Bosnia and Herzegovina

Bosnia & Herzegovina's transformation, success and remaining challenges

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July 10, 2005 -- Ten years ago, Bosnia and Herzegovina, a small mountainous country in South East Europe, was on its knees.
After three years of war and misery, half the country's population was displaced as refugees, two-thirds of the homes were destroyed, and half the population was left without access to clean water. Today, schools, roads, health clinics and houses have been rehabilitated. The country's GDP has tripled, merchandise exports are up tenfold and prices are stable with the inflation under 1%.

Last year the World Bank reclassified the country from a post-conflict to a transition country.

Challenges Ahead

Although stability has been restored and infrastructure rebuilt, there's a lot still to do: putting the country on the path to a market economy, fostering regional cooperation, moving toward European integration and opening up to global markets.

The economy has yet to reach its prewar level. The private sector is relatively weak and government spending eats up some 50% of GDP.

The business environment is improving, but it's not as investor friendly as it should be to attract the foreign direct investment necessary to boost economic growth.

The economy needs to grow by at least 7% per year to make a dent in high unemployment and poverty levels.

While poverty and unemployment rates have been steadily decreasing over the last 10 years, they are still high. Some 18% of the people are poor, while another 30% are highly susceptible to income shocks that could push them into poverty. About 20% of the population is jobless; youth unemployment is particularly high.

Bosnia and Herzegovina needs to accelerate its reforms if it is to catch up and compete with other transition economies in the Balkans which are also striving for deeper European integration. Because of the war, the country has lost a decade.

Necessary reforms include speeding up business registration, improving the inspection system, implementing bankruptcy laws, and continuing with the corporate restructuring. On a positive note, the banking sector has been successfully privatized and is now seen as one of the strongest in South East Europe.

Also, economic integration between the Republika Srpska and the Federation of Bosnia and Herzegovina, the two entities that make up the country, needs to improve further if the country is to realize its goal of closer association with the European Union.

The country must also strengthen its public institutions, improve governance and curb corruption. The government has successfully started reforming the social sector, but it needs to establish better social safety nets that target the poor and improve delivery of social services. Other areas of improvement include improving the education and health systems, all in all a formidable agenda.

The World Bank in Bosnia and Herzegovina

The World Bank's engagement with Bosnia and Herzegovina has reflected the country's changing needs. It has moved from delivering post-conflict assistance to crafting a mid- and long-term growth strategy. The Bank now aims to help the country attain self-sustaining economic growth and a sustainable public sector through structural reforms and key investments.

The Bank's current strategy focuses on:

- Improving public finance and strengthening institutions

- Promoting sustainable private sector-led growth

- Investing in key social and economic infrastructure

Since 1996, the Bank has committed a total of US$1.1 billion through 53 projects. IFC, MIGA and the World Bank Institute have supported the country with substantial resources in the past and continue to be an integral element in current and future support to Bosnia and Herzegovina.