SARAJEVO (Bosnia and Herzegovina), February 2 (SeeNews) – Bosnia and Herzegovina moved up only one spot to 91st position on the 2018 global economic freedom chart with improvements in government spending, fiscal health, and judicial effectiveness outweighing declines in government integrity and property rights, U.S.-based think-tank the Heritage Foundation said on Friday.
Bosnia and Herzegovina is ranked 38th among 44 countries in the Europe region, and its overall score is below the regional average but slightly above the world average, according to the 2018 Index of Economic Freedom report published by The Heritage Foundation.
Bosnia and Herzegovina’s economy has been driven by postwar reconstruction, the foundation judged. 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, and excessive bureaucracy, weak rule of law, and market segmentation discourage foreign investment", the think-tank said, adding that government corruption and misuse of taxpayer money give life to the informal economy.
The Heritage Foundation's index measures economic freedom in several categories - from property rights to entrepreneurship - in 186 countries worldwide through 12 quantitative and qualitative factors, grouped into four broad categories: Rule of law, Government size, Regulatory efficiency and Open markets.
Overall, Bosnia received a score of 61.4, up 1.2 points compared to its score in the 2017 edition of the index.
In terms of the rule of law, The Heritage Foundation found that the registration of property titles is a significant barrier to the development of a real property and mortgage market.
The complexity of government itself leads to deadlock and has bred a large informal economy, while the judiciary is influenced by nationalist political parties.
"Inefficiency, incompetence, and corruption are widespread at all levels of government", the foundation noted.
The overall tax burden equals 38.1% of total domestic income, flat from a year earlier, while government spending has grown to 44.1% of total output (GDP) over the past three years. Budget deficits have averaged 1.0% of GDP, while public debt is equivalent to 44.4% of GDP.
In terms of regulatory efficiency, entrepreneurs face significant obstacles, exacerbated by complex legal and regulatory frameworks and government structures and nontransparent business procedures.
High tax rates on labor discourage the hiring of new workers and increase incentives for unregistered employment, while labor legislation makes it hard to dismiss unneeded workers.
The Heritage Foundation judged that trade freedom has grown in Bosnia, with government openness to foreign investment above average.
The banking sector remains well capitalized, but the level of nonperforming loans has risen, The Heritage Foundation noted, adding that foreign-owned banks account for over 80% of total banking assets.