- Growth is projected to slow to 2 percent in 2026 and inflation to rise to 5.4 percent. Risks are tilted to the downside, including weaker growth in Europe, high energy prices, political tensions, and declining competitiveness. Faster progress on EU accession reforms could significantly boost growth.
- A credible fiscal consolidation is urgently needed to put debt on a sustainable path, rebuild buffers, and improve spending quality. Avoiding further discretionary measures in 2026 will be key to limiting additional deficit widening.
- Financial stability requires vigilance and reforms. Safeguarding the currency board, closely monitoring risks from rapid credit growth and evolving financial conditions, strengthening crisis preparedness, advancing macroprudential tools, modernizing payment systems, and addressing AML/CFT gaps remain priorities.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2026 Article IV Consultation [1] for Bosnia and Herzegovina on a lapse-of-time basis. [2] The authorities have consented to the publication of the Staff Report prepared for this consultation.
Growth remains weak amid global and domestic headwinds. It is projected at 2 percent in 2026, after slowing to 2.1 percent in 2025, as the Middle East conflict-through higher energy costs and weaker external demand-offset strong consumption and fiscal support. Over the medium term, growth is expected to recover toward 3 percent but, without decisive reforms, will remain insufficient for meaningful EU income convergence. Driven by higher fuel prices and expansionary fiscal policy, inflation is projected to rise to 5.4 percent in 2026 from 4 percent in 2025. The current account deficit is expected to widen to 4.9 percent of GDP in 2026 (from 3.2 percent in 2025), reflecting higher energy imports and weak export growth.
The outlook is subject to elevated uncertainty and downside risks. Weaker growth in key trading partners, high energy prices, tighter global financial conditions and renewed domestic political tensions could dampen trade, investment, and remittances, leading to slower growth and wider external imbalances. Continued increases in unit labor costs risk eroding competitiveness, while climate-related shocks and the impact on exports from the EU's Carbon Border Adjustment Mechanism (CBAM) pose additional headwinds. On the upside, faster progress on EU-related reforms could strengthen confidence and support higher investment. Effective implementation could raise GDP growth between 0.5-1.0 percentage point over the longer term.
Executive Board Assessment
In concluding the 2026 Article IV consultation with Bosnia and Herzegovina, Executive Directors endorsed staff's appraisal as follows:
Growth remains modest and insufficient for rapid income convergence with the EU; risks are elevated. Growth is projected at 2 percent in 2026, before recovering gradually to around 3 percent over the medium term-well below the pace needed to narrow income gaps with the EU. Inflation has picked up, driven by higher energy prices. Risks are tilted to the downside, including weaker external demand, higher energy prices, tighter global financial conditions, and domestic political uncertainty. On the upside, stronger reform momentum-particularly under the EUGP-could boost confidence, investment, and growth.
A credible fiscal consolidation should begin not later than 2027 to ensure sustainability and support growth. Since 2022, expansionary policies-driven by large increases in untargeted social benefits and public wages-have raised public debt, weakened spending composition, and heightened risks. With limited scope before elections, further expansion in 2026 should be strictly avoided, with savings where possible. From 2027, consolidation should reduce deficits, lower financing needs, rebuild buffers, and create space for priority spending, especially public investment. Adjustment should be expenditure-based-rationalizing the wage bill and social benefits- complemented by growth-friendly revenue measures to broaden the tax base, strengthen progressivity, and improve administration. Aligning deficits with fiscal rules, updating fiscal frameworks in line with IMF TA, strengthening fiscal risk management and disclosure, and improving government finance statistics and transparency will help anchor adjustment and rebuild credibility.
Preserving the CBA and strengthening the CBBH policy toolkit are essential for macroeconomic stability. Maintaining strong reserves and safeguarding the institutional independence of the CBBH remain essential. Following up on the recommendations from the CBT Code review will support policy credibility and public trust. Within the CBA, refining the reserve requirements framework would enhance its effectiveness as the main monetary policy instrument. The gap between reserve remuneration and euro area rates should be reduced. Further improvements-better alignment with liability currency composition and introducing a tiered rate structure-would further enhance effectiveness.
The banking sector is sound, but vigilance and crisis preparedness are needed amid strong credit growth and rising risks, along with faster reform progress. Banks are well capitalized, liquid, and profitable, but rapid expansion in unsecured consumer lending and rising real estate prices warrant close monitoring. Temporary ad hoc measures should be replaced with a market-based macroprudential framework. Crisis preparedness should be strengthened, including by establishing a national-level Financial Stability Fund, enhancing coordination and crisis management arrangements, and continuing stress testing and recovery planning. The macroprudential toolkit should be further developed by operationalizing borrower-based measures, introducing targeted limits if risks persist, and considering a positive neutral CCyB to offset regulatory easing and maintain consistent capital buffers across entities. Clear communication on the resilience of the banking sector and its strong compliance record will be key to mitigating potential impacts of grey-listing. Advancing a joint FSAP would help identify remaining gaps and support reform momentum.
Energy sector reforms are needed urgently to improve viability, safeguard competitiveness-including given EU CBAM-and accelerate decarbonization. Advancing tariff reform, accompanied by measures to protect vulnerable households, is key to ensuring financial sustainability as continued reliance on cross subsidization through export revenues will be strained. Accelerating diversification from coal and introducing carbon pricing-potentially through transitional instruments (carbon tax) pending establishment of an ETS-would help internalize emissions costs, retain revenues domestically, and support energy transition. Advancing electricity market regional integration would deepen competition, strengthen price signals, and facilitate cross-border trade.
Structural reforms are essential to raise sustainable growth. Strengthening anti-corruption frameworks, judicial integrity, and public procurement is essential to reduce risks and strengthen investor confidence. Labor market reforms should focus on increasing participation, reducing informality, and addressing skills mismatches, while containing wage pressures to preserve competitiveness. Timely implementation of the FATF action plan-centered on strengthening the AML/CFT legal and regulatory framework and enhancing inter-agency coordination across entities-is essential for BiH's removal from the FATF grey list. Effective implementation of reforms under the EUGP and EU accession provide a tangible opportunity to improve the business environment and raise potential growth and living standards. Notwithstanding political fragmentation and differences, this opportunity should not be missed.
Table 1. Bosnia and Herzegovina: Selected Economic Indicators, 2022-2031 |
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| 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | |
| Prel. | Projections |
|||||||||
| Nominal GDP (KM billion) | 45.6 | 49.9 | 53.8 | 56.6 | 61.0 | 65.1 | 69.0 | 73.0 | 77.3 | 81.7 |
| Gross national saving (percent of GDP) | 23.0 | 23.8 | 23.2 | 24.1 | 23.3 | 23.5 | 23.6 | 23.8 | 23.7 | 23.7 |
| Gross investment (percent of GDP) | 27.3 | 26.0 | 26.7 | 27.3 | 28.1 | 28.1 | 28.1 | 28.1 | 28.0 | 27.9 |
(Percent change) |
||||||||||
| Real GDP | 4.2 | 2.0 | 3.2 | 2.1 | 2.0 | 2.7 | 3.0 | 3.0 | 3.0 | 3.0 |
| GDP deflator | 11.8 | 7.3 | 4.3 | 3.0 | 5.8 | 3.9 | 2.9 | 2.8 | 2.7 | 2.6 |
| CPI (period average) | 14.0 | 6.1 | 1.7 | 4.0 | 5.4 | 3.1 | 2.0 | 2.0 | 2.0 | 2.0 |
| Money and credit | ||||||||||
| Base money | 3.3 | -1.7 | 5.2 | 3.0 | -- | -- | -- | -- | -- | -- |
| Broad money | 5.5 | 7.7 | 9.3 | 9.7 | -- | -- | -- | -- | -- | -- |
| Credit to the private sector | 4.9 | 7.4 | 9.3 | 10.6 | 10.2 | -- | -- | -- | -- | -- |
(Percent of GDP) |
||||||||||
| Operations of the general government | ||||||||||
| Revenue, of which: | 39.5 | 40.2 | 41.3 | 42.8 | 42.5 | 42.7 | 42.7 | 42.8 | 42.8 | 42.9 |
| Taxes | 21.8 | 21.9 | 22.8 | 23.3 | 23.3 | 23.3 | 23.4 | 23.5 | 23.5 | 23.6 |
| Social security contributions | 14.2 | 14.8 | 15.2 | 16.0 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 | 15.9 |
| Expenditure | 39.2 | 41.8 | 43.2 | 45.4 | 46.6 | 47.0 | 47.2 | 47.3 | 47.3 | 47.4 |
| of which: Investment expenditure | 3.8 | 4.2 | 4.4 | 4.5 | 5.1 | 5.2 | 5.2 | 5.2 | 5.2 | 5.3 |
| Fiscal balance | 0.3 | -1.6 | -1.9 | -2.5 | -4.0 | -4.3 | -4.5 | -4.5 | -4.5 | -4.5 |
| Primary fiscal balance | 0.9 | -0.7 | -0.9 | -1.6 | -3.2 | -3.1 | -3.1 | -3.0 | -2.8 | -2.7 |
| Total general government debt | 31.3 | 29.1 | 28.9 | 29.4 | 32.0 | 33.8 | 36.0 | 38.3 | 40.5 | 42.7 |
| Domestic general government debt 1/2/ | 8.3 | 9.3 | 10.1 | 10.9 | 12.4 | 14.4 | 16.4 | 18.8 | 21.1 | 23.5 |
| External general government debt | 23.0 | 19.7 | 18.8 | 18.6 | 19.6 | 19.4 | 19.5 | 19.5 | 19.4 | 19.2 |
(Percent of GDP) |
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| Balance of payments | ||||||||||
| Exports of goods and services | 48.3 | 43.9 | 40.7 | 41.0 | 40.3 | 39.4 | 38.6 | 38.1 | 37.6 | 37.1 |
| Imports of goods and services | 61.9 | 55.7 | 54.1 | 54.1 | 55.1 | 53.5 | 52.4 | 51.6 | 50.9 | 50.2 |
| Trade balance | -13.6 | -11.8 | -13.4 | -13.1 | -14.7 | -14.1 | -13.7 | -13.5 | -13.3 | -13.1 |
| Current transfers, net | 10.5 | 10.1 | 10.1 | 9.9 | 9.9 | 9.7 | 9.6 | 9.7 | 9.7 | 9.6 |
| Current account balance | -4.4 | -2.1 | -3.5 | -3.2 | -4.9 | -4.7 | -4.5 | -4.4 | -4.3 | -4.3 |
| Foreign direct investment (+=inflow) | 3.4 | 3.7 | 3.0 | 1.6 | 2.6 | 2.5 | 2.5 | 2.5 | 2.5 | 2.6 |
| Gross official reserves (Euro million) | 8,276 | 8,443 | 8,992 | 9,314 | 9,777 | 9,957 | 10,276 | 10,825 | 11,342 | 11,828 |
| (In months of imports) | 7.0 | 6.8 | 6.9 | 6.5 | 6.6 | 6.5 | 6.4 | 6.5 | 6.6 | 6.6 |
| (In percent of monetary base) | 107.8 | 111.3 | 114.5 | 114.8 | -- | -- | -- | -- | -- | -- |
| (In percent of IMF ARA metric) | 115.4 | 113.8 | 113.6 | 111.0 | -- | -- | -- | -- | -- | -- |
| External debt 3/ | 52.2 | 48.1 | 45.7 | 48.6 | 46.9 | 46.8 | 47.1 | 47.8 | 48.3 | 48.6 |
| Memorandum Items: | ||||||||||
| Unemployment rate (national definition) | 15.4 | 13.2 | 12.7 | 12.2 | -- | -- | -- | -- | -- | -- |
| GDP per capita (Euros) | 6,716 | 7,368 | 7,954 | 8,393 | 9,078 | 9,718 | 10,328 | 10,968 | 11,639 | 12,340 |
| Output gap (in percent of potential GDP) | 1.6 | 0.8 | 1.2 | 0.5 | -0.3 | -0.4 | -0.3 | -0.1 | 0.0 | 0.0 |
| REER (index 2016=100) | 102.4 | 103.6 | 103.0 | 105.2 | -- | -- | -- | -- | -- | -- |
| NEER (index 2016=100) | 117.4 | 120.4 | 122.4 | 124.6 | -- | -- | -- | -- | -- | -- |
| Sources: BiH authorities; and IMF staff estimates and projections. | ||||||||||
| 1/ On average, half of the domestic debt stock is indexed to the Euro. | ||||||||||
| 2/ The stock of general government domestic debt does not include domestic arrears and those of public enterprises. | ||||||||||
| 3/ Includes inter-company loans in private external debt. | ||||||||||
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
