The International Monetary Fund (IMF) has called on Bosnia and Herzegovina (BiH) to start fiscal consolidation from next year. The recommendations include reducing the deficit, controlling public spending, better targeting of social benefits, broadening the tax base, and investing in quality public projects. The IMF says that the country has potential, but that serious reforms, political will, and stability are needed to address deep structural weaknesses and continue the process of rapprochement with the European Union (EU).
The IMF recommendations are not unachievable, believes economist Igor Gavran. “If there is political will, it is possible to meet all the recommendations. They actually call for responsible management of public finances, rational spending, and avoiding excessive borrowing,” he says.
According to official data, Republika Srpska (RS) owes 6.6 billion BAM, which makes up 37.7 percent of its GDP. The Federation of BiH (FBiH) owes slightly more – 6.8 billion – but that amount makes up a smaller 20.5 percent of GDP. The total external debt of BiH at the end of the first quarter of 2025 amounted to 8.8 billion BAM. Although the amounts in both entities are similar, there is a difference, experts warn.
“Politicians often use figures that do not reflect the real situation,” says economist Zoran Pavlovic. “The FBiH has a more active economy and a larger population. But the level of indebtedness in relation to economic activity is still too high. If we borrow without investing in new production capacities that would generate employment, contributions, and taxes, then that is not an investment, but a bill that future generations will have to pay.”
The European standard prescribes that public debt must not exceed 60 percent of GDP. BiH is below that threshold, but economists warn that domestic authorities take that limit lightly. The Central Bank of BiH (CBBiH) estimated core inflation in the first five months of 2025 at 4.18 percent, with the increase in electricity prices and the minimum wage further boosting inflation. Under conditions of growing pressures on the energy sector and possible further price increases, the key question arises: can such an economic system survive without thorough reforms?
