## 1bolea2020001

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---

### Balance of payments need and financing request
- Bolivia requested a purchase under the Rapid Financing Instrument (RFI) to cover urgent balance of payments needs arising from:
  - an ongoing shift in its terms of trade,
  - a slowdown in capital flows,
  - a sudden increase in health care expenditure needs precipitated by the COVID-19 epidemic.
- Staff calculate an external financing gap of 1.9 percent of GDP (Total BOP Financing Gap: -769 million; percent of GDP: -1.9).
- Staff recommend a purchase under the RFI of 100 percent of quota (SDR 240.1 million / IMF (RFI) provision shown as 326 million in the text table).
- Provision of additional resources to fully close the gap envisaged through other IFIs and temporary reserve drawdowns:
  - RFI Disbursement: 326 (in $US millions)
  - Additional Support from IFIs: 443 (in $US millions)
  - Total Additional Resources from IFIs: 769 (in $US millions) — equivalent to 1.9 percent of GDP.

### Impact of COVID-19 on the economy and public finances
- Macroeconomic shock:
  - Real GDP projected to contract by -2.9 percent in 2020.
  - Terms of trade expected deterioration: 12.7 percent by end-2020.
- Key projected fiscal impacts (Pre-COVID → COVID; differences shown):
  - Revenue: 28.6 → 27.3 (difference -1.3)
    - Tax revenue: 23.2 → 21.3 (difference -1.9)
    - Non-tax revenue: 4.2 → 4.4 (difference 0.2)
    - Other (including operating balances of SOEs and grants): 1.2 → 1.7 (difference 0.4)
  - Expenditure: 35.6 → 34.7 (difference -0.9)
    - Current: 25.5 → 27.3 (difference 1.8)
      - Wages: 11.8 → 12.7 (difference 0.9)
      - Goods and services: 3.8 → 4.0 (difference 0.2)
      - Social benefits: 6.4 → 6.8 (difference 0.4)
      - Interest expenditures: 1.2 → 1.5 (difference 0.3)
    - Capital: 10.2 → 7.3 (difference -2.9)
  - Overall balance: -7.0 → -7.3 (difference -0.3)
  - In millions of dollars: Pre-COVID -2,932 → COVID -3,016 (difference -84)
  - Net domestic financing: 2,570 → 2,055 (difference -514)
  - Net external financing (non-COVID): 362 → 270 (difference -92)
  - Total financing: 2,932 → 2,326 (difference -606)
  - Fiscal financing gap: 690 (in $US millions)
    - IMF (RFI): 362
    - Other IFIs: 328

- Specific COVID-related fiscal cost items (costs in USD; beneficiaries where provided):
  - Family bonus (Bono Familia) for students of public initial and primary levels: 111 million; 1.5 million beneficiaries
  - Family Basket (Canasta Familiar) for low income households: 62 million; 1.05 million beneficiaries
  - Targeted subsidies (government to pay household electricity bills and 50 percent of potable water and gas bills for April, May and June): 71 million; 7.8 million beneficiaries
  - Import of respiratory equipment: 200 million
  - Increasing ICU capacity: 297 million
  - Total: 741 million

- External sector adjustments (Pre-Covid → Covid, in millions of US dollars):
  - Trade Balance: -616 → -844 (difference -228)
    - Exports: 8,777 → 8,135
    - Imports: -9,393 → -8,979
  - Services: -1,458 → -1,346 (difference 112)
  - Remittances: 1,425 → 982 (difference -443)
  - Debt Service: -834 → -697 (difference 137)
  - FDI, net: -42 → -427 (difference -385)
  - Portfolio Inv: 631 → 781 (difference 15)
  - Other Inv Net: 248 → 124 (difference -124)
  - Change in Reserves: 1,214 → 1,260 (difference 46)
  - Total BOP Financing Gap: -769 (percent of GDP -1.9)

### Policies and authorities’ measures
- Authorities’ stated priorities:
  - Fully accommodate health care spending needed to mitigate COVID-19 impacts.
  - Increase social safety net spending to protect the most vulnerable.
  - Shift fiscal resources from lower-priority programs to contain the fiscal deficit at 7.3 percent of GDP in 2020.
  - Commitment to eliminate macro-fiscal imbalances over the medium term after the immediate crisis wanes.
  - Maintain stability in the exchange rate (stabilized de facto fixed exchange rate) and exercise prudent financial oversight.
- Fiscal and monetary measures enacted or announced:
  - Direct relief payments:
    - Bono Familia: about US$ 70 per child to households with children in school.
    - Canasta Familiar: about US$ 50 to each household.
    - 3-month suspension of electricity charges to households with modest incomes.
    - Total cost of relief measures projected at 0.6 percent of GDP.
  - Central bank liquidity measures:
    - Purchased bonds from pension funds: 3.5 billion bolivianos (about 0.5 percent of GDP).
  - Financial sector support:
    - 2-month moratorium on loan repayments (principal) for natural persons and small companies.
  - Tax and administrative measures:
    - Payment of CIT deferred till May.
    - Independent workers permitted to receive tax deductions on health, schooling and food expenditures.
    - Loan deferral measures and liquidity injections via buying public paper (Bonos del Tesoro) from pension fund.

### Staff assessment and recommendations
- Eligibility and access:
  - Bolivia meets the eligibility requirements for the RFI.
  - Staff propose support of 100 percent of quota (SDR 240.1 million) under the RFI.
- Debt and repayment capacity:
  - Public debt is sustainable over the medium term (albeit subject to risks).
  - Bolivia maintains an adequate capacity to repay the Fund.
  - Scheduled repayments of the RFI at no point in excess of 2 percent of exports or 8 percent of reserves.
- Policy guidance:
  - Staff concur with authorities on need to maintain exchange rate stability during the crisis, while considering gradual greater exchange rate flexibility over the medium term.
  - Medium-term sustainable overall fiscal deficit estimated at around 3 percent of GDP.
  - Near-term reallocation of expenditures and temporary recourse to central bank funding warranted; protect other social welfare spending.
  - If health spending exceeds expectations, further reductions in public investment (especially SOE capital spending) and additional external financing would be used.
- Staff recommendation:
  - Board approval of Bolivia’s request for a RFI purchase of 100 percent of quota (SDR 240.1 million).

### Risks
- Main risks to the outlook:
  - Greater-than-expected severity of the pandemic.
  - Weaker-than-expected demand for hydrocarbons.
  - Declining international reserves.
  - Possible social instability related to national elections.
- Additional risk notes:
  - Projections assume containment at moderate levels and relatively rapid activity resumption; a more negative trajectory would require additional measures and external financing.
  - Debt vulnerability if the fiscal consolidation plan is not implemented, possibly endangering the stabilized exchange rate via rapid reserve declines.
  - Political uncertainty over timing of presidential elections could impede public health response and raise risks that a successor government may deprioritize sustainable policies.

### Recent developments (pre-COVID context)
- Real GDP growth slowed to 2.8 percent in 2019 after a decade averaging 4.9 percent (2006-2018).
- Inflation was 1.3 percent year-on-year in February 2020.
- Transitional government reduced investment by public enterprises to keep the nonfinancial public sector deficit at 7.2 percent of GDP in 2019.
- Government announced commitment to reduce the fiscal deficit by about 1 percent of GDP per year to reach 4 percent of GDP by 2022.
- Current account deficit estimated at 3.2 percent of GDP in 2019.
- International reserves at end-February 2020: US$ 6.3 billion, 88 percent of the ARA metric, and US$ 2.2 billion lower than in the same month last year.
- Banking system: well-capitalized, nonperforming loans at 1.9 percent; loan restructurings have risen.
- Deposit outflows during October-November civil unrest partially reversed (half returned).

### Debt sustainability and public debt dynamics
- Nonfinancial public sector debt at end 2019 was 58 percent of GDP.
- Debt projected to reach 66 percent of GDP in 2021 as the deficit rises to respond to the crisis.
- Under authorities’ medium-term reform plan, debt should start falling over the medium term as government eliminates lower-priority public spending and steadily reduces the primary deficit.
- Bolivia’s external public sector debt is 26 percent of GDP; most external loans have long maturities (20 years and more) and relatively low interest rates.
- Bolivia’s immediate financing needs are well below the gross financing needs benchmark for sustainability in the medium-to-longer term.

### Modalities of IMF support, safeguards, and contractual commitments
- RFI modalities and conditions:
  - Staff proposes support of 100 percent of quota (SDR 240.1 million).
  - Bolivia assessed as having sustainable debt and adequate capacity to repay (see Table 5 referenced).
  - Bolivia has no external sovereign arrears and no outstanding obligations to the IMF.
  - Access of 100 percent of quota is within GRA limits.
- RFI disbursement and oversight:
  - RFI purchases disbursed to government for fiscal financing and virus-related spending.
  - All RFI funds allocated for procurement contracts in the health sector will be subject to independent third-party audits.
  - Proposed access covers almost half of the estimated financing gap; authorities seek further support from bilateral and multilateral sources.
- Safeguards and institutional commitments:
  - Authorities commit to a safeguards assessment prior to Executive Board approval of any subsequent arrangement.
  - Authorities will provide central bank audit reports and authorize external auditors of the central bank to hold discussions with Fund staff.
  - Authorities confirm they will establish a framework agreement between the central bank and ministry of finance clarifying responsibility for servicing financial obligations to the IMF.

### Staff recommendation and justification (excerpt)
- Staff supports the proposed purchase under the RFI.
- Justification:
  - Scale and severity of the COVID-19 shock and its impact on Bolivia’s balance of payments.
  - Disbursement characterized as direct budget support given pressing healthcare and humanitarian needs.
  - Authorities’ additional spending proposals assessed as within established norms and consistent with medium-term sustainability.
  - Authorities committed to adopt economic and financial policies necessary for medium-term macro stability.
- Selected capacity-to-repay indicators (presented in the report):
  - Fund obligations based on prospective credit (In millions of SDRs): Principal 0.00.0 0.060.0120.160.0; Interest and Charges 2.62.52.52.41.40.2; Total obligations 2.62.52.562.5121.460.2
  - Ratios (selected): In percent of exports 0.00.00.00.91.70.8; In percent of External Debt service 0.20.20.13.05.42.6; In percent of GDP 0.00.00.00.20.30.1; In percent of Net International Reserves 0.10.10.12.65.63.2; In percent of Quota 1.11.01.026.050.625.1
  - Memorandum items (selected): Exports, cif (USD millions) 8,1337,9408,4719,0399,5019,956; External Debt Service (USD millions) 1,4291,8992,5872,8573,0463,182; Nominal GDP (USD millions) 41,20044,00447,25050,92054,65258,657; Net International Reserves (USD millions) 5,2064,1713,6143,3152,9512,544; Quota (In SDR millions) 240.1240.1240.1240.1240.1240.1; SDR to USD exchange rate (April 8 2020) 1.41.41.41.41.41.4

### Annex I. Public Debt Sustainability Assessment (DSA) — Bottomline and key projections
- Bottomline: Sustainable
- Baseline projections and fiscal outlook:
  - NFPS debt net of central bank deposits projected to stay below 62 percent of GDP over the projection horizon.
  - Gross financing needs (GFN) projected to average around 9.3 percent of GDP.
  - Total public debt, excluding central bank’s loans to the NFPS, was 34.4 percent of GDP in 2019 and projected to decline to 29.7 percent of GDP in 2025.
  - Authorities address COVID-19 shock with temporary spending financed by re-prioritization, drawdown in deposits, central bank loans, and donor loans.
- Stress tests and risks:
  - Debt would exceed the high-risk threshold under constant primary balance, contingent liability, and combined shock scenarios.
  - GFN would remain below the high-risk threshold in most standardized macro-fiscal stress tests, including the combined macro-fiscal shock scenario.
  - A depreciation of 27 percent would be a risk but manageable per stress test.
- Selected numeric indicators (2018–2025 series as presented):
  - Nominal gross public debt: 40.0, 53.8, 57.5, 64.9, 66.1, 66.3, 66.1, 65.8, 65.2 (percent of potential GDP)
  - Public gross financing needs: 5.3, 9.7, 9.9, 10.7, 10.5, 9.8, 8.9, 8.3, 7.5 (percent of GDP)
  - Net public debt: 20.6, 41.6, 46.8, 55.3, 58.7, 60.7, 61.5, 61.8, 61.5 (percent of GDP)
  - Real GDP growth: 4.8, 4.2, 2.8, -2.9, 2.8, 4.2, 4.0, 3.7, 3.7 (percent)
  - Effective interest rate: 3.3, 2.5, 2.6, 2.6, 2.6, 2.7, 2.8, 2.9, 3.0 (percent)
  - Identified debt-creating flows (primary deficit contribution): 1.1, 7.0, 5.7, 5.8, 5.3, 4.4, 3.4, 2.7, 2.0, cumulative 23.7 (percent of GDP as displayed)
  - Automatic debt dynamics (interest-rate-growth differential contribution): -2.0, -2.3, -1.2, 1.4, -2.7, -3.4, -3.4, -3.1, -3.0, cumulative -14.2 (percent of GDP as displayed)

### Letter of Intent — emergency financing request and policy commitments (April 12, 2020)
- Request and scale:
  - Bolivia requests emergency financing equivalent to SDR240.1 million (about US$332 million), corresponding to a purchase of 100 percent of quota under the RFI.
  - Government estimates COVID-19-related spending needs will add 1.8 percent of GDP to the fiscal deficit.
- Preliminary macro projections cited by authorities:
  - Real GDP growth in 2020: -2.9 percent.
  - NFPS fiscal deficit in 2020: 7.3 percent of GDP (from 7.2 percent in 2019).
  - Current account deficit in 2020: 4.6 percent of GDP.
  - Inflation around 2.3 percent in 2020.
- Planned crisis-related spending and measures (percent of GDP):
  - Increased health spending: 1.2 percent of GDP.
  - Measures in support of the vulnerable: 0.6 percent of GDP.
  - Deferrals of corporate tax payments: 1.3 percent of GDP.
  - Frontloaded reduction in investment by public enterprises to offset needs: 0.8 percent of GDP.
- Net effect: NFPS deficit widening to 7.3 percent of GDP in 2020 (compared to 6.6 percent envisaged prior to the pandemic).
- Contingency and medium-term plans:
  - Contingency savings in non-priority spending identified if crisis worsens or revenue forecasts prove optimistic.
  - Medium-term commitment to reduce fiscal deficit to 4.0 – 4.8 percent of GDP by 2022.
- Financing plans:
  - Anticipated emergency financing of US$1 billion during the year, of which $US 700 million from the Interamerican Development Bank, and $US 300 million by CAF.
  - Commitment to adopt additional income and expenditure measures after the immediate health crisis if needed.
- Governance and transparency commitments:
  - Adhere to best practices in procurement for pandemic-related contracts, including publishing documentation and ex-post validation of delivery.
  - Publish an external independent audit report on virus-related expenditures once the crisis is over.
  - Collaborate with IMF staff on a safeguards assessment and provide Central Bank of Bolivia external audit reports.
  - Establish a framework agreement between government and Central Bank on responsibility for servicing IMF on-lent financing obligations.

*Source: Excerpt from IMF staff report (content unit: 1bolea2020001).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Balance of payments need and financing request
- Bolivia requested a purchase under the Rapid Financing Instrument (RFI) to cover urgent balance of payments needs arising from:
  - an ongoing shift in its terms of trade,
  - a slowdown in capital flows,
  - a sudden increase in health care expenditure needs precipitated by the COVID-19 epidemic.
- Staff calculate an external financing gap of 1.9 percent of GDP (Total BOP Financing Gap: -769 million; percent of GDP: -1.9).
- The RFI disbursement would only partially cover these needs; staff recommend a purchase under the RFI of 100 percent of quota (SDR 240.1 million / IMF (RFI) provision shown as 326 million in the text table).
- Provision of additional resources to fully close the gap is envisaged through other IFIs and temporary reserve drawdowns:
  - RFI Disbursement: 326 (in $US millions)
  - Additional Support from IFIs: 443 (in $US millions)
  - Total Additional Resources from IFIs: 769 (in $US millions) — equivalent to 1.9 percent of GDP.

### Impact of COVID-19 on the economy and public finances
- Health and containment measures, weaker external demand, and terms-of-trade deterioration are projected to contract real GDP by -2.9 percent in 2020.
- Terms of trade expected deterioration: 12.7 percent by end-2020.
- Key projected fiscal impacts (Pre-COVID vs COVID, in percent of GDP and millions of US dollars where shown):
  - Revenue: 28.6 → 27.3 (difference -1.3)
    - Tax revenue: 23.2 → 21.3 (difference -1.9)
    - Non-tax revenue: 4.2 → 4.4 (difference 0.2)
    - Other (including operating balances of SOEs and grants): 1.2 → 1.7 (difference 0.4)
  - Expenditure: 35.6 → 34.7 (difference -0.9)
    - Current: 25.5 → 27.3 (difference 1.8)
      - Wages: 11.8 → 12.7 (difference 0.9)
      - Goods and services: 3.8 → 4.0 (difference 0.2)
      - Social benefits: 6.4 → 6.8 (difference 0.4)
      - Interest expenditures: 1.2 → 1.5 (difference 0.3)
    - Capital: 10.2 → 7.3 (difference -2.9)
  - Overall balance: -7.0 → -7.3 (difference -0.3)
  - In millions of dollars: Pre-COVID -2,932 → COVID -3,016 (difference -84)
  - Net domestic financing: 2,570 → 2,055 (difference -514)
  - Net external financing (non-COVID): 362 → 270 (difference -92)
  - Total financing: 2,932 → 2,326 (difference -606)
  - Fiscal financing gap: 690 (in $US millions)
    - IMF (RFI): 362
    - Other IFIs: 328
- Specific COVID-related fiscal cost items (Bolivia: Measures Adopted to Contain Effects of Covid-19; costs in USD and beneficiaries where provided):
  - Family bonus (Bono Familia) for students of public initial and primary levels: 111 million; 1.5 million beneficiaries
  - Family Basket (Canasta Familiar) for low income households: 62 million; 1.05 million beneficiaries
  - Targeted subsidies (government to pay household electricity bills and 50 percent of potable water and gas bills for April, May and June): 71 million; 7.8 million beneficiaries
  - Import of respiratory equipment: 200 million
  - Increasing ICU capacity: 297 million
  - Total: 741 million
- Expected declines and adjustments in the external sector (Pre-Covid vs Covid, in millions of US dollars):
  - Trade Balance: -616 → -844 (difference -228)
    - Exports: 8,777 → 8,135
    - Imports: -9,393 → -8,979
  - Services: -1,458 → -1,346 (difference 112)
  - Remittances: 1,425 → 982 (difference -443)
  - Debt Service: -834 → -697 (difference 137)
  - FDI, net: -42 → -427 (difference -385)
  - Portfolio Inv: 631 → 781 (difference 15)
  - Other Inv Net: 248 → 124 (difference -124)
  - Change in Reserves: 1,214 → 1,260 (difference 46)
  - Total BOP Financing Gap: -769 (percent of GDP -1.9)

### Policies and authorities’ measures
- Authorities’ stated priorities:
  - Fully accommodate health care spending needed to mitigate COVID-19 impacts.
  - Increase social safety net spending to protect the most vulnerable.
  - Shift fiscal resources from lower-priority programs to contain the fiscal deficit at 7.3 percent of GDP in 2020.
  - Commitment to eliminate macro-fiscal imbalances over the medium term after the immediate crisis wanes.
  - Maintain stability in the exchange rate (stabilized de facto fixed exchange rate) and exercise prudent financial oversight.
- Fiscal and monetary measures enacted or announced:
  - Direct relief payments:
    - Bono Familia: about US$ 70 per child to households with children in school.
    - Canasta Familiar: about US$ 50 to each household.
    - 3-month suspension of electricity charges to households with modest incomes.
    - Total cost of relief measures projected at 0.6 percent of GDP.
  - Central bank liquidity measures:
    - Purchased bonds from pension funds: 3.5 billion bolivianos (about 0.5 percent of GDP).
  - Financial sector support:
    - 2-month moratorium on loan repayments (principal) for natural persons and small companies.
  - Tax and administrative measures:
    - Payment of CIT deferred till May.
    - Independent workers permitted to receive tax deductions on health, schooling and food expenditures.
    - Loan deferral measures and liquidity injections via buying public paper (Bonos del Tesoro) from pension fund.

### Staff assessment and recommendations
- Staff view:
  - Bolivia meets the eligibility requirements for the RFI.
  - Public debt is sustainable over the medium term (albeit subject to risks).
  - Bolivia maintains an adequate capacity to repay the Fund.
- Staff recommendation:
  - Board approval of Bolivia’s request for a RFI purchase of 100 percent of quota (SDR 240.1 million).
- Staff concur with the authorities on:
  - Need to maintain exchange rate stability through the crisis period.
  - Considering a gradual shift towards greater exchange rate flexibility over the medium term to help relax fiscal constraints and relieve pressure on international reserves.
- Medium-term fiscal guidance from staff:
  - Long-term sustainable level of the overall fiscal deficit estimated at around 3 percent of GDP.
  - A fixed exchange rate regime would require stricter budget control than a flexible regime.
- Near-term policy stance:
  - Near-term reallocation of expenditures and temporary recourse to central bank funding to cover part of the deficit are warranted given immediate needs.
  - Protecting other social welfare spending is important given limited fiscal space.
  - If health spending needs exceed expectations, additional reductions in public investment (especially SOE capital spending) and additional external financing would be used.

### Risks
- Main risks to the outlook:
  - Greater-than-expected severity of the pandemic.
  - Weaker-than-expected demand for hydrocarbons.
  - Declining international reserves.
  - Possible social instability related to national elections.
- Additional risk details:
  - Projections assume containment at moderate levels and relatively rapid activity resumption; a more negative trajectory would require additional health and social measures covered by contingency measures and external financing.
  - Debt vulnerability arises if the fiscal consolidation plan is not implemented, which could also endanger the stabilized exchange rate via rapid reserve declines.
  - Continued declines in hydrocarbon prices and external demand could induce strains beyond the current framework.
  - Political uncertainty over timing of presidential elections could raise the risk of political instability and impede effective public health response.
  - Risk that a successor government may deprioritize sustainable policies relative to the present administration.

### Recent developments (context and pre-COVID position)
- Prior to COVID-19:
  - Real GDP growth slowed to 2.8 percent in 2019 after a decade averaging 4.9 percent (2006-2018).
  - Inflation was 1.3 percent year-on-year in February 2020.
  - Transitional government reduced investment by public enterprises to keep the nonfinancial public sector deficit at 7.2 percent of GDP in 2019.
  - The government announced a commitment to reduce the fiscal deficit by about 1 percent of GDP per year to reach 4 percent of GDP by 2022.
  - Current account deficit estimated at 3.2 percent of GDP in 2019, the lowest in 5 years.
  - International reserves at end-February 2020: US$ 6.3 billion, 88 percent of the ARA metric, and US$ 2.2 billion lower than in the same month last year.
  - Banking system: well-capitalized, nonperforming loans at 1.9 percent; loan restructurings have risen; concerns about vulnerabilities from previous directed lending.
  - Deposit outflows during October-November civil unrest partially reversed (half returned).

*Source: EXECUTIVE SUMMARY, 1bolea2020001 - EXECUTIVE SUMMARY (April 13, 2020).*

### 14.      Under the authorities’ expected fiscal policy path, debt is deemed sustainable (see

### 1bolea2020001 - 14. Under the authorities’ expected fiscal policy path, debt is deemed sustainable (see

### Debt sustainability and public debt dynamics
- Nonfinancial public sector debt at end 2019 was 58 percent of GDP.
- Debt is projected to reach 66 percent of GDP in 2021, as the deficit rises to respond to the crisis.
- Under the authorities’ medium-term reform plan, debt should start falling over the medium term as the government:
  - eliminates lower-priority public spending, and
  - steadily reduces the primary deficit.
- Bolivia’s external public sector debt (which accounts for almost all external debt) is 26 percent of GDP.
- Most external loans have long maturities (20 years and more) and relatively low interest rates, which reduces Bolivia’s immediate financing needs.
- Bolivia’s immediate financing needs are well below the gross financing needs benchmark for sustainability in the medium-to-longer term.

### Modalities of IMF support and RFI proposal
- Staff proposes to provide support to Bolivia of 100 percent of quota (SDR 240.1 million) under the RFI.
- Bolivia meets the eligibility requirements for support under the RFI, including:
  - an urgent balance of payments need which, if not addressed, will result in immediate and severe economic disruption,
  - infeasibility at this stage of putting in place an upper-credit-tranche Fund program due to urgent needs and high uncertainty regarding the duration and scale of the COVID-19 epidemic,
  - a track record and policy statements giving staff confidence the authorities will continue to cooperate with the Fund and pursue appropriate policies.
- Bolivia is assessed as having sustainable debt (see Annex 1) and adequate capacity to repay the Fund (see Table 5), with scheduled repayments of the RFI at no point in excess of 2 percent of exports or 8 percent of reserves.
- Bolivia has no external sovereign arrears to official or private creditors.
- Bolivia does not currently have an IMF arrangement and has no outstanding obligations to the IMF.
- Access of 100 percent of quota is within applicable limits under the GRA.

### RFI disbursement, coverage, and complementary financing
- RFI purchases will be disbursed to the government to provide for fiscal financing and support virus-related spending.
- All RFI funds allocated for procurement contracts in the health sector will be subject to independent third-party audits.
- The proposed access of 100 percent of quota covers almost half of the estimated financing gap.
- The authorities are actively seeking further support from bilateral and multilateral sources, and remaining needs are expected to be filled by other donors or by policy adjustments.

### Safeguards and institutional commitments
- The authorities commit to conducting a safeguards assessment which would need to be completed before Executive Board approval of any subsequent arrangement.
- The authorities have indicated they will provide Fund staff with the necessary central bank audit reports and authorize the external auditors of the central bank to hold discussions with staff.
- In their Letter of Intent, the authorities confirm they will establish a framework agreement between the central bank and ministry of finance that clarifies responsibility for servicing financial obligations to the IMF.

### Authorities' views
- The authorities emphasize the urgency of temporarily loosening fiscal constraints in the face of the COVID-19 epidemic.
- They welcome the rapid assistance provided by the Fund to address balance of payments gaps arising from requirements to upgrade health care services and protect the most vulnerable.
- They underline the importance of maintaining the current fixed exchange rate as an anchor of financial and economic stability during the present state of uncertainty.
- They stress their commitment to adopt economic and financial policies consistent with medium-term stability.

*Source: Excerpt from IMF staff report (content unit: 1bolea2020001).*

### 19.      Staff supports the proposed purchase under the RFI. The request for a disbursement in

### 19.      Staff supports the proposed purchase under the RFI.

### Staff recommendation and justification
- Staff supports the proposed purchase under the RFI.
- The request for a disbursement in the amount of 100 percent of quota is justified by the scale and severity of the COVID-19 shock to Bolivia and the impact of the shock on Bolivia’s balance of payments.
- Characterizing the disbursement as direct budget support is warranted by the pressing healthcare and humanitarian needs facing the Bolivian government.
- The authorities’ proposals for additional spending are described as:
  - well within the norms already established for responding to the pandemic,
  - consistent with medium-term economic sustainability,
  - necessary to maintain social cohesion and to protect the most vulnerable during the crisis.
- The authorities have committed to adopt economic and financial policies necessary for the maintenance of macro stability over the medium term.
- Given the authorities’ commitment to address macro imbalances in the medium term, Bolivia is assessed to have sustainable debt and adequate capacity to repay the Fund.

### Capacity to repay and Fund obligations (selected indicators)
- Fund obligations based on prospective credit (In millions of SDRs):
  - Principal 0.00.0 0.060.0120.160.0
  - Interest and Charges 2.62.52.52.41.40.2
  - Total obligations based on prospective credit In millions of SDRs 2.62.52.562.5121.460.2
- Ratios and shares:
  - In percent of exports 0.00.00.00.91.70.8
  - In percent of External Debt service 0.20.20.13.05.42.6
  - In percent of GDP 0.00.00.00.20.30.1
  - In percent of Net International Reserves 0.10.10.12.65.63.2
  - In percent of Quota 1.11.01.026.050.625.1
- Memorandum items:
  - Exports, cif (USD millions) 8,1337,9408,4719,0399,5019,956
  - External Debt Service (USD millions) 1,4291,8992,5872,8573,0463,182
  - Nominal GDP (USD millions) 41,20044,00447,25050,92054,65258,657
  - Net International Reserves (USD millions) 5,2064,1713,6143,3152,9512,544
  - Quota (In SDR millions) 240.1240.1240.1240.1240.1240.1
  - SDR to USD exchange rate (April 8 2020) 1.41.41.41.41.41.4

### Fiscal stance and sustainability (summary points)
- The authorities’ additional pandemic-related spending proposals are assessed to be within established norms and consistent with medium-term sustainability.
- Bolivia is assessed to have sustainable debt and adequate capacity to repay, conditional on the authorities’ commitment to address medium-term macro imbalances.

### Selected balance of payments and external sector highlights
- Current account balance (in millions of U.S. dollars): -1,818-1,881-1,362-1,902-2,120-2,046-1,960-1,998-2,042
- Financial account (in millions of U.S. dollars): 2,3191,830-255-1241,0811,4861,6591,6331,633
- Change in reserve assets (increase = -) 2321,2302,8391,2511,033553295360403
- Net BCB international reserves (in millions of U.S. dollars): 10,2618,9466,4605,2064,1713,6143,3152,9512,544
- Current account balance (in percent of GDP): -4.8-4.6-3.2-4.6-4.8-4.3-3.8-3.7-3.5

### Key macro projections and indicators (selected)
- Real GDP: 4.24.22.8-2.92.84.2 4.03.73.7
- Nominal GDP: 10.57.44.2-2.66.87.4 7.87.37.3
- CPI inflation (period average): 2.82.31.82.34.43.6 3.53.53.5
- Combined public sector revenues and grants (percent of GDP): 30.829.028.127.326.226.426.526.526.5
- Expenditure (percent of GDP): 38.637.135.134.733.132.431.731.030.4
- Net lending/borrowing (overall balance, percent of GDP): -7.8-8.1-7.0-7.3-6.9-6.0-5.2-4.5-3.9
- Total public sector debt (exc. BCB loans to NFPS, percent of GDP): 31.932.534.436.634.732.631.130.329.7
- Total gross NFPS debt (percent of GDP): 51.353.857.564.966.166.366.165.865.2
- Current account (percent of GDP) and trade flows:
  - Exports of goods and services (percent of GDP): 25.325.424.323.221.521.321.220.820.4
  - Imports of goods and services (percent of GDP): 31.030.728.328.527.626.926.225.524.9

### Policy implications (derived from staff assessment)
- Immediate provision of 100 percent of quota under the RFI is supported to address urgent healthcare and humanitarian needs.
- Medium-term macro stability depends on the authorities’ implementation of the committed economic and financial policies to address macro imbalances.
- Fiscal and debt sustainability assessments are conditional on the authorities’ adherence to the commitment to contain deficits and manage debt dynamics.

*Source: IMF staff report (Bolivia).*

### Annex I. Public Debt Sustainability Assessment (DSA)

### Annex I. Public Debt Sustainability Assessment (DSA)

### Bottomline
- Sustainable

### Baseline projections and fiscal outlook
- The debt of the non-financial public sector (NFPS) net of its deposits at the central bank is projected to stay below 62 percent of GDP over the projection horizon.
- Gross financing needs (GFN) are projected to average around 9.3 percent of GDP.
- Neither debt nor GFN breach the MAC DSA thresholds.
- Total public debt, excluding the central bank’s loans to the NFPS, was at 34.4 percent of GDP in 2019 and is projected to decline to 29.7 percent of GDP in 2025.
- The authorities are addressing the COVID-19 shock with additional temporary spending financed by re-prioritization of expenditures, a drawdown in deposits, central bank loans, and donor loans.
- The medium-term fiscal consolidation path is realistic; authorities envisage an even more ambitious tightening through streamlining public spending while increasing its efficiency.
- Given the long maturity of loans, the public debt service profile is smooth.
- External gross financing needs are moderate, and most external debt is owed to official creditors.

### Stress tests and risks
- Debt would exceed the high-risk threshold under the constant primary balance, contingent liability, and combined shock scenarios.
- GFN would remain below the high-risk threshold in most standardized macro-fiscal stress tests, including under the combined macro-fiscal shock scenario.
- Debt would be vulnerable if the authorities do not implement their fiscal consolidation plan, which could also endanger the sustainability of the stabilized exchange rate.
- A depreciation (of 27 percent) would be a risk but a manageable one based on the stress test.
- Other key risks include weaker-than-expected demand for hydrocarbons, and possible social instability as Bolivia undertakes national elections.

### Assumptions (selected)
- The COVID-19 pandemic is expected to reduce Bolivia’s real GDP growth rate to -2.9 percent in 2020, from the earlier IMF staff projection of 2.6 percent.
- In 2021, growth is projected to rebound to 2.8 percent, although adverse effects of lower hydrocarbon prices on the NFPS balance will continue.
- The baseline assumes that the spread of the disease will be contained at moderate levels and activity will resume relatively rapidly. A more protracted shock could further weaken GDP growth, reduce tax revenues and increase the fiscal and external current account deficits.

### Coverage and contingent liabilities
- NFPS debt includes all financial obligations of the central government and subnational governments as well as central bank loans to non-financial SOEs and two public funds—Fondo Nacional de Desarrollo Regional and Fondo para la Revolución Industrial Productiva.
- The public sector is defined as the consolidated public sector. Public debt includes SOEs' borrowing from the BCB but not from other domestic institutions.
- Contingent liabilities reported in the DSA are 0.00 (annual projection entries show 0.00 across years).

### Key numeric indicators and debt dynamics (selected figures from DSA table)
- Nominal gross public debt (2018–2025): 40.0, 53.8, 57.5, 64.9, 66.1, 66.3, 66.1, 65.8, 65.2 (percent of potential GDP as presented in series).
- Public gross financing needs (2018–2025): 5.3, 9.7, 9.9, 10.7, 10.5, 9.8, 8.9, 8.3, 7.5 (percent of GDP).
- Net public debt series (2018–2025): 20.6, 41.6, 46.8, 55.3, 58.7, 60.7, 61.5, 61.8, 61.5 (percent of GDP).
- Real GDP growth (annual rates shown): 4.8, 4.2, 2.8, -2.9, 2.8, 4.2, 4.0, 3.7, 3.7 (percent).
- Inflation (GDP deflator): 4.0, 3.1, 2.1, 3.1, 4.1, 3.9, 4.2, 4.2, 4.1 (percent).
- Nominal GDP growth (annual rates shown): 9.1, 7.4, 4.2, -2.6, 6.8, 7.4, 7.8, 7.3, 7.3 (percent).
- Effective interest rate (defined as interest payments divided by debt stock at end of previous year): 3.3, 2.5, 2.6, 2.6, 2.6, 2.7, 2.8, 2.9, 3.0 (percent).
- Change in gross public sector debt (cumulative 2018–2025): 1.6, 2.6, 3.6, 7.4, 1.2, 0.3, -0.3, -0.3, -0.6, cumulative 7.7 (percent points of GDP across periods as displayed).
- Identified debt-creating flows (primary deficit contribution): 1.1, 7.0, 5.7, 5.8, 5.3, 4.4, 3.4, 2.7, 2.0, cumulative 23.7 (percent of GDP as displayed).
- Automatic debt dynamics (interest-rate-growth differential contribution): -2.0, -2.3, -1.2, 1.4, -2.7, -3.4, -3.4, -3.1, -3.0, cumulative -14.2 (percent of GDP as displayed).

### Letter of Intent — emergency financing request and policy commitments (April 12, 2020)
- Bolivia requests emergency financing from the IMF in the equivalent of SDR240.1 million (about US$332 million), corresponding to a purchase of 100 percent of our quota under the Rapid Financing Instrument (RFI).
- The government estimates that COVID-19-related spending needs will add 1.8 percent of GDP to the fiscal deficit.
- Preliminary macro projections cited by the authorities:
  - Real GDP growth in 2020: -2.9 percent.
  - NFPS fiscal deficit in 2020: 7.3 percent of GDP (from 7.2 percent in 2019).
  - Current account deficit in 2020: 4.6 percent of GDP.
  - Inflation around 2.3 percent in 2020.
- Planned crisis-related spending and measures (percent of GDP):
  - Increased health spending: 1.2 percent of GDP.
  - Measures in support of the vulnerable: 0.6 percent of GDP.
  - Deferrals of corporate tax payments: 1.3 percent of GDP.
  - Frontloaded reduction in investment by public enterprises to offset needs: 0.8 percent of GDP.
- Net effect: NFPS deficit widening to 7.3 percent of GDP in 2020 (compared to 6.6 percent envisaged prior to the pandemic).
- Contingency planning: identified further contingency savings in non-priority spending that could be implemented if the crisis worsens or revenue forecasts prove optimistic.
- Medium-term commitment: reduce the fiscal deficit to 4.0 – 4.8 percent of GDP by 2022.
- Financing plans and commitments:
  - Anticipated emergency financing of US$1 billion during the year, of which $US 700 million would be provided by the Interamerican Development Bank, and $US 300 million by CAF.
  - Commitment to adopt additional income and expenditure measures after the immediate health crisis, if needed, to ensure fiscal position consistency with available financing and public debt sustainability.
- Governance, transparency, and safeguards commitments:
  - Adhere to best practices in procuring and awarding contracts related to the pandemic, including publishing documentation on procurement contracts on the government’s website, ex-post validation of delivery, name of awarded companies, and name of their beneficial owners.
  - Publish an external independent audit report on virus-related expenditures once the crisis is over.
  - Stand ready to collaborate with IMF staff on a safeguards assessment and to provide the Central Bank of Bolivia’s most recently completed external audit reports.
  - Establish a framework agreement between the government and the Central Bank on respective responsibility for servicing IMF on-lent financing obligations.

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1bolea2020001.pdf_