2018 Index of Economic Freedom

Bosnia and Herzegovina

overall score61.4
world rank91
Rule of Law

Property Rights39.5

Government Integrity28.4

Judicial Effectiveness43.7

Government Size

Government Spending41.5

Tax Burden83.5

Fiscal Health94.4

Regulatory Efficiency

Business Freedom49.3

Labor Freedom59.6

Monetary Freedom83.5

Open Markets

Trade Freedom87.8

Investment Freedom65.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 3.9 million
  • GDP (PPP):
    • $42.2 billion
    • 2.8% growth
    • 1.6% 5-year compound annual growth
    • $10,958 per capita
  • Unemployment:
    • 25.8%
  • Inflation (CPI):
    • -1.1%
  • FDI Inflow:
    • $285.2 million
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Bosnia and Herzegovina’s economic freedom score is 61.4, making its economy the 91st freest in the 2018 Index. Its overall score has increased by 1.2 points, with improvements in the government spending, fiscal health, and judicial effectiveness indicators outweighing declines in government integrity and property rights. Bosnia and Herzegovina is ranked 38th among 44 countries in the Europe region, and its overall score is below the regional average but slightly above the world average.

Bosnia and Herzegovina’s economy has been driven by postwar reconstruction. Trade is 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. The highly decentralized government hampers policy coordination and reform, and excessive bureaucracy, weak rule of law, and market segmentation discourage foreign investment. Public perceptions of government corruption and misuse of taxpayer money motivate many to remain in the large informal economy.

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Background

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). A 2013 census showed that the two entities remain deeply divided ethnically. A Stabilization and Association Agreement with the European Union took effect in 2015. In 2016, Bosnia formally applied to join the EU. Bosnia and Herzegovina’s economy relies heavily on exports of metals, energy, textiles, and furniture as well as on remittances and foreign aid. Tourism has been rising as more Europeans take advantage of a nearby, low-cost vacation destination and memories of the 1990s violence fade.

Rule of LawView Methodology

Property Rights 39.5 Create a Graph using this measurement

Government Integrity 28.4 Create a Graph using this measurement

Judicial Effectiveness 43.7 Create a Graph using this measurement

It is generally acknowledged that registration of property titles is a significant barrier to the development of a real property and mortgage market. The complexity of government itself leads to deadlock and has bred a large informal economy. The judiciary is influenced by nationalist political parties and faces pressure from the executive branch. Inefficiency, incompetence, and corruption are widespread at all levels of government.

Government SizeView Methodology

The top income and corporate tax rate is 10 percent, but various governing entities have different tax policies. The overall tax burden equals 38.1 percent of total domestic income. Over the past three years, government spending has amounted to 44.1 percent of total output (GDP), and budget deficits have averaged 1.0 percent of GDP. Public debt is equivalent to 44.4 percent of GDP.

Regulatory EfficiencyView Methodology

Entrepreneurs face significant obstacles, exacerbated by complex legal and regulatory frameworks and government structures and nontransparent business procedures. High tax rates on labor discourage the hiring of new workers and increase incentives for unregistered employment. Labor legislation makes it hard to dismiss unneeded workers. The government subsidizes energy and inefficient state-owned enterprises and targets its agricultural subsidies poorly.

Open MarketsView Methodology

Trade is significant for Bosnia and Herzegovina’s economy; the combined value of exports and imports equals 88 percent of GDP. The average applied tariff rate is 1.1 percent. Nontariff barriers impede some trade. Government openness to foreign investment is above average. The banking sector remains well capitalized, but the level of nonperforming loans has risen. Foreign-owned banks account for over 80 percent of total banking assets.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Switzerland81.70.2
2Ireland80.43.7
3Estonia78.8-0.3
4United Kingdom781.6
5Iceland772.6
6Denmark76.61.5
7Luxembourg76.40.5
8Sweden76.31.4
9Georgia76.20.2
10Netherlands76.20.4
11Lithuania75.3-0.5
12Norway74.30.3
13Czech Republic74.20.9
14Germany74.20.4
15Finland74.10.1
16Latvia73.6-1.2
17Austria71.8-0.5
18Macedonia71.30.6
19Romania69.4-0.3
20Armenia68.7-1.6
21Poland68.50.2
22Malta68.50.8
23Bulgaria68.30.4
24Cyprus67.8-0.1
25Belgium67.5-0.3
26Hungary 66.70.9
27Kosovo66.6-1.3
28Turkey65.40.2
29Slovakia65.3-0.4
30Spain65.11.5
31Slovenia64.85.6
32Albania64.50.1
33Montenegro64.32.3
34France63.90.6
35Portugal63.40.8
36Italy62.50.0
37Serbia 62.53.6
38Bosnia and Herzegovina61.41.2
39Croatia611.6
40Moldova58.40.4
41Russia58.21.1
42Belarus58.1-0.5
43Greece57.32.3
44Ukraine51.93.8
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