The political system in BiH is complex, reflecting the provisions of the country’s constitution developed to end ethnic conflict, as well as subsequent changes to the system introduced under the guidance of the international community through the Office of the High Representative.
In July 2015, the Council of Ministers of BiH, Government of Republika Srpska (RS), and Government of the Federation of Bosnia and Herzegovina (FBiH) adopted a joint program of structural reforms known as the reform agenda. This reform agenda presents a rare window of opportunity for structural reforms in BiH, underpinned by a broad national consensus on the country’s critical challenges and priorities and the sustained support of key development partners.
BiH’s key economic challenge is the imbalance of its economic model: public policies and incentives are skewed toward the public rather than the private sector, consumption rather than investment, and imports rather than exports.
The country needs to shift to a business environment conducive to private investment that supports both vibrant small and medium-sized enterprises and the growth of larger companies, facilitates export performance and productivity improvements, and generates much-needed private sector employment.
At the same time as addressing these imbalances in the economic model, the country must also ensure the sustainability and inclusiveness of future growth.
According to the World Bank, growth in the Western Balkans is anticipated to hold stable at 3.8% in 2020, as infrastructure investment and private consumption help deliver growth in economies including Kosovo, North Macedonia, and Serbia.
Policy disagreements between some Central European countries and the European Union, election outcomes, an escalation of international trade restrictions, and backpedaling on structural reforms could also unsettle business and investor confidence. A substantial increase in private-sector debt in the region also raises the possibility of significant contingent liabilities for the public sector.