Bosnia & Herzegovina

Growth to remain moderate

In 2025, Bosnia-Herzegovina is expected to record moderate growth, below that of other Western Balkan countries. Private consumption, which accounts for 65% of GDP, will remain the key driver. This will be underpinned by a sharp rise in nominal wages (+13.9% in January 2025), helped by labour shortages, and the concomitant 61.5% increase in the gross minimum wage in the Federation of Bosnia-Herzegovina (63% of the population), which was designed to discourage informality. Despite the rise in food prices at the start of 2025, inflation will remain generally under control, helping to boost household purchasing power. Tourism, after already posting a record year in 2024, will have a positive impact on the population. However, a contrasted European economic environment, with US trade policy weighing on activity in Germany and Austria (but a certain robustness in Serbia and Croatia), could affect expatriate remittances, which account for 10% of GDP.

The country will continue to face very high unemployment (27.3% in January 2025), fuelled by its dependence on saturated sectors such as metallurgy and agriculture. The mass emigration of skilled workers is also exacerbating the shortage of skilled labour.

Deficits under control despite pressure from public spending and imports

Bosnia-Herzegovina's budget deficit could decrease slightly by 2025. However, it will be marked by increased spending in both entities (Federation and RS) with independent budgets. This increase concerns infrastructure, as well as social and salary reforms aimed at maintaining moderate growth. With a central bank linked to the ECB via its currency board regime and anchorage in the euro, fiscal policy is the main lever for influencing economic conditions. However, the authorities are expecting higher tax yields and plan to initiate fiscal consolidation measures, such as phasing out energy subsidies and reintroducing health contributions. Public debt, meanwhile, will remain relatively low and under control (20% of GDP). Despite European funding for infrastructure, the country's debt capacity remains relatively limited, and the domestic financial market is underdeveloped.

The current account deficit will persist, mainly due to a structurally high trade deficit. This is due to heavy dependence on imports of industrial and food goods, while the country's main exports, such as fuels, machinery and electrical equipment, and metal products, only partially offset this imbalance. On the other hand, trade in services will remain in surplus, underpinned by a dynamic tourism sector (record levels in 2024) and a booming IT industry. The direct impact of potential US tariffs on Bosnian exports is likely to remain limited (less than 2% of total exports to the US, or 0.1% of GDP), but the possible indirect effect via a slowdown in European demand could affect exports to key partners such as Germany and Italy.

At the crossroads of European integration and national disintegration

Following the Dayton Accords in 1995, Bosnia-Herzegovina was divided into two autonomous entities: the Federation of Bosnia-Herzegovina (FBiH), with a Bosnian-Croat majority, and the Republika Srpska (RS), with a Serb majority, as well as the centrally managed district of Br?ko. Power is respectively concentrated in the two autonomous entities. The central state is responsible only for foreign policy, defence and EU accession negotiations. The national elections of October 2022 saw the victory of Serbian, Croatian and Bosnian nationalist parties at both central and entity level. The Council of Ministers, acting as the central government, was elected at the end of January 2023 with the support of 23 out of 42 members of the House of Representatives, representing eight parties. It is dominated by two parties, the Serbian nationalists (SNSD) and the Croatian nationalists (HDZ BiH). A rotating three-headed presidency, representing the three ethnic groups and operating on the basis of consensus, represents the country. At present, only candidates belonging to one of the three ethnic groups can stand for election. This complex institutional framework is undermined by the SNSD's current blockade of central institutions and the separatist actions of Milorad Dodik, its leader and President of the RS. In February 2025, Dodik was sentenced to one year in prison and banned from political office for six years for defying the decisions of the International High Representative, including the annulment of texts adopted by the RS in contradiction with European principles. The development of infrastructures, such as the 5c motorway corridor and gas pipelines with Croatia and Serbia, like the Ionian Adriatic Pipeline (IAP) designed to reduce dependence on Russia, is being slowed down by internal disagreements. Despite these tensions, negotiations to join the European Union officially began in March 2025, following efforts to meet European requirements (fight against money laundering, migration management). The next general election is scheduled for October 2026, but political paralysis is likely to persist until then.

On the international stage, the country is at the heart of major geopolitical issues. The EU supports the country's integration, but makes financial aid conditional on structural reforms, while Milorad Dodik's close ties with Russia complicate these efforts. Russia tacitly supports the separatist ambitions of the Republika Srpska (RS), while criticising the role of the international High Representative overseeing the civilian application of the Dayton Accords. At the same time, in March 2025, the EU reinforced its military presence via EUFOR (to guarantee implementation of the Dayton Accords) to maintain stability in the face of rising tensions. In 2025, the year in which the country celebrates the 30th anniversary of the Dayton Accords, the country is at a crossroads: either move towards European integration or risk disintegration.

Last updated: April 2025