Publication: Bosnia and Herzegovina Country Economic Memorandum, January 2024
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2024-02-13
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2024-02-13
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Bosnia and Herzegovina (BiH) have made significant development progress since the last Country Economic Memorandum (CEM) in 2005, most notably in obtaining EU candidate status in 2022. Despite persistent political tensions, the country has enjoyed nearly three decades of peace. The infrastructure, severely damaged during the 1990s, has been rebuilt, with ongoing investments in improving road and rail connectivity. The policymaking process involves elected officials navigating a complex, politically fragmented landscape, characterized by national quotas, ensuring representation for Bosnia’s, Croats, and Serbs. The representation of individuals who do not identify with any of these three national groups has not been resolved yet. These factors make BiH unique in Europe, rooted in the Dayton Agreement of 1995, which brought an end to a devastating war that claimed approximately 100,000 lives and displaced over half of the population. Now, almost two decades after the last Economic Memorandum, BiH features as an EU candidate country. Macroeconomic policies have tended to favor short-term objectives at the expense of long-term growth, with a focus on fostering consumption rather than investment. Current budget spending, particularly on public wages, pensions, and social benefits has constrained capital expenditure over the past 10-15 years. Consequently, public capital expenditures in both entities are limited, with only half the size in comparison to their Western Balkan peers. Furthermore, there is a discernable lack of coordination across the entities within sectors such as transport infrastructure, particularly railways and roads that contribute to important intermediate input distortions, as well as digital and energy infrastructure. Moreover, while sharing the same priorities as reflected in the socio-economic reform package, the speed of reform implementation differs across entities. Foreign direct investment inflows, meanwhile, remain insufficient, and significantly below regional peers. Thus, a shift towards structural and fiscal reforms with medium- to long-term benefits, such as a more efficient social transfer system using social cards, as well as higher and more coordinated capital expenditures across the entities could pave the way for higher productivity and thus a more competitive economy.
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“World Bank. 2024. Bosnia and Herzegovina Country Economic Memorandum, January 2024. © World Bank. http://hdl.handle.net/10986/41059 License: CC BY-NC 3.0 IGO.”
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