Macroeconomic and fiscal indicators of Bosnia and Herzegovina, 2023

The economy of Bosnia and Herzegovina[1] expanded by 1.7% real year-on-year in the fourth quarter of 2023, slowing from a 1.9% annual growth in the third quarter (see Tab. 4). In seasonally adjusted terms, fourth-quarter GDP rose 1.1% quarter-on-quarter, following a 1.2% increase in the third quarter in the previous three months.

According to the statistics office, growth was recorded in half of all categories, including household final consumption expenditure (up 2% year-on-year), general government consumption expenditure (up 1.4% year-on-year) and final consumption (1.9% increase per year).

Exports of goods and services fell by 4.3% per year and imports of goods and services fell by 5.4% per year. The formation of gross fixed capital also decreased, by 4.4% per year.

Inflation has slowed significantly from 14.1% in 2022 to 6.1% in 2023 in annual terms.

Intensification of regional conflicts, a sudden slowdown in Europe or increased volatility of commodity prices could disrupt trade and increase food and energy prices, reduce BiH’s exports and remittances, and reduce domestic demand. Rising domestic political tensions could increase BiH’s economic fragmentation and weaken growth prospects.

Public and minimum wage increases to cushion the impact of the cost-of-living crisis have supported domestic demand, but risk fueling inflation. Keeping interest rates low has led banks to place excess liquidity abroad, mainly in overnight deposits, while lending rates may not adequately reflect credit risk. Maintaining expansionary fiscal policies could undermine fiscal and external sustainability, where financing needs have increased and are challenging to meet. A positive decision by the EU to start accession talks could provide a boost to reforms, with positive consequences.

A review of public employment and wages is needed to identify layoffs and reduce the wage bill. Annual pension increases pose a risk in both entities given the unfavorable demographics.

Pension eligibility and indexation should be reviewed to align with best practice and pension increases should be limited to legal ones. Adjustments to social benefits should be decoupled from wage increases.

[1] https://wiiw.ac.at/bosnia-and-herzegovina-overview-ce-2.html