Resource information
Twenty years after the end of the war,
Bosnia and Herzegovina (BiH) has yet to achieve shared
prosperity for its citizens and approach European living
standards. The country has been at peace since the end of
1995, but its development model needs adjustment if it is to
join the ranks of prosperous European economies. BiH has a
disproportionately large public sector that dates back to
Yugoslav times and has only been partly reformed since, and
the constitutional arrangements under the Dayton and
Washington Agreements had as their aim the cessation of war
rather than the explicit goal of building a viable and
efficient state. Financial inflows, particularly aid and
remittances, have been fueling consumption-based economic
growth. These inflows were important in post-war recovery,
and propelled the country back to middle-income status.
However, reaching high levels of income, creating prosperity
and eliminating poverty will only happen if BiH shifts
toward an economic model that builds on international
integration, especially with the EU, BiH’s most important
trading partner and anchor of institutional reform. BiH
needs to rebalance its development model in two fundamental
ways in order to succeed. First, it needs to unleash the
potential of the private sector while reducing the footprint
of the very large public sector. Second, the economy needs
to shift from an inward focus driven by local consumption
and imports to the potential of international integration
through investments and exports. To achieve this country
needs more (and larger) companies, vibrant small and medium
sized enterprises and a business environment that allows
them to grow and expand output, employment, and exports.
