Bosnia and Herzegovina

Persistent large external imbalances


HIGH RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD18.2bn (World ranking 113, World Bank 2017)
Population 3.52mn (World ranking 132, World Bank 2017)
Form of state Emerging Federal Democratic Republic
Head of government Denis ZVIZDIC (Chairman of the Council of Ministers)
Next elections 2022, presidential and legislative
  • A currency board has helped to provide a stable exchange rate and fairly low inflation
  • Foreign exchange reserves currently cover more than seven months of imports
  • Persisting ethnic-nationalistic pressures. Highly ethnically fragmented government hinders efficient policymaking
  • Widespread poverty and high unemployment
  • Small manufacturing base concentrated on low-value-added products
  • Continued large current account deficits
  • High external debt burden
  • High vulnerability to external shocks, including natural disaster

Solid but unexciting growth

Following +3% in 2017, real GDP grew by an average +2.9% in the first three quar-ters of 2018 compared to the same period a year earlier. Growth was driven by robust consumer spending and strong investment expansion while government con-sumption declined slightly. External trade activity retained momentum in 2018, with both exports and imports increasing at solid rates. On the supply side, growth in 2018 was mainly driven by agriculture and services; notably trade, transportation, accommo¬dation and food services rose markedly. The industrial sector grew more modestly as manufacturing came to a standstill. Euler Hermes forecasts annual growth of just below +3% in 2018-2020.

After four years of deflation, consumer prices returned to moderate positive inflation in 2017. The currency board in place should continue to provide a stable exchange rate and fairly low inflation. Following an annual average inflation of +1.4% in 2018, we forecast around +2% in 2019-2020. 


Structural Weaknesses

The economic structure is weak. The relatively small manufacturing base is concen-trated on low-value-added products and the economy is dependent on emerging Eastern European markets, which account for around 50% of exports. Services ac-count for about 71% of GDP, industry for 25% and agriculture for 6%. Meanwhile the economy is classified as an upper middle income economy by the World Bank with GNI per capita of USD4,940 in 2017. The unemployment rate has fallen, however, remains large at 18%, while 17% of the population lived below the national poverty line in 2011.

Moreover, the economy is highly vulnerable to external shocks, for example revealed by the 2008-2009 global economic crisis which pushed the economy into recession as well as by the severe adverse effects of the 2014 natural disaster on the economy (sharp growth slowdown, markedly rising twin deficits and external debt).


High external liquidity risk

Subsequent IMF financial support packages have been in place since 2009. The latest follow-up facility was agreed in September 2016, however, it went quickly off track as the authorities failed to introduce agreed reforms. The first review was eventually completed in February 2018, 14 months late, making available EUR75mn to the country. No further review was completed until the end of 2018, at a time when nine reviews should have been completed. Consequently, no further disbursement was made till then. As a result, external liquidity and debt risks remain very high, reflected in ongoing large current account deficits (over -4% of GDP) and high external debt (over 60% of GDP).

Positively, current foreign exchange reserves are adequate (USD6.6bn in November 2018), providing around seven months of import cover, supporting the currency board and limiting exchange rate and transfer and convertibility risks. The fiscal position is also adequate, with low fiscal surpluses since 2016 and moderate public debt below 40% of GDP.

Overall, however, Bosnia and Herzegovina will remain highly dependent on interna-tional transfers in the foreseeable future and is still far from attaining self-sustaining growth.



Trade structure by destination/origin

(% of total)

Exports Rank Imports
Germany 13%
14% Serbia
Italy 13%
13% Croatia
Slovenia 13%
12% Germany
Croatia 11%
10% Italy
Austria 9%
9% Slovenia

Trade structure by product

(% of total)

Exports Rank Imports
Furniture and parts thereof 10%
7% Road vehicles
Footwear 8%
7% Petroleum, petroleum products and related materials
Manufactures of metal, n.e.s. 6%
4% Textile yarn and related products
Articles of apparel & clothing accessories 6%
4% Manufactures of metal, n.e.s.
Cork and wood 5%
4% Electrical machinery, apparatus and appliances, n.e.s.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings


Euler Hermes

Economic Research Team

Manfred Stamer

Senior Economist for Emerging Europe and the Middle East 

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