Section one provides a brief backgroundon the recent macroeconomic developments, starting with theimmediate positive past, the growth payoffs in terms ofpoverty reduction and concluding with a description ofpersistent and emerging vulnerabilities. Section twocontinues with the story of the growth payoff by outliningthe distribution and profile of the poor, noting inparticular the correlation between space, skills and welfareoutcomes. The focus on these specific areas is deliberatesince they take on special significance in the Bosnia andHerzegovina (BiH) context. Section three takes note of thepresent global crisis, which has introduced hugeuncertainties in BiH. Specifically, it looks in detail atthe channels through which the on-going economic crisis willbe felt in Bosnia. It also forecasts the welfare losses,measured in terms of poverty and economic stress, measuredby levels of indebtedness. Section four builds on themessage of section three, which is that to protect thepopulation from a severe downturn and to minimize erosion ofthe recent gains, an effective social protection system iscalled for. After reviewing the existing income supportprograms, the section then proposes new tools for improvingthe current system, paying particular attention to thetargeting mechanisms. Finally, section five draws policyrecommendations based on the evidence in the report. Inparticular, it calls for the improvement of safety nets inthe short run and for addressing distortions such as slowstructural reforms and lack of a common economic space inthe long run.