BOSNIA AND HERZEGOVINA Economic Freedom Score 25 Least free 0 World Rank: 97 Regional Rank: B BACKGROUND: The 1995 Dayton Agreement ended three years of war in the former Yugoslavia and finalized Bosnia and Herzegovina’s independence. Two separate entities exist under a loose central government: the Republika Srpska (Serbian) and Federation of Bosnia and Herzegovina (Muslim/Croat). The European Union signed a Stabilization and Association Agreement with Bosnia and Herzegovina in 2008. Bosnia also received a NATO Membership Action Plan in 2010 and is one of four official candidates for NATO membership. The country is one of Europe’s poorest. There has been some privatization, but agriculture and industry require modernization. Corruption is widespread, and a weak central government makes implementation of economic reforms difficult. Violent unrest and protests in February 2014 were fueled in part by rampant youth unemployment. How Do We Measure Economic Freedom? See page 475 for an explanation of the methodology or visit the Index Web site at heritage.org/index. 100 free 59.0 Freedom Trend osnia and Herzegovina’s economic freedom score is 59.0, making its economy the 97th freest in the 2015 Index. Its overall score has increased by 0.6 point, with improvements in freedom from corruption, monetary freedom, and labor freedom partially offset by declines in investment freedom and business freedom. Bosnia and Herzegovina is ranked 38th out of 43 countries in the Europe region, and its score is below the global and regional averages. Despite a decade of concerted effort to improve economic prospects through broad, gradual institutional improvements, however, Bosnia and Herzegovina’s economy remains in the “mostly unfree” category, and deeper structural and institutional reforms are needed. In particular, fully eradicating corruption, guaranteeing the independence of the judiciary, and consistently enforcing property rights are vital to propelling the country to higher levels of economic freedom and prosperity. 75 Most 38 Over the past five years, Bosnia and Herzegovina’s economic freedom has advanced by 1.5 points, registering its highest score ever in the 2015 Index. Reforms have led to improvements in half of the 10 factors, including government spending and labor, monetary, and trade freedoms, with an especially notable 12-point gain in freedom from corruption. 50 60 59 58 57 56 2011 2012 2013 2014 2015 Country Comparisons Country 59.0 World Average 60.4 Regional Average 67.0 Free Economies 84.6 0 20 40 60 80 100 Quick Facts Population: 3.9 million GDP (PPP): $32.1 billion 1.2% growth in 2013 5-year compound annual growth –0.2% $8,280 per capita Unemployment: 28.6% Inflation (CPI): –0.1% FDI Inflow: $331.7 million Public Debt: 42.7% of GDP 2013 data unless otherwise noted. Data compiled as of September 2014. 133 BOSNIA AND HERZEGOVINA (continued) THE TEN ECONOMIC FREEDOMS Score RULE OF LAW Country World Average Property Rights 20.0 Freedom from Corruption 42.0 0 20 40 60 80 Rank 1–Year Change 138th 72nd 0 +8.1 100 Public procurement is a principal source of corruption and fraud in Bosnia and Herzegovina. According to a 2014 estimate, around 60 percent of institutions ignore the procurement law, and about 25 percent of contracts are processed through public tenders. The complex system of government lends itself to deadlock and prevents reform. Property registries are largely unreliable, leaving transfers open to dispute. Fiscal Freedom 82.9 GOVERNMENT Government Spending 27.3 SIZE 61st 164th 0 20 40 60 80 0 –0.1 100 Tax policies in Bosnia and Herzegovina vary depending on the governing entity. The top individual and corporate income tax rates are 10 percent. Other taxes include a value-added tax and a property tax. The overall tax burden reached 38.8 percent of GDP in the most recent year. Public expenditures amount to 49.2 percent of domestic output, and public debt is equal to 43 percent of the domestic economy. REGULATORY EFFICIENCY Business Freedom 53.5 Labor Freedom 63.4 Monetary Freedom 84.0 140th 88th 10th 0 20 40 60 80 –2.0 +1.0 +3.9 100 Starting a company still takes more than a month, and licensing requirements remain burdensome. Labor regulations’ complex administrative structure has inspired a dual labor market. The unemployment rate, particularly among the young, is one of the highest in the region. Energy-related subsidies amount to nearly 10 percent of GDP. The government also subsidizes agricultural production and controls some prices. OPEN MARKETS Trade Freedom 87.2 Investment Freedom 70.0 Financial Freedom 60.0 38th 47th 39th 0 20 40 60 80 +0.3 –5.0 0 100 Bosnia and Herzegovina’s 1.4 percent average tariff is relatively low. Non-tariff barriers have been reduced, and customs procedures have improved. Foreign investors face bureaucratic hurdles. About 80 percent of banking capital is privately owned, and around 90 percent of banks are foreign-owned. Difficulties in contract enforcement and an insecure regulatory environment limit the availability of credit for start-up businesses. Long-Term Score Change (since 1998) RULE OF LAW Property Rights Freedom from Corruption 134 +10.0 +32.0 GOVERNMENT SIZE Fiscal Freedom Government Spending +4.1 +10.6 REGULATORY EFFICIENCY OPEN MARKETS Business Freedom +13.5 Labor Freedom +8.6 Monetary Freedom +84.0 Trade Freedom +17.8 Investment Freedom +40.0 Financial Freedom +50.0 2015 Index of Economic Freedom