Economic Growth in BiH projected to strengthen to Four Percent

October 9, 2019 4:00 PM

 

Bosnia and Herzegovina’s (BiH’s) growth reached an estimated 3% in 2017. Domestic demand remains the dominant driver of growth with consumption adding 3 percentage points, investment 0.8 percentage points, and imports 5.1 percentage points.

Improved external demand has supported exports growth, but a strong rise in imports is o setting this momentum.

Unemployment remains high, although some improvements are observed in the labor market. The unemployment rate fell from 25.4% in 2016 to 20.5% in 2017, driven by a fall in activity rate and a slight rise in employment.

In 2017, revenues rose mainly due to stronger collection of indirect taxes while expenditure declined mainly because of continued restraint on current government spending. At the

same time, sluggish capital spending re ected implementation delays.

Current expenditures are expected to remain on a downward path, driven by the commitment of the authorities to reduce the wage bill.

Total public debt in 2017 remained at 37% of GDP (external public debt was 27% of GDP) and consisted largely of concessional debt to international nancial institutions.

The latest available poverty data using the national poverty line is for 2015 and was estimated at 16%, very close to the 15% poverty rate estimated for 2011.

The implementation of new labor laws in
both BiH entities, and continuation of support schemes for rst-time job seekers are expected to improve labor markets outcomes in the coming years, hence also supporting poverty reduction.

Economic Outlook

Supported primarily by consumption and to some extent by public investment, economic growth is projected to strengthen to about 4% by 2020.

As BiH’s reform agenda advances, a moderate rise in exports is expected, but strong demand for imports implies that net external demand will continue to be a drag on growth.

Remittances are likely to remain stable, and together with progress on reforms, will underpin a gradual pickup in consumption, which will remain a major driver of growth.

Investments in energy, construction, and tourism will support investment growth generally, as well as job creation in those sectors. Because of these dynamics, real GDP growth is projected to build up gradually from 3% in 2017 to 3.2% in 2018 and up to 4% in 2020.

Achieving prudent, e cient, and e ective scal policy, addressing persistent unemployment and continuing to safeguard the banking sector, will remain central to the BiH reform agenda.

Although external de cits continue to be moderate, on the scal side the tax burden
is high, and public spending is ine cient, as evidenced by poorly-targeted bene ts. Fiscal consolidation and provision of an e ective safety net will not be e ective if structural rigidities in spending are not addressed— especially the high public wage bill.

However, support from international partners can help the BiH authorities to deliver on their challenging reform agenda.

Without continued implementation of structural reforms, it would be di cult to address rigidities in public employment, pensions, and debt.

 

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