surpluses have averaged 1.9 percent of GDP. Public debt is equivalent to 38.0 percent of GDP.

Regulatory EfficiencyView Methodology

Starting a business, getting electricity, and dealing with construction permits have become less costly. However, the recovery rate when resolving insolvency has increased. Complex labor and pension laws cause many employers to underreport the size of their workforces. Heavy subsidies to state-owned enterprises, which have assets equal to one year of GDP, have been a drain on the budget.

Open MarketsView Methodology

Bosnia and Herzegovina has four preferential trade agreements in force. The trade-weighted average tariff rate is 7.9 percent, and significant nontariff barriers further restrict trade flows. Bosnia and Herzegovina is not a member of the World Trade Organization. Complex legal and regulatory frameworks limit new foreign investment. The banking sector, dominated by foreign banks, remains stable, but the number of nonperforming loans is sizable.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Switzerland81.9-0.1
2Ireland81.40.5
3United Kingdom78.4-0.9
4Estonia78.20.5
5Denmark77.8-0.5
6Iceland77.40.3
7Georgia77.20.1
8Lithuania76.90.2
9Netherlands76.8-0.2
10Finland76.10.4
11Luxembourg760.2
12Sweden74.7-0.2
13Austria73.90.6
14Czech Republic73.8-1.0
15Norway73.40.0
16Germany72.5-1.0
17Latvia72.30.4
18Armenia71.91.3
19Cyprus71.41.3
20Bulgaria70.40.2
21Malta70.20.7
22Belgium70.11.2
23Azerbaijan70.10.8
24Spain69.93.0
25Poland69.70.6
26Romania69.5-0.2
27North Macedonia68.6-0.9
28Slovenia68.30.5
29Portugal67.50.5
30Serbia 67.21.2
31Hungary67.20.8
32Kosovo66.5-0.9
33Slovak Republic66.3-0.5
34France65.7-0.3
35Albania65.2-1.7
36Italy64.91.1
37Turkey64-0.4
38Croatia63.61.4
39Montenegro63.41.9
40Bosnia and Herzegovina62.90.3
41Moldova62.50.5
42Russia61.50.5
43Belarus61-0.7
44Greece60.91.0
45Ukraine56.21.3
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