The process of debt management involves the adoption and implementation of a strategy that aims at collecting the missing funds as well as a plan for the orderly settlement of prior commitments.

Overall objectives of public debt management are:

  • Meeting the financial needs of the country, including the settling of outstanding commitments
  • Achieving the lowest cost of borrowing in the medium and long term while achieving an acceptable level of risk
  • Development of the usage of the domestic capital market

In Bosnia and Herzegovina due to the complexity of the constitutional solutions there are more legislative and institutional frameworks for debt management at all levels of government. The problem in this kind of constitutional arrangement is that each level of government has its separate strategy.

According to the law on borrowing, debt and guarantees of Bosnia and Herzegovina (BiH Official Gazette 52/05 and 103/09) authorizes entities and District (Federation of Bosnia and Herzegovina, the Republic of Srpska and the District of Brcko) to enter into contracts on borrowing with foreign creditors on the basis of direct debt with the prior approval of the Parliamentary Assembly of Bosnia and Herzegovina (Article 49), in accordance with the terms of the Constitution of BiH. Contracting procedures of new foreign government loans are contained in Article 39 (the responsible BiH), a procedure of repayment of external sovereign debt in Article 50th of the named Law.

In the Federation of Bosnia and Herzegovina law on debt in the Federation defines and limits on borrowing for the total public debt of FBiH, which is consolidated at the level of FMF according to the federal law on debt (Article 7): “The Federation can get indebted in a long term if at the time of borrowing the amount of servicing long, complete internal and external debt and guarantees that are maturing each year, including the servicing of the proposed new borrowing and all loans for which the Federation has issued a guarantee, with limits of the amount of debt of Cantons listed in paragraph 2 of this Article does not exceed 18 percent of consolidated revenues of the Federation and Cantons obtained in the previous fiscal year.”

In the Republic of Srpska according to the Law on borrowing, debt and guarantees of the Republic of Srpska, the total debt of the Republic of Srpska under the Article 15.:

  • At the end of the fiscal year shall not exceed 60% of the gross domestic product (hereinafter GDP) in that year.
  • Public debt of the Republic of Srpska at the end of the fiscal year shall not exceed 55% of the realized GDP in that year.
  • Short-term debt of the Republic of Srpska shall not be higher than 8% of the amount of regular income realized in the previous fiscal year.

According to data published by the Central Bank of Bosnia and Herzegovina, the total public debt in 2015 amounted to 11.928 billion and increased by 527.7 million or 4.62% compared to 2014. If we look at the context of the framework debt development in line with the Maastricht criteria, the total public debt is still at an acceptable level, which in 2015 amounted to 42.3% of GDP. These numbers show that BiH is moderately indebted country. But the reality in BiH is different especially the economic situation as well as the state of public finances is taken into account.

Graph 1: Fiscal balance and public debt in BiH (in % of GDP)

Public debt in BiH 2015  


Type of liability          
Old foreign currency savings 199,5 318,67 4,81 522,98
War claims 195,9 457 0 652,9
General liabilities 12,16 156,69 0 168,85
Long-term bonds 521 578,2 0 1099,2
Debt on T-bills 100 86,75 0 186,75
Credit liabilities 234,97 655,67 4,64 895,28
Activated warranty 0 4,66 0 4,66
1263,53 2257,64
Foreign debt 5308,93 3015,77 21,02 55,7 8401,42
Total 6572,46 5268,75 30,47 55,7 11871,68

It is a well-known fact that BiH is indebted at foreign creditors on terms more favorable than in the country. The main reason lies in the fact that BiH is not able to borrow directly on the capital markets and from the private sector, but from the international financial institutions as well as from development funds of developed countries governments. The sole purpose of these funds is mainly focused on the development and structural projects and these sources inherently have a lower interest rate compared to the market rate.

Due to the absence of the arrangement with the IMF or loan funds that are mainly aimed to budget support, 2015 was marked by an increase in domestic borrowing in order to maintain fiscal stability. In this way, the Republic of Srpska is already closer to the legally allowed limit.

The total debt of the general government sector with commercial banks at the end of 2015 amounted to 1,028 billion and compared the previous year, it decreased by 8.9 million or 0.79%. This reduction is primarily due to the fact that the government turned to the issuance of securities as a primary source of financing in the domestic market.

At the end of 2015, the outstanding liabilities of general sector of the Government on the issue of securities amounted to 2.1 billion KM, and it is higher compared to the previous year by 244.6 million or 13.7%. To the maximum extent funds raised by issuing securities are used to settle the current liabilities of the entity governments.

The total external debt at the end of 2015 amounted to 8,691.25 billion and compared to the previous year it increased by 248.9 million BAM (2.95%). This increase was influenced by the appreciation of the currencies (primarily the dollar), which have the largest share in the external debt. It is interesting to note that in 2015 Bosnia and Herzegovina more than repaid hired new funds from external loans contracted. During the 2015 years of the serviced 760.9 million, while for 2016 it is planned to service 734.9 million

By analyzing that information it is clear that public debt increases from year to year. This increase has resulted with the fact that Republic of Srpska has already reached the legally permissible level of debt (60% of GDP entities) while the debt of the Federation of Bosnia and Herzegovina is still moving within the legally permitted level. However, this points to the need of introducing the system of measures that will allow the public debt to become sustainable in the long run and that the growth of public debt shall be caused by the use of financial resources for development purposes and not for patching the budget holes that has so far been the case in BiH.

Source: Federation for support of economic and social development „Horizon 2024“