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The citizens of Bosnia and Herzegovina (BiH) aspire to a future of rising living standards, good jobs, better infrastructure and public services, a healthy, sustainable environment and becoming members of the European Union (EU). However, the situation in BiH is far from these aspirations and the country faces the critical challenge of rapidly losing its population¡ªarguably its most valuable resource. Every year thousands of people emigrate seeking a better quality of life elsewhere. The country cannot afford to continue losing valuable human capital. Creating the incentives for people to stay will require meeting their aspirations for a better quality of life for them and their families.

BiH¡¯s current development path will not create the opportunities that its population needs. BiH has made significant progress in maintaining macroeconomic stability, posting fiscal surpluses and declining debt levels. But this is not enough. While economic growth has been stable over the past several years around 3%, it is simply too low to underpin a path to shared prosperity. Should BiH continue to grow at the same rate, it would take over 100 years for the country to reach the living standards observed in the EU.

To achieve higher, more sustainable, and equitable growth, interventions will be needed along four pillars: (i) rebalancing of growth, (ii) investments in physical capital, (iii) stronger human capital, and (iv) natural resources management.

Last Updated: Oct 24, 2024

ľ¹ÏÓ°Ôº Group¡¯s supports Bosnia and Herzegovina¡¯s sustained recovery from the impacts of the COVID-19 pandemic, as well as reforms to support job creation and a greener, more inclusive economy.  The strategic framework builds on 30 years of strong partnership between Bosnia and Herzegovina and the World Bank Group. 

The volatile regional and global environment calls for reforms and institutional changes that will make Bosnia and Herzegovina¡¯s economy more resilient to internal and external shocks. Through this framework, the World Bank will support reforms in three broad areas: increased inclusive private sector employment; improved sustainable service delivery and supporting the country with improving its resilience to climate change.  

The framework includes a cross-cutting theme of gender, which is aimed at addressing structural barriers that limit economic opportunities for women and other vulnerable groups to support a stronger, more resilient recovery. 

Through the CPF, the World Bank is providing analysis, advice and financing for implementation of reform programs designed to restore economic growth and job creation.  During the CPF period, Bosnia and Herzegovina will have access to $750 million of new lending from the World Bank, depending on the country¡¯s demand and progress in reform implementation. 

Last Updated: Oct 24, 2024

Recent Economic Developments

In Q1 2024, real GDP growth rose 2.7%, reversing the sharp slowdown in 2023. The rise in output growth was largely due to a recovery in private consumption, fueled by an increase in minimum wages and a tightening labor market. Stronger retail sales in early 2024 suggest robust private consumption. Inflation reached 1.8% in July 2024 YoY, compared to 4.0% the year before, marking a drop in transport and a slowdown in utility prices. As a result, inflation from January to July 2024 decelerated to 1.9% from 12.2% the year before.

The labor market showed mixed signals. The employment rate rose to 41.9% in Q1 2024, while unemployment increased to 13.5%, a 0.3% age point rise. Economic vulnerability remains high¡ª40% of the population reports being unable to save, running into debt, or struggling to cover basic expenses for more than one month after losing their main income source.

Higher government spending and smaller revenues contributed to a fiscal deficit of 0.9% of GDP in 2023, following a surplus of 0.5% the previous year. The deficit was driven by increased subsidies, social benefits, and transfers. Public debt remains low at 36% of GDP, while the current account deficit improved to 2.8% in 2023, mainly financed by foreign direct investment and loans.

Economic Outlook

An improvement in the EU economic landscape, along with higher private consumption and construction-driven investment, is set to raise real GDP growth in BiH to 2.8% in 2024 and 3.2% in 2025. Inflation is expected to decelerate to 0.5% by 2026 barring further external shocks. By 2026, real output growth is projected to rise to 3.9%, driven by strengthened exports and private consumption from improved EU economic conditions and tighter labor markets in Bosnia and Herzegovina (BiH). The current account deficit is expected to widen to 3.6% of GDP due to higher imports.

In late 2024, policymakers focused on municipal elections, limiting space for economic reforms. Structural challenges hinder stronger output growth, including the large state-owned enterprise sector, population aging, outmigration, and low economic activity rates (around 48%, with women¡¯s participation at 37%).

Sharp increases in minimum wages in 2023 and 2024 may impact external competitiveness, which could also be affected by the EU¡¯s Carbon Border Adjustment Mechanism, given BiH's reliance on coal-fired thermal power. Additionally, a lack of digitalization and unified registries hampers regulatory compliance and business operations. Geopolitical risks pose a threat of worsening domestic political frictions, undermining the push for structural reforms.

Last Updated: Oct 24, 2024