Bosnia and Herzegovina’s Banking Sector Struggles Amid Global Economic Headwinds

Sarajevo, Bosnia and Herzegovina - The War in Ukraine Takes a Toll on the Region’s Economy

The ongoing war in Ukraine has had far-reaching consequences for the global economy, including the Western Balkans. According to the latest Western Balkans Regular Economic Report, Bosnia and Herzegovina’s economic performance is feeling the pinch of higher energy prices.

Regional Economic Challenges

• Growth momentum slowing: Despite better-than-expected growth earlier this year, the region is now facing significant headwinds due to rising energy and food prices.
• Employment levels cooling: High inflation and increased uncertainty are taking a toll on employment levels, which had reached historical highs in several countries by mid-2022.
• Fiscal spending pressures mounting: The price of energy and food shocks is eroding purchasing power and business confidence.

Implications for Bosnia and Herzegovina

The combination of external shocks impacting the region’s outlook may also impact Bosnia and Herzegovina’s medium-term prospects. Tightening financing conditions, a tight connection with the region, and expected slowdown in both domestic and external demand will all contribute to a challenging outlook.

Key Recommendations

• Increase market competition: Necessary reforms should focus on increasing market competition, removing entry barriers to business, and improving quality of education.
• Accelerate the green transition: Accelerating the transition away from volatile hydrocarbons toward cleaner electricity generation is critical for the region’s economic resilience.

Conclusion

As the global economy continues to navigate uncertainty, Bosnia and Herzegovina must prioritize economic stability and reform to mitigate the impacts of external shocks on its economy. By taking necessary measures, such as increasing market competition and accelerating the green transition, the country can ensure a more stable and resilient future for all.