Bosnia and Herzegovina (BiH) is entering 2026 with a series of unresolved economic issues, and the uncertainty that marked the end of 2025 is carrying over into the months ahead. Will this year bring higher prices and fewer opportunities for a dignified life? How much will the entity governments borrow again? What will be the consequences of BiH entering unprepared for the full implementation of CBAM? Economist Igor Gavran provided answers in an interview.
Gavran warns: “If the authorities continue to act as they have so far, or rather fail to act, citizens can expect a continued rise in prices. Whether that will be 4% or 5% or possibly 3.8%, which is the latest estimate for the current year, is less important, because prices are already unbearably high for a large number of citizens, and as such it is very difficult to expect that their standard of living will not only improve, but even be maintained at the current level at all.”
The practice of indebting future generations
The entity governments have adopted Draft Budgets for this year. In Republika Srpska (RS), it amounts to 7.409 billion BAM, and in the Federation, 8.9 billion, both more than 600 million higher than last year. We asked why governments cannot operate without borrowing.
“Well, they definitely cannot. These are completely unrealistic budgets projected as if borrowing were a normal source of revenue and as if it were entirely regular business practice to simply borrow endlessly, spend that money, and pretend you have achieved some success with record budgets. One of the favorite phrases we hear almost every year is how some budget is ‘record-breaking,’ as if that were something positive. In reality, it is larger only because indebtedness keeps growing. In RS, we have been seeing this regularly for many years, and in the Federation, it has unfortunately also become practice, with this current Federation budget being particularly worrying because they are planning truly enormous new borrowing. What is especially problematic for citizens is that this money is mostly not spent on productive purposes; citizens do not live better because of it, the economy does not perform better, conditions do not improve; only indebtedness increases, and from that perspective it is difficult to find any justification for such budget projections,” Gavran said.
Secret loans of Republika Srpska
In 2027, a loan of 1.7 billion BAM will come due for repayment in RS. Gavran points out that it will most likely be repaid through new borrowing, which has long been established practice.
“It is almost difficult to recall when loan installments, especially the principal when it reaches final maturity, were repaid from other sources. New borrowing sources are usually found, and in the case of RS, this is particularly problematic because, for some time now, almost mysterious borrowings have been appearing. We had a similar situation where a former prime minister of the RS openly said they had found money with friends, but would not say who they were, which truly sounds surreal, that such a level of non-transparency is even possible. RS may therefore have debts that are not even known about. In this case, it is entirely possible that there will again be some secret or semi-secret borrowings, the money will be found, but only later will we see what the consequences will be,” he stated.
Authorities do not know how to function without borrowing
The Federation of BiH (FBiH) is not lagging behind in borrowing either. Gavran says this is the only way this entity can financially survive, given the manner of managing public finances, which he emphasizes is highly irresponsible.
“The previous borrowing on the London Stock Exchange, which was presented as a success, although it is hard to understand what was successful or positive about it, has practically disappeared. We simply had no concrete purpose for that money, no major project, no reform, nothing worth mentioning; it simply melted into the mass of budget expenditures. At the same time, we have record tax revenues, primarily from indirect taxes, and the Indirect Taxation Authority (ITA) has boasted of never-higher amounts. All of this flows into the budgets, and it is completely incomprehensible why the Government of the FBiH, that is, the authorities in the FBiH, are not able to finance the Federation’s needs from that incoming money, but instead must borrow additionally. These external borrowings are particularly risky, given that we also have practically constitutional obligations to service them first, that is, at the expense of all other expenditures. This is a kind of millstone around the neck of all future governments, which will find themselves in very serious trouble over how to repay all these debts. One almost thinks that this is being done deliberately, as a kind of trap set for future governments, so that they can then be criticized for lacking money for citizens’ needs, because the current authorities burdened them with such debts,” Gavran believes.
He believes that one of the key motives is certainly that it is an election year.
“Partly to find money to buy votes in various ways, whether through short-term populist measures or by giving money to certain categories of the population in the hope they will vote. Previously, money was allocated on the principle of, conditionally speaking, severance pay; if power is lost in elections, that money can then be redirected through illegal or semi-legal channels, so that people leave their current positions with deep pockets. Simply put, it is shameful to act this way. We see the situation now, our topic today, for example, in Sarajevo, where they are unable to clear the snow. We have been witnesses, and regularly are, that they are unable to collect garbage; basic, elementary municipal services cannot be provided to citizens at practically all levels, while at the same time they boast of huge borrowings on the London Stock Exchange and elsewhere, helicopters are purchased instead of snow-clearing machines, and the like,” Gavran was critical.
“Handing out alms to workers and pensioners”
An increase in the minimum wage in the FBiH has been announced, and pensions will be increased by 17 percent. In RS, the minimum wage is higher by 10 to 11.5 percent. We asked whether there is room for these increases.
“If these increases were happening in parallel with a reduction in the burden, that is, in contributions paid by employers and workers, then there would be room for much larger increases. That is actually a model supported by employers, workers, and economic analysts as the most normal form of fiscal reform, one that would stimulate the economy and improve citizens’ living standards. What is being done now is giving some kind of alms to workers that will mean nothing to them, while at the same time, employers are additionally burdened, and there are no further reductions in contributions or labor costs. So this is tolerable in the sense that it is not an even larger increase, but it is truly a very bad model. What makes this measure particularly difficult to understand is that, at the same time, while the government has effectively decided that workers on the minimum wage can make do with 27 BAM more per month, they have drastically increased their own salaries. With pension increases, the same principle applies; maximum pensions have again been increased the most, or are planned to be increased the most. So those currently in power are increasing their salaries today and their pensions in the future, because of course they will have those maximum pensions,” he explained.
“Power utilities know only how to raise prices, nothing else”
Electricity prices in RS will also rise from February, by six percent for businesses and 10 percent for households. Gavran said it is hard to say what the situation on bills will look like, especially as more combinations are now being introduced in the RS with increases in so-called contracted capacity. In the FBiH, there are so-called block tariffs, which also create confusion.
“All of this is partly done in order to create as much confusion as possible, so that it is not so clear how much higher the bills will be, but the fact is that they will be higher, and that these increases completely, or largely, cancel out the meager incomes of workers and pensioners, and of course the cost of living continues to rise. On the other hand, the situation in the public power utilities of both entities is very bad, and the only thing they know how to do is raise prices. There are no strategic moves that would improve the situation, and therefore, we can expect price increases to continue. Additionally, increases in prices for businesses, which often happen without any public announcements, further contribute to inflation, higher prices, and everything else,” the economic expert warned.
“It is possible that electricity prices in the FBiH will not be increased due to elections”
Commenting on claims by the authorities in the FBiH that electricity prices will not be increased this year, Gavran says this is possible solely for electoral reasons and no other, though even that is questionable.
“In the FBiH, long-term plans include demands, that is, plans to increase fees for so-called contracted capacity. Whether these will be implemented, that is, whether a request will be submitted to the regulator, is of course up to their management to decide. But in the long term, on the side of the power utility, one hears talk of some commercial electricity price, that prices must be raised for citizens, so this will certainly continue. It is possible they will wait until after the elections for political reasons,” he believes, N1 writes.
