Strengthening the Resilience of the Economy of Bosnia and Herzegovina

Montenegro EBRD annual meeting

Bosnia and Herzegovina is a country with great potential, but it also faces many challenges. With a population of 3.8 million it is a comparatively small country with a limited market capacity. This means that in order to prosper, the economy must succeed on external markets. Competitiveness and support for regional integration are therefore crucial for strengthening the resilience of the economy of Bosnia and Herzegovina.

The federal government took an important step towards this goal with the adoption of an ambitious “Reform Agenda” in 2015. This defines “rehabilitation and modernisation” of the economy as the key targets and aims to foster sustainable growth, create new jobs and to form a favourable and just social environment. The effort has been rewarded with a noticeable improvement in growth: for 2017 our economists expect three per cent growth as compared to only 1.1 per cent in 2014, the year before the current reform course started.

“Rehabilitation and modernisation” of the economy of Bosnia and Herzegovina can be built on three pillars. The country has a strong industrial tradition. It provides a skilled and well-educated workforce, often with work and life experience abroad which has equipped people with language skills and a high work ethic. In addition and thanks to an abundance of hydro power, the country has a strong potential to become a major producer and exporter of electricity.

The “Reform Agenda” has re-energised the economy, for example, by making the labour market more flexible. However, more needs to be done to lessen the burden on businesses and to improve the general climate for entrepreneurs. This includes the tax regime as much as administrative procedures. The repeatedly announced privatisation plans must finally be implemented, in order to generate growth and a dynamic economy.

More than 25 years of experience have provided us with ample evidence that the private sector is the main driver of economic progress. However, we also have to acknowledge the important role of the state, in the first place, as the framework under which economic development takes place. In our view, one of the main lessons of the transition process is that transition is not only about building markets but also about redesigning the state.

Modern markets rely on efficient state institutions. Market and state are not substitutes, they complement each other. Therefore, we should improve the quality of both state and market institutions. Hardly anywhere is this more valid – and timely – than in Bosnia and Herzegovina, with its complex constitutional design. While we recognise its importance and support its success, we also believe that it must not become an obstacle to economic progress.

In the past two years, the renewed reform commitment by Bosnia and Herzegovina has allowed the EBRD to significantly increase its investments, to €200 million each. With a total of €2 billion investments the country accounts for some 20 per cent of total EBRD investment in the Western Balkans. However, we are not resting on our laurels and we regard the coming period as crucial: this year a new country strategy is due and we have started our discussions with the authorities, businesses and other stakeholders.

Although this remains very much a work in progress it is not giving away any secrets when we state that support for the private sector will remain vital. There is a lot of talent in the country, and we want to see it prosper in the country for inclusive growth that benefits as many as possible. Combining investment with reform dialogue remains the way forward, and the EBRD is as committed as ever to supporting the success of Bosnia and Herzegovina.

This piece is part of the EBRD 2017 Annual Meeting and Business Forum special report, prepared together with the European Bank for Reconstruction and Development. To register for the event, click on the banner below.


The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.