The paper addresses the implications of war veteran benefits on social policy and fiscal sustainability in one of the two B&H entities, the Federation of Bosnia and Herzegovina. The author attempts to address changes over time and relate these to the process of demilitarisation, as well as the influence and pressures exerted by war veteran associations, which resulted in policies favourable to certain war veteran groups, often at the expense of other beneficiaries and the system’s long term sustainability. Social policy and war veteran legislation in the Federation of Bosnia and Herzegovina is status based, which provides scope for considerable discretion by government officials in deciding where to allocate funds. This, in turn, is destabilising public finances, while little is being done to address poverty alleviation.