Bosnia and Herzegovina ranked 83rd in 2019 Index of Economic Freedom

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Washington-based conservative think tank The Heritage Foundation has published its annual 2019 Index of Economic Freedom, which evaluates government policies and economic conditions in as many as 186 countries. 

Bosnia and Herzegovina is ranked 83rd in the world, with the overall score of 61.9, which is .5 more than 12 months ago.

According to the 2019 Index of Economic Freedom, certain improvements in labor freedom and government spending in Bosnia and Herzegovina have outpaced declines in scores for judicial effectiveness and trade freedom.

Bosnia and Herzegovina is ranked 37th among 44 countries in Europe, with its overall score below the regional average - but slightly above the world average. The only seven European countries ranked below Bosnia and Herzegovina are Croatia (86th overall), Montenegro (93rd), Moldova (97th), Russia (98th), Belarus (104th), Greece (106th), and Ukraine (147th).

Authors of the report noted that “Bosnia and Herzegovina’s economy had been driven by postwar reconstruction”. “Trade is an engine of growth, but the overall entrepreneurial environment remains one of the region’s most burdensome, hindering the emergence of a dynamic private sector. The highly decentralized government hampers policy coordination and reform, while excessive bureaucracy, weak rule of law, and market segmentation discourage foreign investment. Public perceptions of government corruption and misuse of taxpayer money motivate many to remain in the large informal economy”, reads the report.

The 2019 Index of Economic Freedom analyzes the situation in the country in four separate categories: rule of law, government size, regulatory efficiency and open markets.

When it comes to the rule of law, the report reads that “property registries are largely unreliable, making land transactions vulnerable to dispute and creating a major barrier to the development of real property and mortgage markets”. Furthermore, according to report, “the judiciary remains susceptible to political influence and burdened by a large case backlog, while inefficiency, incompetence, and corruption are pervasive”.

The 2019 Index of Economic Freedom noted that the top income and corporate tax rate is 10 percent, but various governing entities have different tax policies. “The overall tax burden equals 37 percent of total domestic income. Over the past three years, government spending has amounted to 42.4 percent of the country’s Gross Domestic Product, and budget surpluses have averaged 0.7 percent of GDP. Public debt is equivalent to 41.0 percent of GDP”, reads the report.

Regulatory inefficiency, according to authors, “still impairs the business environment and limits the private investment needed for faster economic growth”. “Obtaining business licenses and launching a business remain subject to bureaucratic delays. The newly adopted labor code is intended to enhance labor market flexibility. The government subsidizes energy and maintains a regime of poorly targeted agricultural subsidies”, they explained.

Furthermore, the report reads that the combined value of exports and imports is equal to 86.9 percent of the country’s GDP. “The average applied tariff rate is 1.2 percent. The government’s official policy is to treat foreign and domestic investors equally under the law. Foreign-owned banks account for over 80 percent of banking assets, while about 63 percent of adult Bosnians and Herzegovinians have an account with a formal banking institution”, concludes the report.