Bosnia and Herzegovina is an upper middle-income country which has accomplished a great deal since the mid-1990s. Today, it is an EU potential candidate country and is now embarking on a new growth model amid a period of slow growth and the global financial crisis. Read More »
Bosnia and Herzegovina (BH) is an upper middle-income country which has accomplished a great deal since the mid-1990s. Today Bosnia and Herzegovina is a European Union (EU) potential candidate country moving toward alignment with the European Union’s (EU) acquis requirements. Between 1998 and 2008 BH experienced strong growth, with Gross National Product (GDP) per capita nearly quadrupling and poverty dropping from nearly 20% to around 14%.
Despite this strong economic performance, the onset of the global financial crisis in late 2008 is having an ongoing negative impact on the economy of Bosnia and Herzegovina and the country is now in the midst of a double dip recession. The economy rebounded in 2011 - growing by 1% after a deep recession in 2009 caused Gross National Product (GDP) to contract by 2.9% - before returning to recession in 2012. Inflation returned to the country in 2011, with higher international food prices contributing to a rise in food prices, while weak domestic demand is now driving the latest recession. Over the medium term, however, economic growth is projected to gradually increase from 0.5% in 2013 to 3.5% in 2015.
In response to this crisis, the country is now embarking on a new growth model which emphasizes exports amid a period of slow growth and escalating volatility in Europe. This strategy is forcing Bosnia and Herzegovina to become more competitive, which will require the country to upgrade its physical infrastructure, business environment, and human capital.
The country continues to rely heavily on Western Europe for trade and credit. Although exports have expanded in recent years, particularly base metals and electricity, the expansion of imports into the country as a result of recovering domestic demand and rising international oil and food prices have led to increases in the country’s trade deficit.
Bosnia and Herzegovina is a World Bank blend country, utilizing both the International Development Association (IDA) and the International Bank for Reconstruction and Development (IBRD), as well as the Global Environmental Fund’s resources to implement its current portfolio of 11 operations, totaling more than $420 million in 2012. Areas of support include agriculture, environment, health, social safety and employment, local infrastructure and private sector development.
With BH now set on joining the European Union (EU), supporting the EU integration processhas become the overarching theme of the World Bank’s Country Partnership Strategy (CPS), along with competitiveness, environmentally sustainable growth, and social inclusion.
The World Bank Group’s objective during the Fiscal Years (FY) 2012-15 CPS is to support BH through knowledge services and targeted financing, coordination with European financial institutions, and an expanding partnership with the EU, including EU co-financing of the Bank financed operations. This partnership is built on the three pillars of competitiveness, social inclusion and environmental sustainability.
Competitiveness: Interventions in this area include a Development Policy Operation (DPO) to support macroeconomic stability, and investments in irrigation, land registration, and regional transport, and through stimulating access to capital for small and medium enterprises. In addition, the IFC will continue to provide support through its advisory services in the areas of regulatory reform and regulatory simplification as well as investment policy work.
Social Inclusion: The existing portfolio will continue to support improvements in living standard, including improvement of targeting of social benefits, effective job-brokerage services, expanding access to primary health care through family medicine, as well as improved access to basic public services.
Environmental Sustainability: BH is vulnerable to climate change. The Bank is supporting projects to help ensure the sustainable use of natural resources, such as water and forestry, with which BH is extravagantly endowed, and to prepare for growing risk of floods and droughts.
The current portfolio in Bosnia and Herzegovina consists of 11 projects totaling more than $420 million. BH is also a member of the International Financial Corporation, which has invested more than $340 million since starting operations there in 1996. The IFC portfolio in BH is currently $98 million and focuses on supporting foreign and domestic investments in the real estate sector and infrastructure. There is particular focus on climate solutions and renewable energy, as well as financial markets.
Over the last 16 years, the World Bank Group has approved 68 projects in Bosnia and Herzegovina, totaling more than $1.7 billion. This assistance has included IDA Credits ($1.4 billion), IDA Grants ($25 million), Global Environment Facility (GEF) Grants ($18.3 million) and IBRD loans ($295 million). From 1996-2002 much of this work was geared toward post-conflict reconstruction, focusing on infrastructure, roads, energy, and school. Since that time, the partnership has expanded and focus areas now include: agriculture, environment, health, social safety and employment, local infrastructure and private sector development.
Some areas of development in Bosnia and Herzegovina include:
Agriculture: Although the share of agriculture in the economy of Bosnia and Herzegovina has decreased to less than 10% over the last decade, the sector nonetheless remains important for employment and as a socioeconomic buffer. Approximately 20% of the population in BH is employed in this sector. Its close proximity to the EU, a moderate climate, and abundant water resources give BH a comparative advantage in this sector, particularly for niche products. However, the country is not taking full advantage of this advantage and it continues to struggle with EU standards. The World Bank Group is working with BH to strengthen the agencies for veterinary services, health and phytosanitary services, and food safety in the country. The Agriculture and Rural Development Project aims to assist BH in strengthening institutions in the country in order to deliver more efficient and effective agricultural services and accelerate the country’s eligibility to access support under the EU Instrument for Pre-Accession Assistance for Rural Development (IPARD)
Environment: Bosnia and Herzegovina covers three globally significant ecosystems and several small scale globally important sites. It is estimated that BH has the highest proportion of threatened plant species of any country in Europe, but still has one of the lowest percentage of protected areas in the region. The World Bank Group has been working with BH to increase protected areas in the country and has also worked under the country’s National Environmental Action Plan to improve water management. Through the Forest and Mountain Protected Project, overall protected areas in the country have increased from 0.55 percent of the total country to about 2.6 percent. Furthermore, the Neretva and Trebisnjica Management Project has helped improve municipal wastewater treatment in the country, which has helped reduce nutrients and other pollution from municipal and industrial sources and has improved ecosystem health and biodiversity in the basin.
Health: Although the authorities of Bosnia and Herzegovina have implemented reforms to the health sector, the health system in the country remains very fragmented. Total expenditures in this sector have steadily increased and are now estimated at about 10.9 percent of GDP. The recent implementation of the family medical care model represents a major reform, with 75 percent of service users now expressing their satisfaction with this model. The World Bank Group has been working with BH to continue these reforms through the Health Sector Enhancement Project. As part of this project more than 1,100 practicing physicians and more than 1,580 nurses have completed a rigorous program to provide family medicine care. More than 600 physicians have also earned a Family Medicine Specialization. It is estimated that by the project’s completion in 2014 up to 70% of the population in BH will be covered by family medicine teams.
Private Sector Development: Bosnia and Herzegovina is hindered by one of the least friendly business environments in the region. The sector is burdened by a large and complex public administration system. Uncertainly about the Eurozone crisis also continues to negatively impact the country’s economy. As a result of these ongoing impacts, deterioration in living standards and a reversal in poverty reduction are expected in the country.
The World Bank Group is responding to this situation in the country through the implementation of several programs designed to improve private sector development in the country and increase overall employment in the country. The Enhancing Small and Medium Enterprises (SMEs) Access to Finance Project has supported more than 110 companies in accessing credit during this period of constraint. More than 4,000 jobs have been saved and 1,120 new jobs have been created by this project.
Augmenting this work is the Social Safety Nets and Employment Support Project, which is helping to improve the quality of data needed for policy-making purposes and for improving the targeting of social benefits in the country. About 6,000 disadvantaged job seekers have been assisted by the project and it is estimated that a total of 10,000 disadvantaged job seekers will be assisted during the project.