Economy of Bosnia and Herzegovina - Overview

Overview

Bosnia and Herzegovina faces the dual problem of rebuilding a war-torn country and introducing market reforms to its formerly centrally-planned economy. One legacy of the previous era is a greatly overstaffed military industry; under former leader Josip Broz Tito, military industries were promoted in the republic, resulting in the development of a large share of Yugoslavia's defense plants but fewer commercially viable firms. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. Industry remains greatly overstaffed, a holdover from the socialist economic structure of Yugoslavia. Yugoslav President Josip Broz Tito had pushed the development of military industries in the republic with the result that Bosnia and Herzegovina was saddled with a host of industrial firms with little commercial potential.

The war in Bosnia and Herzegovina caused production to plummet by 80% from 1992 to 1995 and unemployment to soar. With an uneasy peace in place, output recovered in 1996-99 at high percentage rates from a low base; but output growth slowed in 2000-02. Part of the lag in output was made up in 2003-05. National-level statistics are limited and do not capture the large share of black market activity.

The konvertibilna marka (convertible mark or BAM)- the national currency introduced in 1998 - is pegged to the euro, and confidence in the currency and the banking sector has increased. Implementation of privatization, however, has been slow, and local entities only reluctantly support national-level institutions. Banking reform accelerated in 2001 as all the Communist-era payments bureaus were shut down; foreign banks, primarily from Western Europe, now control most of the banking sector. A sizable current account deficit and high unemployment rate remain the two most serious economic problems. The country receives substantial amounts of reconstruction assistance and humanitarian aid from the international community but will have to prepare for an era of declining assistance.

The United States Embassy in Sarajevo, Bosnia and Herzegovina produces the Country Commercial Guide – an annual report that delivers a comprehensive look at Bosnia and Herzegovina’s commercial and economic environment, using economic, political, and market analysis. It can be viewed on Embassy Sarajevo’s website.

As of October 2012, the IMF has approved a two-year stand-by arrangement of 405.3 million euro for Bosnia. The IMF loan, approved on September 26, is designed to support Bosnia's economic programme for the next two years, ease the effects of the “external environment and address domestic structural weaknesses”. Bosnia's two autonomous entities will be using the cash from the loan but will not get the whole amount at once. The IMF has enabled an initial disbursement of 60.8 million euro, saying that the rest of the money will be spread out over two years, after successful quarterly reviews.