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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
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