Economy of Bosnia and Herzegovina

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This page discusses the Economy of Bosnia and Herzegovina since Bosnia and Herzegovina's declaration of sovereignty in October 1991 and the declaration of independence from the former Yugoslavia on 3 March 1992.

Contents

Overview

Bosnia and Herzegovina faces the dual problem of rebuilding a war-torn country and introducing market reforms to its formerly centrally-planned economy. One legacy of the previous era is a greatly overstaffed military industry; under former leader Josip Broz Tito, military industries were promoted in the republic, resulting in the development of a large share of Yugoslavia's defense plants but fewer commercially viable firms. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. Industry remains greatly overstaffed, a holdover from the socialist economic structure of Yugoslavia. Yugoslav President Josip Broz Tito had pushed the development of military industries in the republic with the result that Bosnia and Herzegovina was saddled with a host of industrial firms with little commercial potential.

The war in Bosnia and Herzegovina caused production to plummet by 80% from 1992 to 1995 and unemployment to soar. With an uneasy peace in place, output recovered in 1996-99 at high percentage rates from a low base; but output growth slowed in 2000-02. Part of the lag in output was made up in 2003-05. National-level statistics are limited and do not capture the large share of black market activity.

The konvertibilna marka (convertible mark or BAM)- the national currency introduced in 1998 - is pegged to the euro, and confidence in the currency and the banking sector has increased. Implementation of privatization, however, has been slow, and local entities only reluctantly support national-level institutions. Banking reform accelerated in 2001 as all the Communist-era payments bureaus were shut down; foreign banks, primarily from Western Europe, now control most of the banking sector. A sizable current account deficit and high unemployment rate remain the two most serious economic problems. The country receives substantial amounts of reconstruction assistance and humanitarian aid from the international community but will have to prepare for an era of declining assistance.

Macro-economic trend

The centrally planned economy has resulted in some legacies in the economy. Industry is greatly overstaffed, reflecting the rigidity of the planned economy. Under Josip Broz Tito, military industries were pushed in the republic; Bosnia hosted a large share of Yugoslavia's defense plants for military reasons - Bosnia was in the center of former Yugoslavia.

Three years of War (1992–1995) destroyed the economy and infrastructure in Bosnia, causing unemployment to soar, as well as causing the death of about 100,000 people and displacing half of the population. Mean wages were $4.36 per manhour in 2009.

Bosnia has been facing a dual challenge: not only must the nation recover from the war, but it also has to finish the transition from socialism to capitalism.

With an uneasy peace in place, output recovered in 1996-98 at high percentage rates on a low base; but output growth slowed appreciably in 1999, and GDP remains far below the 1990 level.

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