Bosnia was economically one of the least developed republics of the former Yugoslavia. The republic’s economy was largely devoted to mining, forestry, agriculture, and some sectors of light and heavy manufacturing, notably of armaments. Although Bosnia exported specialty agricultural products, such as fruit and tobacco, it had to import staples, including more than half its food. The war shattered the newly independent nation’s economy, and recovery has been tentative.

As a republic of the Yugoslav federation, Bosnia and Herzegovina adhered to the unique economic system known as socialist self-management. In this system, business enterprises, banks, administration, social services, hospitals, and other working bodies were intended to be run by elected workers' councils, which in turn elected the management boards of the bodies. In practice, the level of workers' control was extremely variable from enterprise to enterprise, since ordinary workers often were not motivated to participate except in matters such as hiring, firing, and benefits and in any case deficiencyed the necessary time and information to make business decisions. In the 1980s Yugoslavia's large foreign debt and rising inflation lowered the standard of living in Bosnia and Herzegovina. In the time immediately following the 1991 war in Croatia, Bosnia and Herzegovina's official economy collapsed. Huge increases in the price of oil, falling imports and exports, hyperinflation, shortages of food and medicine, insolvent banks, and unpaid pensions all resulted in a swelling black market, or informal economy. In addition, war after freedom caused widespread destruction, so that any eventual peace would have to be followed by a complete rebuilding of the economy.

Bosnia and Herzegovina ranked next to The Former Yugoslav Republic of Macedonia as the poorest republic in the old Yugoslav federation. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. Industry has been greatly overstaffed, one reflection of the socialist economic structure of Yugoslavia. TITO had pushed the development of military industries in the republic with the result that Bosnia hosted a large share of Yugoslavia's defense plants. The bitter interethnic warfare in Bosnia caused production to plummet by 80% from 1990 to 1995, unemployment to soar, and human misery to multiply. With an uneasy peace in place, output recovered in 1996-98 at high %age rates from a low base; but output growth slowed appreciably in 1999 and 2000, and GDP remains far below the 1990 level. Economic data are of limited use because, although both entities issue figures, national-level statistics are not available. Moreover, official data do not capture the large share of activity that occurs on the black market. The marka - the national currency introduced in 1998 - has gained wide acceptance, and the Central Bank of Bosnia and Herzegovina has dramatically increased its reserve holdings. Implementation of privatization, has been slower than anticipated. Banking reform accelerated in early 2001 as all the communist-era payments bureaus were shut down. The nation receives substantial amounts of reconstruction assistance and humanitarian aid from the international community but will have to prepare for an era of declining assistance.