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Bosnia Herzegovina country profile

27 August 2006
by eub2 -- last modified 23 August 2012

Bosnia and Herzegovina is a potential candidate country of the European Union.


Political profile

Official name

Bosnia and Herzegovina


4,0 - 4,5 million (estimate)


51 066.3 km²


71 inhabitants per km² (estimate)


43% urban population, 57% rural population (estimate)


Croatia (932 km border), Montenegro (215 km border) and Serbia (312 km border).

Population profile

Bosniak 44%, Serb 31 %, Croat 17%, other 8% (estimate)


Bosnian, Serbian, Croatian


Muslim 40%, Orthodox 31%, Catholic 15%, Protestant 4%, Other 10% (estimate)

Life expectancy

Average: 72 years

Political History

Following its declaration of independence in April 1992, Bosnia and Herzegovina was plunged into a three-year long war. This led to major displacements of the population and extensive physical and economic destruction.

On 21 November 1995 a peace agreement that put an end to the war was reached in Dayton (USA). The final agreement was signed in Paris on 14 December 1995. The Dayton Peace Agreement retained Bosnia and Herzegovina’s international boundaries and created two entities within the state of Bosnia and Herzegovina: the Bosniak/Croat Federation of Bosnia and Herzegovina and the Bosnian Serb-led Republika Srpska.

In accordance with the Dayton Peace Agreement, a Peace Implementation Council and an UN-mandated High Representative were established to support the peace implementation in Bosnia and Herzegovina. The High Representative, who retains executive powers, also acts as EU Special Representative. The Office of the High Representative (OHR) oversees the implementation of the civilian aspects of the Dayton Peace Agreement. In February 2007, the Peace Implementation Council (PIC) agreed to postpone the closure of the OHR to June 2008, a decision to be reviewed in 2008.

The NATO-led peacekeeping force (IFOR) with 60.000 troops was succeeded by a smaller, NATO-led Stabilisation Force (SFOR). European Union Forces (EUFOR) replaced SFOR in December 2004. In light of the improved security situation, EU Defence Ministers decided in December 2006 to restructure the EUFOR troops and downsize from 6.000 to 2.500 soldiers, at the same time keeping a robust military presence in BiH. This decision was implemented in the first half of 2007.

Regarding European Integration, negotiations on a Stabilisation and Association Agreement (SAA) were officially launched in November 2005. The technical talks for the SAA were finalised in December 2006 and the initialling of the SAA took place in Sarajevo on 4 December 2007. However, the signing of the agreement will depend on progress made by BiH in addressing a number of key political conditions such as police reform and ICTY co-operation.

Economic profile


GDP per capita

EUR 1950 - 2200 (2006 est.)

Economic growth

6.2% (2007 est.)

Inflation rate

1.0% (2007)


Convertible Mark (KM)

1 EUR = KM 1.95 (Fixed exchange rate)

Government budget balance

+0.7% of GDP (2006)

Current account balance

-11% of GDP (2006)

External public debt

23% of GDP (2006)

Foreign direct investments

EUR 340 million (approx. 2006)

Trade with EU

Exports from Bosnia and Herzegovina to EU (25): 1.3 billion EUR (2005)  70% of total exports (2006)
Exports from EU (25) to Bosnia and Herzegovina: 2.7 billion EUR (2005)  60% of total imports (200

Economic structure

Bosnia and Herzegovina is a small economy. According to the Central Bank of Bosnia and Herzegovina official GDP reached around EUR 9.2  billion in 2006, which would be approximately 85% of pre-war level. The services sector accounts for a large part of the economy, 64.9% of GDP, while industry accounts for 24.7% and agriculture for 10.4.% of GDP. Bosnia and Herzegovina is a very open economy, where the ratio of exports and imports of goods and services to GDP in 2005 equalled 87%. However, the high ratio is driven mainly by imports. The EU is the main trading partner, accounting for 69.4% of Bosnia and Herzegovina’s exports and 60.20% of its imports.

Structural reforms

Privatisation has made some progress in Republika Srpska, but remains limited in the Federation. The size of the public sector remains large. Reluctance to transfer competencies from entities to state political/administrative level persists. Coordination and efficiency problems remain, and improvement is needed at all levels. A few institutions and functions have been transferred to state level, for example a state ministry of defence and a state-level Indirect Taxation Authority (ITA) were created.

The banking sector has continued to expand significantly and total assets increased from 58% of GDP in 2003 to 80% in 2005. The banking system is one of the sectors in Bosnia and Herzegovina where the most rapid reforms and structural transformation have taken place. State ownership in this field substantially declined as a result of privatizations. Banking supervision is conducted by two separate entity banking agencies and is coordinated by the Central Bank.

Bosnia and Herzegovina has started its process of negotiation to join the World Trade Organisation (WTO). Bosnia and Herzegovina is part of the regional free trade agreement concluded in the framework of an enlarged and amended Central European Free Trade Agreement (CEFTA). Bosnia and Herzegovina benefits from autonomous trade measures introduced by the EU in September 2000 which allow more than 95% of all exports (including agricultural products) to enter the EU duty and quota free.

Macroeconomic situation

GDP growth remained robust in 2006, at 6.2 %. The economy continued to be based strongly on raw materials and related manufacturing. Rising raw material prices as well as volume increases played an important role in supporting growth. Privatisations, mainly in the Republika Srpska, also triggered some production increases in other sectors. In the Republika Srpska total industrial production rose by nearly 20% in 2006. The Federation experienced a more moderate growth rate of industrial production of 7.5%.

Inflation (Retail Price Index) reached 7.0% in 2006, compared with only 2.8 % in 2005. This increase was mostly due to the introduction of VAT. Upward inflationary pressures have thereafter decreased to 1%. Inflation rates in the two entities have been converging over the last five years, but inflation remains higher in the Republika Srpska.

According to official figures, unemployment amounted to 44.2% in 2007. However, this figure overestimates true unemployment. According to the Labour Force Survey conducted in April 2007, unemployment was estimated at 29%. Taking informal employment into account, unemployment is estimated to be closer to around 20% of working-age population, although no recent official estimate is available.

The consolidated budget balance turned from a deficit of 0.6% of GDP in 2004 to a surplus of 0.9% in 2005. This change stemmed from stronger sales and excise tax revenues and a reduction in expenditures. Nevertheless, the state and entity budgets for 2006 were expansionary and the surplus has therefore dropped to 0.7% of GDP. Despite some rebalancing of budgets in mid 2006, government expenditure is therefore set to increase from an already high level of around 50% of GDP.

The current account deficit almost halved from 19.8% of GDP in 2006, primarily due to a reduction of the trade deficit by around 11 percentage points of GDP from 53-42% of GDP.

Inflows of foreign direct investment (FDI) decreased from over 7% of GDP in 2004 to 3.7% in 2006, mainly as a result of lower privatisation-related inflows. However, in the first 7 months of 2007 FDIgrew to above 10% of  GDP, partly as a result of a privatisation of Telekom Srpska and a pick-up in green-field investments. External public debt continued to decrease and reached 23% of GDP at end of 2006. However, total external debt increased (as private sector borrowing rose) and total debt was estimated to be close to 55% of GDP.

Relation with International Financial Institutions

The International Monetary Fund (IMF) stand-by arrangement adopted in August 2002 (approx. USD 100 million) was successfully concluded in February 2004. The programme focused on policies to achieve post-reconstruction growth and further significant fiscal consolidation. A new stand-by agreement has not been concluded.

After an initial post-war strategy based on reconstruction needs, the World Bank operations’ emphasis has shifted towards helping Bosnia and Herzegovina achieve sustainable growth. In September 2004, the World Bank adopted its Country Assistance Strategy for 2005-2007, which focuses on reforms in the areas of public finance and administration, private sector development and key social and economic infrastructure. The total volume of the assistance package is USD 120 million. A new strategy is being prepared.

The European Bank for Reconstruction and Development (EBRD) is currently the largest tender in Bosnia and Herzegovina. As of 1 August 2006, the EBRD had signed 47 investments in the country, totalling EUR 554.5 million. This has helped to generate an additional EUR 770 million from other sources. A total of 30% of investments are in the private sector.

More details on the economic situation can be found in the Candidate and Pre-Accession Countries' Economies Quarterly (CCEQ) published by the European Commission.




Source: European Commission

EU relations with Bosnia and Herzegovina


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