General Information
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GDP |
USD16.0bn (World ranking 114, World Bank 2015) |
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Population |
3.81mn (World ranking 131, World Bank 2015) |
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Form of state |
Emerging Federal Democratic Republic |
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Head of government |
Denis ZVIZDIC (Chairman of the Council of Ministers) |
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Next elections |
2018, presidential and legislative |
Country Rating D4
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Strengths
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A currency board has helped to provide a stable exchange rate and fairly low inflation
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Foreign exchange reserves currently cover more than six months of imports
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Weaknesses
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Persisting ethnic-nationalistic pressures. Highly ethnically fragmented government hinders efficient policymaking
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Widespread poverty and high unemployment
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Small manufacturing base concentrated on low-value-added products
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Main export destinations are other emerging Eastern European countries
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Continued large current account deficits
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High external debt burden
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High vulnerability to external shocks, including natural disasters
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Economic Overview
Subdued increase in 2016-2018
Real GDP increase decelerated from +3% in full-year 2015 to +1.9% y/y in Q1 and +1.4% y/y in Q2 2016. In the initial half of 2016, robust increase was recorded in manufacturing (+6.5% y/y), financial services (+5.5% y/y) and other private-sector services (+5.3% y/y) while construction (-1.6% y/y) and pubic-sector services (-1.2% y/y) contracted. Modest increase was posted by trade, transport, accommodation and food services (+1.6% y/y). EH forecasts full-year increase of about +1.6% in 2016, followed by +1.7% in 2017 and +2% in 2018.
Consumer prices have been in deflationary territory since end-2014, but EH expects modest positive inflation to return in 2017 (+0.7% on average).
Structural weaknesses limit economic prospects
The economic structure is weak. The relatively small manufacturing base is concentrated on low-price-added products and the economy is dependent on emerging Eastern European markets, which account for around 50% of exports. Services account for about 66% of GDP, industry for 26% and agriculture for 8%. Meanwhile the economy is classified as an upper middle gain economy by the World Bank with GNI per capita of USD4,680 in 2015. However, unemployment is large at 28% and 18% of the people lived below the national poverty line in 2011.
Moreover, the economy is highly vulnerable to external shocks, for example revealed by the 2008-2009 world economic crisis which pushed the economy into recession inclunding by the severe adverse effects of the 2014 natural disaster on the economy(sharp increase slowdown, markedly rising twin deficits and external deficit).
Subsequent IMF financial support packages have been in place since 2009. The new follow-up facility was from presently on agreed in September 2016, next it had been at risk for additional than a year due to a political crisis, thereby further increasing by presently high external liquidity and deficit risks, reflected in ongoing large current account deficits (over -5% of GDP) and high external deficit (over 60% of GDP).
On a positive note, current foreign exchange reserves are adequate (USD5.3bn in September 2016), providing over six months import cover, supporting the currency board and limiting exchange rate and transfer and convertibility risks. The fiscal position is as well adequate, with low fiscal deficits and moderate public deficit.
In general, however, Bosnia and Herzegovina will remain highly dependent on international transfers in the foreseeable next and is still far from attaining self-sustaining increase.
