Next to Macedonia, Bosnia and Herzegovina was the poorest republic in the old Yugoslav Federation. For the most part, agriculture has been in private hands, but farms have been small and inefficient, and food has traditionally been a net import for the country. The centrally planned economy has resulted in some legacies in the economy. Industry is greatly overstaffed, reflecting the rigidity of the planned economy. Under Tito, military industries were pushed in the republic; Bosnia hosted a large share of Yugoslavia's defense plants. Three years of interethnic strife destroyed the economy and infrastructure in Bosnia, caused the death of about 200,000 people, and displaced half of the population.

However, considerable progress has been made since peace was reestablished. Due to Bosnia and Herzegovina's strict currency board regime, inflation has remained low in the Federation and Republika Srpska. However, growth has been uneven, with the Federation outpacing the Republika Srpska. Bosnia and Herzegovina's most immediate task remains economic revitalization. In order to do this fully, the environment must be conducive to a private sector, market-led economy. Bosnia and Herzegovina faces a dual challenge: not only must the nation recover from the war, but it also must make the transition from socialism to capitalism.

Support for Eastern European Democracy (SEED) and other foreign assistance accounts for 20%-25% of economic growth in Bosnia and Herzegovina. Movement has been slow, but progress has been made in economic reform. A Central Bank was established in late 1997, successful debt negotiations were held with the London Club in December 1997 and with the Paris Club in October 1998, and a new currency linked to the Deutchmark was introduced in mid-1998, and has remained stable.