Section one provides a brief background on the recent macroeconomic developments, starting with the immediate positive past, the growth payoffs in terms of poverty reduction and concluding with a description of persistent and emerging vulnerabilities. Section two continues with the story of the growth payoff by outlining the distribution and profile of the poor, noting in particular the correlation between space, skills and welfare outcomes. The focus on these specific areas is deliberate since they take on special significance in the Bosnia and Herzegovina (BiH) context. Section three takes note of the present global crisis, which has introduced huge uncertainties in BiH. Specifically, it looks in detail at the channels through which the on-going economic crisis will be felt in Bosnia. It also forecasts the welfare losses, measured in terms of poverty and economic stress, measured by levels of indebtedness. Section four builds on the message of section three, which is that to protect the population from a severe downturn and to minimize erosion of the recent gains, an effective social protection system is called for. After reviewing the existing income support programs, the section then proposes new tools for improving the current system, paying particular attention to the targeting mechanisms. Finally, section five draws policy recommendations based on the evidence in the report. In particular, it calls for the improvement of safety nets in the short run and for addressing distortions such as slow structural reforms and lack of a common economic space in the long run.