Institutional weaknesses particularly at the state level, weak rule of law, poor public infrastructure quality and delays in implementing key regional connectivity projects remain the key factors undermining Bosnia & Herzegovina attractiveness for private sector development and foreign investments, the International Monetary Fund (IMF) said on February 26 after concluding its Article IV consultation with Bosnia. 

Before the start of the COVID-19 pandemic, the macroeconomic situation was stable, and the outlook was favourable, the IMF said. Bosnia was able to achieve macroeconomic stabilisation and improve internal and external imbalances. Some important structural reforms were implemented under the government programme supported by the 2016 Extended Fund Facility (EFF).

Growth in economic activity was nearing its potential, supported by rising public infrastructure investments and external demand. But economic growth was below the pace needed to speed up convergence with the European Union. The unemployment rate, while declining, remained high among youth and women, said the IMF in the statement.   

The pandemic has had severe adverse effects on the economy and the population. Following the stabilisation of daily cases last summer, daily infections have been at high levels since the onset of the second wave, and the death rate has been particularly high.

Economic activity has been severely impacted by the restrictions put into place to contain the pandemic, which led to a substantial contraction in demand. Tourism has been brought to a standstill and remittances from abroad have plummeted. 

Fiscal buffers accumulated in recent years enabled a rapid and strong fiscal response to the pandemic and its aftermath. Related measures included substantial support to the health sector, sizeable financial support to severely affected firms and increased unemployment spending. In addition, loan moratoria were introduced to ease liquidity constraints and credit guarantees have been put in place to help reduce borrowing costs and ensure continued flow of bank credit to hard-hit sectors. The authorities have made some progress in improving the business environment and enhancing the functioning of the labour market.