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### Outlook and Risks
- Near-term growth: "4.5 percent in 2024, stabilizing around 4 percent thereafter."
- Outlook predicated on significantly improved access to external financing; without such access, the risk of disorderly fiscal and/or exchange rate adjustment is elevated.
- External downside risks: reduced demand, intensified global conflicts disrupting trade routes, commodity price volatility, renewed tightening of financial conditions.
- Domestic downside risks: faster decline in hydrocarbon production; higher inflation due to FX scarcity; confidence shocks; social unrest (e.g., prolonged road blockages of early 2024 with a 16-day blockade in January estimated to have caused "nearly USD 1 billion" in economic losses).
- Climate and weather risks: extreme weather events (2023 droughts and recent floods) threaten agriculture and infrastructure.
- Potential upside: benefit from global shift to green energy owing to "vast lithium resources," though development and scaling will "likely take time."

### Executive Board Assessment (summarized)
- Directors welcomed socioeconomic progress but flagged "low reserves, uncertain fiscal financing, and pressures in parallel exchange markets."
- Urgent shift from unsustainable policies needed to avoid disorderly adjustment and large social/economic hardship.
- Recommended policy package elements (selected):
  - Sustainable policy mix: fiscal adjustment phased over next few years plus an up-front step devaluation to address external imbalance and allow reserve rebuild.
  - Improve social safety net to shield poorer households from inflation after exchange rate realignment.
  - Strengthen fiscal institutions and central bank governance to support crawling peg and eventual inflation targeting.
  - Strengthen central bank capacity for sterilization and lift lending rate caps.
  - Improve crisis preparedness and contingency planning per FSAP recommendations.
  - Supply-side reforms: phase out export ceilings and price controls; better prioritize public investment; strengthen hydrocarbon and lithium regulatory frameworks.
  - Enhance AML/CFT framework and timely publication of key macroeconomic data.

### Key Findings and Macroeconomic Context
- Expansionary and redistributive fiscal policies since mid-2000s delivered high growth and poverty reduction, funded by natural gas revenues, external borrowing, and central bank lending (and reserves drawdown).
- Since 2014, natural gas export proceeds declined by "70 percent" due to lower global prices and waning domestic production after underinvestment.
- Impact on balances (percent of GDP unless noted):
  - Fuel imports rose from "4 to 9 percent of GDP."
  - Natural gas revenues fell by "almost 3 percent of GDP" while energy-related subsidies rose by "2½ percent of GDP."
  - Public debt has surpassed "80 percent of GDP" and international reserves were nearly depleted.
- Financial stress events: FX shortage in early 2023 led banks to suspend convertibility of the boliviano; Banco Fassil failed.
- Sovereign risk: EMBI spreads rose sharply in early 2023, surpassing "2000 bps" at one stage; sovereign ratings downgraded.

### Recent Developments and Selected Indicators
- Real GDP: 2022: 3.6; 2023: 2.5; 2024 (Est.): 1.6; 2025 (Proj.): 2.2; 2026 (Proj.): 2.2.
- CPI inflation (period average): 2022: 1.7; 2023: 2.6; 2024: 4.5; 2025: 4.2; 2026: 3.9.
- CPI inflation (end of period): 2022: 3.1; 2023: 2.1; 2024: 4.8; 2025: 4.0; 2026: 3.9.
- Total investment: 2022: 15.1; 2023: 15.9; 2024: 16.6; 2025: 16.3; 2026: 16.0.
- Gross national savings: 2022: 12.5; 2023: 8.6; 2024: 10.5; 2025: 10.3; 2026: 10.5.
- Combined public sector (percent of GDP):
  - Revenues and grants: 2022: 28.9; 2023: 28.3; 2024: 27.6; 2025: 27.4; 2026: 27.1.
  - Expenditure: 2022: 36.0; 2023: 35.3; 2024: 35.5; 2025: 34.8; 2026: 34.3.
  - Net lending/borrowing: 2022: -7.1; 2023: -7.0; 2024: -7.9; 2025: -7.5; 2026: -7.2.
  - Non-hydrocarbon balance: 2022: -12.8; 2023: -12.2; 2024: -12.0; 2025: -11.2; 2026: -10.5.
  - Total gross NFPS debt: 2022: 80.4; 2023: 83.6; 2024: 86.7; 2025: 88.9; 2026: 90.9.
  - Hydrocarbon related revenue (share of revenues): 2022: 6.0; 2023: 5.4; 2024: 4.3; 2025: 3.9; 2026: 3.5.
- External sector:
  - Current account (percent of GDP): 2022: -0.4; 2023: -5.0; 2024: -5.7; 2025: -5.8; 2026: -5.6.
  - Exports of goods and services: 2022: 32.6; 2023: 28.5; 2024: 27.0; 2025: 26.9; 2026: 26.5.
  - Imports of goods and services: 2022: 32.9; 2023: 34.4; 2024: 33.6; 2025: 33.6; 2026: 32.7.
  - Natural gas exports (share): 2022: 6.7; 2023: 3.8; 2024: 3.4; 2025: 3.0; 2026: 2.7.
- Reserves and coverage:
  - Central Bank gross foreign reserves (USD millions): 2022: 3,796; 2023: 1,808; 2024: 1,653; 2025: 1,555; 2026: 1,556.
  - Months of imports of goods and services: 2022: 2.8; 2023: 1.3; 2024: 1.1; 2025: 1.0; 2026: 1.0.
  - Reserves in percent of GDP: 2022: 8.6; 2023: 3.9; 2024: 3.4; 2025: 3.0; 2026: 2.8.
  - Reserves in percent of ARA: 2022: 44.5; 2023: 20.8; 2024: 18.2; 2025: 16.2; 2026: 15.5.
- Money and credit:
  - Credit to the private sector (percent change): 2022: 6.3; 2023: -0.4; 2024: 3.0; 2025: 4.3; 2026: 5.1.
  - Credit to the private sector (percent of GDP): 2022: 74.2; 2023: 70.5; 2024: 68.4; 2025: 67.0; 2026: 66.3.
  - Broad money (percent of GDP): 2022: 85.2; 2023: 82.8; 2024: 81.2; 2025: 80.0; 2026: 78.9.
- Memoranda:
  - Nominal GDP (USD billions): 2022: 44.3; 2023: 46.5; 2024: 49.3; 2025: 52.5; 2026: 55.8.
  - Bolivianos/U.S. dollar (end-of-period): 2022: 6.9; 2023: 6.9.
  - Oil prices (USD per barrel): 2022: 96.4; 2023: 80.6; 2024: 77.7; 2025: 73.8; 2026: 70.9.
  - Energy-related subsidies to SOEs (percent of GDP): 2022: 4.4; 2023: 4.0; 2024: 3.5; 2025: 2.7; 2026: 2.4.

### A Difficult Conjuncture — Diagnostics
- Growth slowdown drivers: declining natural gas production, retrenchment in public investment, financial market turbulence, and deepening macro imbalances.
- Inflation: low relative to region due to price controls and costly subsidies; CPI fell to "1.9 percent by January 2024" after peaking at "3.1 percent" end-2022.
- Gross fiscal financing needs (GFNs): peaked in 2022; GFN in 2023 was "14.2 percent of GDP" met mostly domestically. GFNs expected to remain relatively contained until Eurobond payments in 2026.
- FX scarcity and parallel market:
  - Large current account deficit ("estimated at 5 percent of GDP in 2023"); parallel FX market premium estimated at "15-20 percent" by February 2024.
  - Gross international reserves end-2023: "US$1.8 billion" (~1 month of import cover and "21 percent of the Fund’s ARA metric"), largely encumbered gold.
- Assessment of REER: 2023 external position "assessed to be substantially weaker"; REER estimated "overvalued by 12–23 percent (Annex I)."

### Policy Priorities (staff recommendations)
- Fiscal consolidation centered on:
  - Improvements in social assistance programs.
  - Phase-out of fuel subsidies.
  - Reductions in the government wage bill.
  - Tax reforms to mobilize non-resource revenues.
- Front-load adjustment: significant short-term reduction in public investment likely required.
- Exchange rate: step devaluation to lessen external pressures and transition to inflation targeting.
- Financial stability and crisis preparedness: invest in crisis management per FSAP.
- Structural reforms: incentivize foreign investment, eliminate credit quotas and interest rate ceilings, strengthen regulatory framework for lithium and hydrocarbons, improve SOE governance.

### Financial Stability Risks and Measures
- Banco Fassil deposit run in March 2023; ASFI intervened in April 2023; larger banks absorbed deposits and performing loans; trust fund administered by Banco Unión manages remaining assets/liabilities.
- System-wide: capitalization exceeds regulatory requirements under local definitions; NPLs low at 3 percent end-2023 but doubled since 2021 and may be understated due to forbearance.
- Bolivia has not introduced forward-looking provisions per IFRS 9; banks maintain total provision ratio of 135 percent of NPLs.
- Liquidity risks increased: local currency liquidity risk, FX mismatches, constraints on FX liquidity management, and limits on investments abroad.
- FSAP-related priority reforms (selected):
  - Guidance on recovery planning and bank-by-bank resolution plans.
  - Adopt minimum liquidity requirements, Basel III-aligned LCR and NSFR, borrower-based instruments, additional capital buffers for D-SIBs.
  - Introduce legal safeguards and resolution powers (bridge bank, creditor bail-in), designate D-SIBs.
  - Strengthen deposit insurance: manage by a dedicated unit, exclude government deposits, increase fund to implicit target of 5 percent.
  - Tighten emergency liquidity assistance conditions and enhance stress testing and data coverage.
- AML/CFT: GAFILAT assessment approved December 2023; Bolivia under one-year observation and must address shortcomings by June 2025.

### Adjustment Scenarios and Trade-offs (illustrative)
- Baseline: continuation of current policy mix; requires large additional external financing; reserves near legal minimum; current account deficit 5–6 percent of GDP; government needs around US$1.5 billion (2–3 percent of GDP) per year in currently unidentified external financing to keep baseline feasible.
- Sharp front-loaded fiscal adjustment (illustrative):
  - Up-front fiscal adjustment in 2024 of around 3 percent of GDP relative to current budget plans, largely via cuts in public investment.
  - Effects: averts monetization, compresses imports, eliminates current account deficit, moderates debt/GDP increase, slows reserve drain; but triggers sharp growth deceleration, keeps debt distress risk high, may push some banks below regulatory capital.
  - Lifting gold reserves’ use restrictions could provide a 4-6 month respite (requires congressional approval).
  - Staff estimate: a sentiment shock causing 30 percent unexpected exchange rate devaluation would depress growth by 2 percentage points and could impair banking system.
- Gradual fiscal adjustment with exchange rate adjustment (illustrative):
  - Less upfront fiscal consolidation, more revenue mobilization and reprioritization, with an up-front 35 percent exchange rate adjustment and crawling-peg thereafter.
  - BCB would need to tighten domestic liquidity and strengthen monetary transmission; initial spike in inflation; immediate rise in public debt ratio by around 10 percent of GDP; near-term growth deceleration.
  - Positives: quicker external balance restoration, steady reserve rebuilding, unwinding of FX swap restrictions, reduced transition risks, faster demand rebound via higher exports, smaller cuts to public investment, medium-term improvement in debt/GDP and lower debt distress risk.
  - Staff view this policy mix, with credible supporting package, as preferable.

### Quantitative Projections — Baseline vs Reform Scenarios (selected)
- Baseline projections (selected):
  - Real GDP (percent): 2022 3.6; 2023 2.5; 2024 1.6; 2025 2.2; 2026 2.2; 2027 2.3; 2028 2.3; 2029 2.3.
  - CPI inflation (average, percent): 2022 1.7; 2023 2.6; 2024 4.5; 2025 4.2; 2026 3.9; 2027 3.8; 2028 3.8; 2029 3.8.
  - Primary balance (percent of GDP): 2022 -5.5; 2023 -4.9; 2024 -5.7; 2025 -5.3.
  - Overall balance (percent of GDP): 2022 -7.1; 2023 -7.0; 2024 -7.9; 2025 -7.5.
  - Total gross NFPS debt (percent of GDP): 2022 80.4; 2023 83.6; 2024 86.7; 2025 88.9; 2026 90.9; 2027 92.7; 2028 94.5; 2029 96.1.
  - Gross Financing Needs: 2022 19.9; 2023 14.2; 2024 14.5; 2025 12.6; 2026 10.7; 2027 10.6; 2028 10.6; 2029 10.5.
  - Current account (percent of GDP): 2022 -0.4; 2023 -5.0; 2024 -5.7; 2025 -5.8; 2026 -5.6; 2027 -5.2; 2028 -5.2; 2029 -5.2.
  - Central Bank gross foreign reserves (USD million): 2022 379; 2023 618; 2024 1,808; 2025 1,653; 2026 1,555; 2027 1,556; 2028 1,557; 2029 1,556.
  - Reserves in percent of ARA: 2022 44.5; 2023 20.8; 2024 18.2; 2025 16.2; 2026 15.5; 2027 14.8; 2028 14.1; 2029 13.4.
- Reform scenario with fiscal adjustment (selected):
  - Real GDP (percent): 2022 3.6; 2023 2.5; 2024 -0.2; 2025 1.5; 2026 1.8; 2027 2.1; 2028 2.1; 2029 2.2.
  - CPI inflation (average, percent): 2022 1.7; 2023 2.6; 2024 3.5; 2025 3.9; 2026 3.9; 2027 3.8; 2028 3.8; 2029 3.8.
  - Primary balance (percent of GDP): 2022 -5.5; 2023 -4.9; 2024 -2.7; 2025 -2.5.
  - Overall balance (percent of GDP): 2022 -7.1; 2023 -7.0; 2024 -4.9; 2025 -4.7.
  - Total gross NFPS debt (percent of GDP): 2022 80.4; 2023 83.6; 2024 85.9; 2025 86.1; 2026 86.0; 2027 85.6; 2028 85.3; 2029 84.8.
  - Gross Financing Needs: 2022 19.9; 2023 14.2; 2024 11.7; 2025 10.0; 2026 8.1; 2027 7.9; 2028 7.9; 2029 7.8.
  - Current account (percent of GDP): 2022 -0.4; 2023 -5.0; 2024 -2.8; 2025 -2.3; 2026 -1.9; 2027 -1.4; 2028 -1.2; 2029 -1.1.
  - Central Bank gross foreign reserves (USD million): 2022 379; 2023 618; 2024 1,663; 2025 1,824; 2026 2,088; 2027 2,841; 2028 3,874; 2029 4,883.
  - Reserves in percent of ARA: 2022 44.5; 2023 20.8; 2024 18.6; 2025 19.4; 2026 21.3; 2027 27.7; 2028 36.0; 2029 43.3.
- Reform scenario with fiscal and exchange rate adjustments (selected):
  - Up-front exchange rate adjustment of 35 percent, followed by crawling peg; real exchange rate to converge to about 15 percent weaker than baseline.
  - Real GDP (percent): 2022 3.6; 2023 2.5; 2024 0.5; 2025 2.0; 2026 2.7; 2027 3.4; 2028 3.3; 2029 3.3.
  - CPI inflation (average, percent): 2022 1.7; 2023 2.6; 2024 15.2; 2025 8.5; 2026 7.5; 2027 6.5; 2028 5.8; 2029 5.3.
  - Primary balance (percent of GDP): 2022 -5.5; 2023 -4.9; 2024 -5.2; 2025 -3.7; 2026 -2.5; 2027 -1.6; 2028 -0.7; 2029 -0.2.
  - Overall balance (percent of GDP): 2022 -7.1; 2023 -7.0; 2024 -7.5; 2025 -5.9; 2026 -4.6; 2027 -3.6; 2028 -2.5; 2029 -2.0.
  - Total gross NFPS debt (percent of GDP): 2022 80.4; 2023 83.6; 2024 88.8; 2025 86.8; 2026 83.9; 2027 80.5; 2028 76.5; 2029 72.6.
  - Gross Financing Needs: 2022 19.9; 2023 14.2; 2024 14.0; 2025 10.9; 2026 8.2; 2027 7.1; 2028 5.8; 2029 5.1.
  - Current account (percent of GDP): 2022 -0.4; 2023 -5.0; 2024 -1.6; 2025 -1.4; 2026 -0.1; 2027 -0.3; 2028 -0.1; 2029 -0.5.
  - Central Bank gross foreign reserves (USD million): 2022 379; 2023 618; 2024 2,267; 2025 2,895; 2026 4,164; 2027 5,633; 2028 7,467; 2029 8,889.
  - Reserves in percent of ARA: 2022 44.5; 2023 20.8; 2024 23.9; 2025 28.2; 2026 38.0; 2027 48.3; 2028 59.9; 2029 67.3.

### Socioeconomic Vulnerabilities and Mitigation
- Both abrupt fiscal adjustment and devaluation/phasing-out of fuel subsidies likely to generate significant hardships; mitigation via expanding social safety net and setting aside public resources to protect lower-income households recommended.
- Economy vulnerable to external and climate shocks: external demand deceleration, trade disruptions, deterioration in terms of trade, global financial tightening, and extreme weather.

### Strengthening Fiscal Framework and Social Protection
- Prepare and publish a comprehensive medium-term fiscal framework (MTFF, Annex IV) anchored on long-term debt sustainability objectives.
- Develop capacity for medium-term forecasting and fiscal risk assessment; improve timeliness of fiscal reporting.
- Protect the vulnerable:
  - Enhance social transfer programs; key programs rely on hydrocarbon proceeds and SOE dividends which are expected to decline.
  - Improve targeting: shift to means-tested programs, initially via proxy targeting and ultimately via systematic means-testing based on a comprehensive beneficiary database.
  - Implement a unified social registry (could leverage the 2024 census); leverage financial sector and digital solutions for transfers.
- Authorities’ views: agree structural reforms needed but favor gradual consolidation; oppose exchange rate adjustments and major fuel subsidy changes citing impacts on vulnerable populations.

### Redesigning the Monetary Framework (recommended sequence)
1. Implement a step devaluation to address real exchange misalignment given scarce reserves.
   - As of end-2023, 10.2 percent of deposits and 0.7 percent of loans denominated in foreign currency.
   - Devaluation would contract imports, improve export competitiveness, but increase quasi-fiscal costs of outstanding FX swaps and could require eventual BCB recapitalization.
2. Move to a crawling peg after the devaluation; design parameters must be carefully set and communicated; eliminate or reduce monetization of fiscal deficit; allow domestic interest rates to move flexibly; undertake sterilization; lift caps on domestic currency interest rates; bolster BCB autonomy.
3. Medium-term objective: transition to inflation targeting once institutional capacity is built; requires FX and money market development, FX hedging instruments, macroprudential tools, central bank independence, and robust macro statistics.

### Removing Supply-Side Impediments and Structural Reforms
- Structural constraints: narrow export base (soybeans, gold, zinc, natural gas); natural gas production expected to continue declining; potential net importer of fuels by 2030; agricultural exports hindered by quotas and regulations.
- Policy recommendations:
  - Revise hydrocarbons law to incentivize exploration and reduce regulatory uncertainty while upholding environmental safeguards.
  - Establish framework for lithium development to streamline processes, mitigate environmental risks, and create transparent revenue-sharing.
  - Allocate scarce public investment strategically to bottlenecks (public transport, renewable energy).
  - Eliminate/relax credit quotas, interest rate controls, and directed credit; harmonize regulatory frameworks across public and private banks.
  - Strengthen design and oversight of public fideicomisos; update insolvency framework; strengthen credit registry; implement national financial inclusion strategy.
  - Phase out export ceilings and price controls; strengthen environmental safeguards and invest in resilient infrastructure.

### Energy Subsidy Reform — Key Quantities and Design
- Annual cost of fuel subsidies averaged 2 percent of GDP since 2009; peaked at 4.4 percent of GDP in 2022; fell to 4.0 percent of GDP in 2023.
- Total energy subsidy cost in 2023: 14.4 percent of GDP.
  - Diesel subsidies: 6.6 percent of GDP.
  - Gasoline subsidies: 3.9 percent of GDP.
- Explicit diesel subsidy: US$ 0.6 billion; implicit diesel subsidy: US$ 2.4 billion.
- Bolivia’s total (implicit and explicit) subsidy bill in 2023 amounted to 12.6 percent of GDP compared to 4.2 percent among regional peers.
- Reform scenarios:
  - Partial energy subsidy reform (remove explicit subsidies or halve gap): expected fiscal savings 5.3 percent of GDP.
  - Full reform (eliminate all support and account for full environmental costs): expected fiscal savings 8.5 percent of GDP.
  - Partial reform environmental benefits: 5.8 percent of GDP; economic cost: 0.8 percent of GDP; welfare improvement: 5 percent of GDP.
  - Full reform welfare improvement: 6.7 percent of GDP; environmental benefits: 9.2 percent of GDP; economic cost: 2.5 percent of GDP.
- Reform principles: phased approach, targeted transfers, careful sequencing, automatic pricing mechanisms, effective communication, transparency, and strategic use of savings to strengthen social safety nets and growth-enhancing public policies.

### Fideicomisos and Fiscal Risks (selected figures)
- Roughly 90 fideicomisos, of which 36 are active; 15 offer credit.
- ASFI data at end-June 2023:
  - Total authorized volume of public credit fideicomisos managed by two state-owned banks: Bs. 21.9 billion (about 7 percent of GDP).
  - Of that total, Bs. 8.5 billion (39 percent) allocated as credit.
- Public credit fideicomisos equivalent to:
  - 4.6 percent of commercial bank credit (up from 4.1 percent end-2018).
  - 12.9 percent of commercial banks’ corporate credit.
- Delinquency ratio increased from 2.9 percent in 2018 to 27.8 percent in June 2023.
- Provisions coverage fell from 128 percent to 39 percent between 2018 and June 2023.
- Capital ratio remained stable at around 60 percent.

### Data, Transparency, and Statistics
- Data adequacy broadly sufficient for surveillance but timeliness is essential.
- External sector data, including international reserves, suffered delays since early 2023.
- Recommendations:
  - Revert to pre-2023 publication schedule for external and monetary statistics.
  - Expand coverage and frequency of non-financial public sector data.
  - Continue GDP and CPI rebasing.
  - Adopt General Data Dissemination Standards.

### Staff Appraisal — Summary Findings
- Bolivia sustained significant socioeconomic progress, but growing macroeconomic imbalances put gains at risk.
- Persistent fiscal and external deficits, dwindling natural gas dividends, and an increasingly overvalued exchange rate have produced high public debt and drained reserves.
- 2023 external position assessed substantially weaker than implied by fundamentals.
- A comprehensive national accounts data overhaul is expected to be completed this year.
- Two viable strategies if external financing not available:
  - Front-loaded fiscal consolidation (~3 percent of GDP) that realigns external position but risks sharp slowdown and financial stress.
  - Gradual fiscal consolidation with up-front 35 percent devaluation and crawling peg that yields faster reserve rebuilding and lower medium-term economic cost (staff view preferred if supporting policies in place).
- Strong emphasis on strengthening fiscal and central bank governance for successful implementation.

*Source: Bolivia — Staff Report for the 2024 Article IV Consultation (extract).*

### 4.5 percent in 2024, stabilizing around 4 percent thereafter. The outlook is however predicated

### Bolivia: Staff Report for the 2024 Article IV Consultation (extract)

### Outlook and Risks
- Near-term growth: "4.5 percent in 2024, stabilizing around 4 percent thereafter."  
- Outlook predicated on significantly improved access to external financing; without such access, the risk of disorderly fiscal and/or exchange rate adjustment is elevated.
- External downside risks: reduced demand, intensified global conflicts disrupting trade routes, commodity price volatility, renewed tightening of financial conditions.
- Domestic downside risks: faster decline in hydrocarbon production; higher inflation due to FX scarcity; confidence shocks; social unrest tied to inequality and security concerns (evidenced by prolonged road blockages of early 2024).
- Climate and weather risks: extreme weather events (2023 droughts and recent floods) threaten the agricultural sector and critical infrastructure.
- Potential upside: benefit from the global shift towards green energy owing to "vast lithium resources," though developing the lithium sector and scaling up domestic production capacity "will likely take time."

### Executive Board Assessment (summarized)
- Directors welcomed Bolivia's socioeconomic progress but were concerned about "low reserves, uncertain fiscal financing, and pressures in parallel exchange markets."
- Urgency called for a shift from unsustainable policies to avoid a disorderly adjustment that would cause significant social and economic hardship.
- Recommended policy package elements:
  - A sustainable policy mix that likely requires both fiscal adjustment phased in over the next few years and an up-front step devaluation to address external imbalance and allow reserve rebuild.
  - Improve the social safety net to shield poorer households from inflation following exchange rate realignment.
  - Strengthen fiscal institutions to underpin credibility of the planned adjustment.
  - Improve central bank governance to support a shift to a crawling peg and eventually to inflation targeting.
  - Strengthen central bank capacity to conduct sterilization operations and lift lending rate caps to improve capital allocation and monetary policy transmission.
  - Improve crisis preparedness and contingency planning in line with FSAP recommendations to safeguard financial stability.
  - Supply-side reforms to unlock private investment, boost productivity, and enhance competitiveness: phase out export ceilings and price controls; better prioritize public investment projects.
  - Strengthen regulatory framework for hydrocarbon and lithium exploration to increase investment.
  - Enhance AML/CFT framework and ensure timely publication of key macroeconomic data.

### Key Findings and Macroeconomic Context
- Context: Expansionary and redistributive fiscal policies since the mid-2000s delivered high growth and large poverty reduction, funded by natural gas revenues, external borrowing, and central bank lending (and reserves drawdown).
- Structural change: Since 2014, proceeds from natural gas exports declined by "70 percent" due to lower global prices and waning domestic production after underinvestment.
- Impact on balances:
  - Fuel imports rose from "4 to 9 percent of GDP" as domestic oil production dwindled and price subsidies boosted demand.
  - Natural gas revenues fell by "almost 3 percent of GDP" while energy-related subsidies rose by "2½ percent of GDP."
  - Public debt has surpassed "80 percent of GDP" and international reserves were nearly depleted.
- Financial stress events: In early 2023, FX shortage led banks to suspend convertibility of the boliviano and restrict FX deposit withdrawals; Banco Fassil failed.
- Sovereign risk: EMBI spreads rose sharply in early 2023, surpassing "2000 bps" at one stage; sovereign credit ratings downgraded.
- Political tensions: legislative gridlock and social disruptions (a 16-day road blockade in January estimated to have caused "nearly USD 1 billion" in economic losses).

### Recent Developments and Indicators (selected)
- Growth and inflation:
  - Real GDP: 2022: 3.6; 2023: 2.5; 2024 (Est.): 1.6; 2025 (Proj.): 2.2; 2026 (Proj.): 2.2.
  - CPI inflation (period average): 2022: 1.7; 2023: 2.6; 2024: 4.5; 2025: 4.2; 2026: 3.9.
  - CPI inflation (end of period): 2022: 3.1; 2023: 2.1; 2024: 4.8; 2025: 4.0; 2026: 3.9.
- Investment and savings:
  - Total investment: 2022: 15.1; 2023: 15.9; 2024: 16.6; 2025: 16.3; 2026: 16.0.
  - Gross national savings: 2022: 12.5; 2023: 8.6; 2024: 10.5; 2025: 10.3; 2026: 10.5.
- Public finances (Combined public sector):
  - Revenues and grants: 2022: 28.9; 2023: 28.3; 2024: 27.6; 2025: 27.4; 2026: 27.1.
  - Expenditure: 2022: 36.0; 2023: 35.3; 2024: 35.5; 2025: 34.8; 2026: 34.3.
  - Net lending/borrowing (overall balance): 2022: -7.1; 2023: -7.0; 2024: -7.9; 2025: -7.5; 2026: -7.2.
  - Non-hydrocarbon balance: 2022: -12.8; 2023: -12.2; 2024: -12.0; 2025: -11.2; 2026: -10.5.
  - Total gross NFPS debt: 2022: 80.4; 2023: 83.6; 2024: 86.7; 2025: 88.9; 2026: 90.9.
  - Hydrocarbon related revenue (share of revenues): 2022: 6.0; 2023: 5.4; 2024: 4.3; 2025: 3.9; 2026: 3.5.
- External sector:
  - Current account (percent of GDP): 2022: -0.4; 2023: -5.0; 2024: -5.7; 2025: -5.8; 2026: -5.6.
  - Exports of goods and services: 2022: 32.6; 2023: 28.5; 2024: 27.0; 2025: 26.9; 2026: 26.5.
  - Imports of goods and services: 2022: 32.9; 2023: 34.4; 2024: 33.6; 2025: 33.6; 2026: 32.7.
  - Natural gas exports (share): 2022: 6.7; 2023: 3.8; 2024: 3.4; 2025: 3.0; 2026: 2.7.
  - Financial account (-= net inflow): 2022: -1.5; 2023: -0.5; 2024: -5.3; 2025: -5.8; 2026: -5.6.
- Reserves and coverage:
  - Central Bank gross foreign reserves (in millions of U.S. dollars): 2022: 3,796; 2023: 1,808; 2024: 1,653; 2025: 1,555; 2026: 1,556.
  - Months of imports of goods and services: 2022: 2.8; 2023: 1.3; 2024: 1.1; 2025: 1.0; 2026: 1.0.
  - Reserves in percent of GDP: 2022: 8.6; 2023: 3.9; 2024: 3.4; 2025: 3.0; 2026: 2.8.
  - Reserves in percent of ARA: 2022: 44.5; 2023: 20.8; 2024: 18.2; 2025: 16.2; 2026: 15.5.
- Money and credit:
  - Credit to the private sector (percent change): 2022: 6.3; 2023: -0.4; 2024: 3.0; 2025: 4.3; 2026: 5.1.
  - Credit to the private sector (percent of GDP): 2022: 74.2; 2023: 70.5; 2024: 68.4; 2025: 67.0; 2026: 66.3.
  - Broad money (percent of GDP): 2022: 85.2; 2023: 82.8; 2024: 81.2; 2025: 80.0; 2026: 78.9.
- Memorandum items:
  - Nominal GDP (in billions of U.S. dollars): 2022: 44.3; 2023: 46.5; 2024: 49.3; 2025: 52.5; 2026: 55.8.
  - Bolivianos/U.S. dollar (end-of-period): 2022: 6.9; 2023: 6.9.
  - Oil prices (in U.S. dollars per barrel): 2022: 96.4; 2023: 80.6; 2024: 77.7; 2025: 73.8; 2026: 70.9.
  - Energy-related subsidies to SOEs (percent of GDP): 2022: 4.4; 2023: 4.0; 2024: 3.5; 2025: 2.7; 2026: 2.4.

### A Difficult Conjuncture — Key Diagnostic Points
- Recent growth slowdown: Real GDP grew 3.6 percent in 2022 and slowed to 2.5 percent in 2023 due to declining natural gas production, retrenchment in public investment, financial market turbulence, and deepening macro imbalances.
- Inflation: Low relative to the region due to price controls and costly subsidies; CPI fell to "1.9 percent by January 2024" after peaking at "3.1 percent" end-2022.
- Gross fiscal financing needs (GFNs): Peaked in 2022; GFN in 2023 was "14.2 percent of GDP" met mostly from domestic sources. GFNs expected to remain relatively contained until Eurobond payments in 2026.
- External position and FX scarcity:
  - Large current account deficit ("estimated at 5 percent of GDP in 2023") and lack of access to external financing led to drawdown of reserves and FX shortage.
  - Parallel FX market premium estimated at "15-20 percent" by February 2024.
  - Gross international reserves at end-2023: "US$1.8 billion" (~1 month of import cover and "21 percent of the Fund’s ARA metric"), largely encumbered gold.
- Policy measures taken to bolster FX and reduce fuel imports: maturity extension of currency swaps to 2026; restrictions on gold exports by local producers; issuance of dollar-denominated bonds in local market; fast-tracking tax refunds for private exporters; domestic biodiesel production and increased ethanol content in gasoline; promotion of flex-fuel and electric vehicles.
- Assessment of REER: Bolivia’s 2023 external position is "assessed to be substantially weaker than the level implied by medium-term fundamentals and desirable policies." The real exchange rate is estimated to be "overvalued by 12–23 percent (Annex I)."

### Policy Priorities (staff recommendations summarized)
- Center a credible multi-year fiscal consolidation plan on:
  - Improvements in social assistance programs.
  - Phase-out of fuel subsidies.
  - Reductions in the government wage bill.
  - Tax reforms to mobilize non-resource revenues.
- Front-load adjustment: significant reduction in public investment in the short-term likely required to ensure sufficiently front-loaded adjustment.
- Exchange rate policy: a step devaluation to lessen external pressures and begin a phased transition to an inflation targeting framework.
- Financial stability and crisis preparedness:
  - Invest in crisis management and contingency planning per FSAP recommendations.
  - Prepare for systemic financial stability risks during adjustment.
- Structural and regulatory reforms:
  - Incentivize foreign investment, improve capital allocation, eliminate credit quotas and interest rate ceilings.
  - Expand and diversify the export base.
  - Strengthen fiscal and central bank governance.
  - Revamp regulatory framework to enable development of lithium and hydrocarbon resources.

*Source: Bolivia — Staff Report for the 2024 Article IV Consultation (extract).*

### 9.      In conjunction with the macroeconomic imbalances discussed above, financial stability

### UNWINDING MACROECONOMIC IMBALANCES

### Financial stability risks
- A deposit run occurred at Banco Fassil in March 2023 after rapid balance sheet growth driven by real estate investments and related-party lending; ASFI intervened in April 2023 and larger banks absorbed its deposits and performing loans, while a trust fund—administered by Banco Unión—was established to manage remaining assets and liabilities.
- For the system as a whole, bank capitalization exceeds regulatory requirements, albeit based on the local definition of bank capital and exceptional provisions regarding Banco Fassil’s impaired loans.
- NPLs are low at 3 percent at end-2023 but have doubled since 2021 and may be understated because of regulatory forbearance enacted during and after the pandemic.
- Bolivia has not introduced forward-looking provisions as per IFRS 9; banks maintain a total provision ratio of 135 percent of NPLs.
- Liquidity risks have increased:
  - local currency liquidity risk, including rollover risk linked to pension fund deposits;
  - FX mismatches and constraints on FX liquidity management due to limits on investments abroad, restrictions on remittance payment modalities, restrictions on commissions for dollar transfers abroad, and unavailability of FX assets tied up in swaps with the BCB.
- Foreign investment limits for banks were lowered from 10 percent to 8 percent in January 2023, and to 6 percent for demand deposits and 3 percent for remaining investments in February 2024; since November 2023, limits are waived for the publicly-owned bank to facilitate government payments.

### Outlook and risks (baseline)
- Baseline assumes continuation of current policy mix; this path is not sustainable and requires large additional external financing flows to maintain.
- Activity in 2024 reduced by prolonged road blockages and weak agricultural output due to El Nino effects.
- Inflation expected to be contained in the 3–5 percent range over the next couple of years under continued subsidies and the exchange rate peg, with upside risks from greater pass-through from the weaker parallel exchange rate.
- Current account deficit projected to remain large in the 5–6 percent of GDP range.
- International reserves projected to be close to their legal minimum.
- Government would need to obtain around US$1.5 billion (2–3 percent of GDP) per year in currently unidentified external financing to keep the benign baseline feasible.
- Even with that financing, Bolivia’s risk of sovereign distress would be high; GFNs would increase over time and the sovereign-financial nexus would strengthen as pension fund exposure to government debt rises.

### Adjustment scenarios and trade-offs
- Without significant sustained external financing, authorities face difficult trade-offs and must shift policy to avoid a disorderly adjustment; two orderly adjustment scenarios are outlined: sharp front-loaded fiscal adjustment, or gradual fiscal adjustment with exchange rate adjustment.
- Sharp front-loaded fiscal adjustment (illustrative):
  - Requires an up-front fiscal adjustment in 2024 of around 3 percent of GDP relative to current budget plans, largely via cuts in public investment.
  - Positive effects: averts monetization of fiscal deficit, compresses imports, eliminates current account deficit, moderates pace of increase in debt/GDP, stops drain on reserves, eases exchange rate pressures.
  - Negative effects: triggers sharp deceleration in growth; international reserves would recover only slowly; risks of debt distress remain high; domestic interest rates would likely need to be increased and remain high; slowdown and higher rates could reveal credit quality problems and potentially push some banks’ capital below regulatory minimum.
  - Authorities could consider increasing exchange rate flexibility over time, but this risks entrenching depreciation expectations and prompting deposit and capital outflows.
  - Lifting remaining gold reserves’ use restrictions could provide a 4-6 month respite, but requires congressional approval.
  - Staff estimate: a sentiment shock causing an unexpected exchange rate devaluation of 30 percent would depress growth by 2 percentage points and could impair the banking system (not included in illustrative scenarios).

- Gradual fiscal adjustment with exchange rate adjustment (illustrative):
  - Involves less upfront fiscal consolidation, more revenue mobilization and reprioritization of current spending, accompanied by an up-front 35 percent adjustment of the exchange rate and subsequent crawling-peg arrangement.
  - BCB would need to tighten domestic liquidity conditions and strengthen monetary policy transmission.
  - Negative effects: initial spike in inflation, around 1½ percent of GDP in additional fuel subsidy costs (partially compensated by higher royalties), immediate rise in public debt ratio by around 10 percent of GDP, near-term growth deceleration, need for front-loaded reform to contain fuel subsidy costs which adds pressure on inflation.
  - Positive effects: quicker restoration of external balance, steady rebuilding of reserves, unwinding of restrictions on banks’ FX swaps, reduced transition risks, faster demand rebound through higher exports and a more competitive goods sector, smaller cuts to public investment, reduced impact on credit quality due to little apparent FX mismatch in banks, fiscal funding gaps eliminated quickly, debt/GDP path improves over medium term shifting debt distress risk from high to moderate (per IMF SREDSA).
  - Staff view this policy mix, with a credible supporting package, as a preferable path.

### Quantitative projections (selected figures from Baseline and Reform scenarios)
- Baseline projections (selected):
  - Real GDP (percent): 2022 3.6, 2023 2.5, 2024 1.6, 2025 2.2, 2026 2.2, 2027 2.3, 2028 2.3, 2029 2.3.
  - CPI inflation (average, percent): 2022 1.7, 2023 2.6, 2024 4.5, 2025 4.2, 2026 3.9, 2027 3.8, 2028 3.8, 2029 3.8.
  - Primary balance (percent of GDP): 2022 -5.5, 2023 -4.9, 2024 -5.7, 2025 -5.3.
  - Overall balance (percent of GDP): 2022 -7.1, 2023 -7.0, 2024 -7.9, 2025 -7.5.
  - Total gross NFPS debt (percent of GDP): 2022 80.4, 2023 83.6, 2024 86.7, 2025 88.9, 2026 90.9, 2027 92.7, 2028 94.5, 2029 96.1.
  - Gross Financing Needs: 2022 19.9, 2023 14.2, 2024 14.5, 2025 12.6, 2026 10.7, 2027 10.6, 2028 10.6, 2029 10.5.
  - Current account (percent of GDP): 2022 -0.4, 2023 -5.0, 2024 -5.7, 2025 -5.8, 2026 -5.6, 2027 -5.2, 2028 -5.2, 2029 -5.2.
  - Central Bank gross foreign reserves (in USD million): 2022 379, 2023 618, 2024 1,808, 2025 1,653, 2026 1,555, 2027 1,556, 2028 1,557, 2029 1,556.
  - Reserves in percent of ARA: 2022 44.5, 2023 20.8, 2024 18.2, 2025 16.2, 2026 15.5, 2027 14.8, 2028 14.1, 2029 13.4.

- Reform scenario with fiscal adjustment (selected):
  - Real GDP (percentage change): 2022 3.6, 2023 2.5, 2024 -0.2, 2025 1.5, 2026 1.8, 2027 2.1, 2028 2.1, 2029 2.2.
  - CPI inflation (average, percent): 2022 1.7, 2023 2.6, 2024 3.5, 2025 3.9, 2026 3.9, 2027 3.8, 2028 3.8, 2029 3.8.
  - Primary balance (percent of GDP): 2022 -5.5, 2023 -4.9, 2024 -2.7, 2025 -2.5.
  - Overall balance (percent of GDP): 2022 -7.1, 2023 -7.0, 2024 -4.9, 2025 -4.7.
  - Total gross NFPS debt (percent of GDP): 2022 80.4, 2023 83.6, 2024 85.9, 2025 86.1, 2026 86.0, 2027 85.6, 2028 85.3, 2029 84.8.
  - Gross Financing Needs: 2022 19.9, 2023 14.2, 2024 11.7, 2025 10.0, 2026 8.1, 2027 7.9, 2028 7.9, 2029 7.8.
  - Current account (percent of GDP): 2022 -0.4, 2023 -5.0, 2024 -2.8, 2025 -2.3, 2026 -1.9, 2027 -1.4, 2028 -1.2, 2029 -1.1.
  - Central Bank gross foreign reserves (in USD million): 2022 379, 2023 618, 2024 1,663, 2025 1,824, 2026 2,088, 2027 2,841, 2028 3,874, 2029 4,883.
  - Reserves in percent of ARA: 2022 44.5, 2023 20.8, 2024 18.6, 2025 19.4, 2026 21.3, 2027 27.7, 2028 36.0, 2029 43.3.

- Reform scenario with fiscal and exchange rate adjustments (selected):
  - Up-front exchange rate adjustment of 35 percent, followed by crawling peg; adjustment calibrated to lead real exchange rate to modestly overshoot initially and converge to a long-run equilibrium around 15 percent weaker than baseline.
  - Real GDP (percent): 2022 3.6, 2023 2.5, 2024 0.5, 2025 2.0, 2026 2.7, 2027 3.4, 2028 3.3, 2029 3.3.
  - CPI inflation (average, percent): 2022 1.7, 2023 2.6, 2024 15.2, 2025 8.5, 2026 7.5, 2027 6.5, 2028 5.8, 2029 5.3.
  - Primary balance (percent of GDP): 2022 -5.5, 2023 -4.9, 2024 -5.2, 2025 -3.7, 2026 -2.5, 2027 -1.6, 2028 -0.7, 2029 -0.2.
  - Overall balance (percent of GDP): 2022 -7.1, 2023 -7.0, 2024 -7.5, 2025 -5.9, 2026 -4.6, 2027 -3.6, 2028 -2.5, 2029 -2.0.
  - Total gross NFPS debt (percent of GDP): 2022 80.4, 2023 83.6, 2024 88.8, 2025 86.8, 2026 83.9, 2027 80.5, 2028 76.5, 2029 72.6.
  - Gross Financing Needs: 2022 19.9, 2023 14.2, 2024 14.0, 2025 10.9, 2026 8.2, 2027 7.1, 2028 5.8, 2029 5.1.
  - Current account (percent of GDP): 2022 -0.4, 2023 -5.0, 2024 -1.6, 2025 -1.4, 2026 -0.1, 2027 -0.3, 2028 -0.1, 2029 -0.5.
  - Central Bank gross foreign reserves (in USD million): 2022 379, 2023 618, 2024 2,267, 2025 2,895, 2026 4,164, 2027 5,633, 2028 7,467, 2029 8,889.
  - Reserves in percent of ARA: 2022 44.5, 2023 20.8, 2024 23.9, 2025 28.2, 2026 38.0, 2027 48.3, 2028 59.9, 2029 67.3.

### Socioeconomic and external vulnerabilities
- Both abrupt fiscal adjustment and devaluation/phasing-out of fuel subsidies are likely to generate important socioeconomic hardships and should be mitigated by expanding the social safety net and setting aside significant public resources to protect lower-income households until recovery resumes.
- Economy vulnerable to external and climate shocks:
  - external demand deceleration, trade disruptions from external conflicts, deterioration of terms of trade, or renewed global financial tightening could exacerbate imbalances, hamper growth and weaken the financial sector;
  - extreme weather (e.g., 2023 droughts and floods) may impair the large agricultural sector and damage infrastructure.

### Authorities’ views
- Authorities recognize vulnerabilities from low international reserves, attributing them to structural and conjunctural factors: declining hydrocarbon production potential, time to develop new resources, unfavorable external environment, and political tensions.
- Authorities emphasize resilience of the economy and government actions to protect recovery and living standards, and expect foreign exchange availability to gradually stabilize with measures agreed with the private sector.
- Authorities concur fiscal deficit must be reduced but favor gradual consolidation via stronger revenue administration, spending restraint, and savings in fuel subsidy costs through expanded use of domestic biofuels; they oppose exchange rate adjustments or major fuel subsidy changes due to impacts on vulnerable populations and key sectors like agriculture.

### Policy recommendations to restore debt sustainability
- Consider assertive actions on spending and revenue, underpinned by improved fiscal governance:
  - Elimination of energy subsidies via gradual phase-out while recycling part of fiscal savings to compensate vulnerable households; public communications campaign to highlight regressive nature of subsidies and link social protection enhancements to subsidy reform. Increasing fuel prices by 5 percent per quarter in the first two years of reform is estimated to generate budgetary savings of 1.4 percent of GDP.
  - Reduction in the wage bill by reviewing civil service compensation policies, restraining real wage growth, and eliminating the extraordinary year-end wage bonus (doble aguinaldo); assess public service structures and governance for efficiency gains.
  - Improve public investment management (e.g., PIMA) to contain contractionary impact from reduced capital spending and improve planning, allocation, and execution of capital spending.
  - Mobilize tax revenues through modernizing tax and customs administration (strengthen compliance risk management, streamline processes, leverage enhanced IT systems, foster collaboration between tax and customs), promote economic formalization in labor, trade and mining, and consider policy changes including:
    - introducing a personal income tax with a broad base and progressive schedule;
    - improving taxation of immobile property as a more efficient alternative to the current wealth tax;
    - applying VAT on imported and digital services;
    - reducing the minimum transaction tax rate (currently 3 percent of gross income) to lower barriers to formalization and firm growth.
  - Other measures: enhance current spending efficiency and strengthen SOE governance to improve transparency and financial positions.

*Source: IMF staff report content provided in the supplied PDF chapter.*

### 18.      In addition, investments should be made to strengthen the institutional framework for

### 1bolea2025001-print-pdf - 18.      In addition, investments should be made to strengthen the institutional framework for

### A. Strengthening the fiscal framework
- Prepare and publish a comprehensive medium-term fiscal framework (MTFF, Annex IV), anchored on long-term debt sustainability objectives, to facilitate fiscal planning, enhance credibility of fiscal policy, and limit procyclicality.
- Develop capacity for medium-term forecasting and assessment of fiscal risks.
- Improve timeliness of fiscal reporting to enhance transparency and accountability.
- Authorities’ Views:
  - Authorities are confident in their ability to abate mounting fiscal pressures, citing recent austerity measures and tax and customs administration efforts.
  - They agree structural reforms are needed to contain fiscal deficits but expressed concern about the impact of staff-recommended fiscal adjustments on vulnerable populations and long-term growth.
  - They see scope to improve fiscal planning capacity and public investment efficiency and welcomed IMF CD support.
  - They highlighted efforts to reduce the cost of fuel subsidies (selling fuels at higher than subsidized prices, accelerating biofuel plant construction) and are working on developing a Medium-Term Fiscal Framework.

### B. Protecting the vulnerable
- Enhance social transfer programs to maintain effectiveness amid scarcer fiscal resources and a more difficult macroeconomic environment.
- Key programs (universal social pensions and conditional cash transfers) rely directly on proceeds from hydrocarbons production and SOE dividends, both expected to decline over time.
- Improve program design to protect the most vulnerable as fiscal pressures rise.
- Improve targeting of social assistance:
  - Current programs favor the elderly and children but provide little assistance to the non-elderly adult population.
  - Around two-thirds of non-poor households receive at least one social benefit, increasing costs and leaving average benefits at relatively low levels.
  - Recommendation: Shift to means-tested programs, initially via proxy targeting strategies and ultimately via systematic means-testing based on a comprehensive beneficiary database.
- Simplify institutional design:
  - Implement a unified social registry for social programs (could leverage the 2024 census) to improve beneficiary identification, targeting, and reduce duplication.
  - Leverage the financial sector for transfers and explore digital solutions for remote regions to enhance coverage and reduce administrative costs.
- Authorities’ Views:
  - Officials concur with prioritizing support for vulnerable households and highlight the government’s record in reducing poverty and inequality, extensive reach of social protection, and significant budget shares for health and education.
  - They intend to build upon an envisaged "Census of the Poor", use satellite data, and collaborate with development partners to improve safety-net design and targeting.

### C. Redesigning the monetary framework
- Recommended sequence (provided supporting policies are in place):
  1. Implement a step devaluation to address real exchange misalignment given scarce international reserves.
     - Rationale: With reserves depleted, gradual adjustment risks fueling expectations of depreciation, portfolio shifts out of bolivianos, and requirement of much tighter monetary policy.
     - Limited financial sector dollarization and low private sector FX mismatches reduce balance-sheet effects of devaluation.
     - As of end-2023, 10.2 percent of deposits and 0.7 percent of loans were denominated in foreign currency.
     - A moderate share of public debt in foreign currency will help mitigate impact.
     - Devaluation would contract imports and improve export competitiveness, but increase quasi-fiscal costs of the central bank’s outstanding stock of FX swaps which could require eventual recapitalization of the central bank.
  2. Move to a crawling peg regime after the devaluation to prevent renewed misalignment.
     - Design parameters (planned rate of crawl, width of band) must be carefully set and clearly communicated.
     - Given limited reserves: eliminate or drastically reduce monetization of fiscal deficit; tightly circumscribe FX intervention; allow domestic interest rates to move flexibly; undertake sterilization to align money supply with demand for bolivianos.
     - Eliminate existing caps on domestic currency interest rates to ensure transmission.
     - Bolster BCB autonomy and operational capacity to manage liquidity, monitor markets, and produce independent forecasts.
  3. Medium-term objective: transition to an inflation targeting regime once institutional capacity is built.
     - Requires development of FX and money markets, FX hedging instruments, clear communication guided by price and financial stability, deployment of macroprudential tools to prevent FX mismatches (e.g., limits on FX open positions, higher capital requirements for loans without a natural FX hedge).
     - Central bank independence and publication of robust macroeconomic statistics are essential.
- Authorities’ Views:
  - Officials favor maintaining a stable exchange rate, arguing it has supported macro stability, low inflation, and low dollarization.
  - They argued against devaluation or phased transition to a floating rate, citing potential destabilizing effects and loss of monetary policy margin due to reduced confidence in the currency.
  - They remain committed to stable inflation and are seeking to develop capacity for more active sterilization operations.

### D. Managing implications for financial stability
- Current risks and vulnerabilities:
  - Liquidity risks remain elevated; banks’ FX liquidity is mostly tied up in longer-term swaps with the BCB.
  - Concerns over the currency peg may drive liquidation of local currency deposits.
  - Binding liquidity regulation is absent.
  - Banks’ provisions stand at 135 percent of NPLs.
  - 2024 FSAP stress scenario shows banks accounting for 32 percent of system assets would be expected to fall below the regulatory capital minimum.
  - Shortcomings exist in crisis management tools and contingency planning; systemic risk monitoring is hampered by data gaps; macroprudential toolkit is incomplete.
- Priority reforms to strengthen crisis management (see Annex VIII for 2024 FSAP recommendations):
  - Establish guidance on recovery planning and develop bank-by-bank resolution plans covering scenarios from individual failures to systemic crises; define board oversight, responsibilities, activation triggers, and restoration points.
  - Enhance macroprudential frameworks: enact minimum liquidity requirements, adopt Basel III-compliant liquidity coverage ratio and net stable funding ratio, implement borrower-based instruments, introduce additional capital buffers (especially for D-SIBs).
  - Adopt clear quantitative triggers for intervening in troubled banks (illiquidity or capital shortfalls); expedite crisis resolution; discourage judicial interventions via clear legal provisions; limit potential shareholder compensation to purely monetary redress in proven premature actions by ASFI.
  - Align resolution tools with international best practices: introduce legal safeguards for supervisors, new resolution powers (including bridge bank, creditor bail-in), designate and publish list of domestic systematically important banks (D-SIBs), and strengthen resolution tools for such institutions.
  - Strengthen the deposit insurance fund: align governance and coverage with IADI Core Principles; manage by a dedicated unit within the BCB with an independent management board; exclude government deposits from coverage; limit fund usage to estimated liquidation costs; increase fund size to the implicit target of 5 percent.
  - Tighten conditions for emergency liquidity assistance: banks relying on BCB credit windows beyond the repo facility should face stricter supervisory scrutiny and quarterly financial health assessments.
- Supervision and stress-testing:
  - Rigorous stress testing and closing data gaps are needed to identify troubled banks and enable pre-emptive supervisory action.
  - Banks likely to fall below regulatory or liquidity minima should face enhanced supervision, be required to conduct solvency stress testing alongside liquidity and FX assessments, and present business plans to maintain compliance under stress.
  - Prioritize efforts to address data gaps hindering tests (e.g., deposit concentration, corporate stress testing).
- AML/CFT:
  - Bolivia improved its AML/CFT framework; following a GAFILAT assessment approved in December 2023, Bolivia is under a one-year observation period by FATF and must address shortcomings by June 2025 or face increased monitoring by FATF’s International Cooperation Review Group.
  - Authorities are urged to develop a clear road map to meet FATF timelines.
- Authorities’ Views:
  - Authorities emphasize the financial system’s resilience (low NPL rates, above-required capitalization ratios, high profitability).
  - They accept some FSAP recommendations on institutional capacity but contest the severity of stress test parameters.
  - They view the current deposit insurance system as efficient and aligned with international practice, note systemic risk regulation exceeds Basel requirements in certain areas, consider liquidity regulation robust, and express confidence in bank resolution arrangements and established quantitative intervention triggers.

### E. Removing supply-side impediments to growth
- Structural constraints:
  - Narrow export base concentrated in soybeans, minerals (gold and zinc), and natural gas.
  - Natural gas production expected to continue declining; country potentially becoming a net importer by 2030.
  - Agricultural exports hindered by export quotas and other regulations.
  - Government expanding capacity to produce fertilizers (for exporting) and biodiesel (to increase domestic agricultural demand and substitute imported fuels).
- Policy recommendations to boost competitiveness and investment:
  - Revise hydrocarbons law to incentivize exploration, reduce compliance costs, and minimize regulatory uncertainty while upholding environmental safeguards.
  - Establish a new framework to develop lithium resources (Annex V) to streamline regulatory processes, mitigate environmental risks, and create transparent revenue-sharing mechanisms among investors, local and central governments.
  - Allocate scarce public investment strategically to target bottlenecks and areas of high social benefit (e.g., public transportation, renewable energy).
  - Eliminate or relax credit quotas, interest rate controls, and directed credit to improve capital allocation and competition; harmonize regulatory frameworks across public and private banks to ensure a level playing field.
  - Strengthen design, oversight, and evaluation of public fideicomisos (trusts) to ensure transparent use of public resources and minimize negative impacts on banking competition and stability (Annex VII).
  - Update the insolvency framework and strengthen credit registry reliability and coverage.
  - Implement a national financial inclusion strategy to preserve past gains in broadening access to financial services.
  - Phase out export ceilings and price controls to incentivize agricultural investment as exchange rate aligns with medium-term fundamentals.
  - Strengthen environmental safeguards to prevent pollution and deforestation, mitigate climate-related exposure, bolster legal frameworks, enhance monitoring, and strengthen enforcement for air, water, soil, and land use protection.
  - Invest in resilient infrastructure, diversify away from hydrocarbon production, and pursue efficient energy consumption to build climate resilience and economic sustainability.
- Authorities’ Views:
  - Authorities argue current price controls, quotas, subsidies, and public investment strike a balance between growth and social equity.
  - They view credit quotas and interest rate caps as essential to direct resources to critical development sectors, facilitate import substitution, and ensure funding for investments in key export sectors.
  - They noted measures agreed with the private sector to streamline export procedures, support productivity-enhancing investments in agriculture, lower transportation costs, and facilitate diesel imports directly by private companies.
  - Authorities highlighted progress in industrialization projects (lithium, other mining resources, productive sector) and upcoming biodiesel plants; they support private sector involvement and are enhancing monitoring of public trust funds.

### F. Data and statistical transparency
- Data adequacy is broadly sufficient for surveillance, but timely publication of key macroeconomic statistics is essential for transparency and accountability.
- External sector data, including international reserves information, suffered significant delays since early 2023.
- Recommendation: Revert to pre-2023 publication schedule for external and monetary statistics.
- Expand coverage and frequency of data on the non-financial public sector to better monitor fiscal developments.
- Ongoing initiatives to rebase both GDP and CPI are commendable.
- Adoption of the General Data Dissemination Standards would demonstrate commitment to data transparency.

*IMF Country Report excerpt (content unit).*

### 37.      The authorities agreed that timely publication of economic statistics fosters

### 1bolea2025001-print-pdf - 37.      The authorities agreed that timely publication of economic statistics fosters

### Staff appraisal — summary findings
- Bolivia has sustained significant socioeconomic progress over the past two decades, but growing macroeconomic imbalances can put such gains at risk.
- Growth has outpaced regional peers, poverty rates have declined significantly, and inflation has been low, supported by fuel subsidies, price controls, and a fixed exchange rate regime.
- Persistent fiscal and external deficits, amid dwindling natural gas dividends and an increasingly overvalued exchange rate, have resulted in high public debt and drained international reserves.
- Bolivia’s 2023 external position is assessed to be substantially weaker than the level implied by medium-term fundamentals and desirable policies.
- A comprehensive national accounts data overhaul is expected to be completed this year.

### Risks and downside scenarios
- The outlook is subject to exceptionally high downside risks.
- Continuing the current, unsustainable policy mix will require external financing significantly above currently identified future inflows.
- International reserves are expected to remain near their legal minimum while risks of sovereign debt distress would remain high.
- Headwinds include waning hydrocarbon production, subdued credit growth, the overvalued exchange rate, and heightened economic and political uncertainty, which are expected to:
  - yield sub-par growth outturns;
  - widen the parallel exchange rate premium, fueling inflationary pressures.
- Lack of significant new external financing could force the government to abruptly cut spending and rely heavily on domestic financing, adding further pressure on international reserves, the parallel exchange rate, and potentially triggering capital outflows, increasing the sovereign-bank nexus, and crowding out financing to the private economy.
- Confidence shocks could trigger a disorderly adjustment of the exchange rate, a deep recession, systemic financial instability, and/or runaway inflation.

### Policy strategies and scenarios
- Two possible strategies are envisaged if significant external financing is not available:
  - A front-loaded fiscal consolidation of about 3 percent of GDP:
    - initially rely on reducing public investment to help realign the external position;
    - eliminate the need for central bank budget financing;
    - halt the drain on international reserves and put the debt-to-GDP ratio on a downward path.
    - This approach would require increasing domestic interest rates to support the exchange rate peg and dissuade capital outflows.
    - Downside impacts: fiscal contraction and higher interest rates would likely trigger an abrupt economic slowdown, raise public debt servicing costs, increase NPLs, and place bank balance sheets under strain; the stock of usable international reserves would remain close to zero for an extended period.
  - A more gradual fiscal adjustment accompanied by a step devaluation and a shift to a crawling-peg regime:
    - A 35 percent devaluation would eliminate the overvaluation but would require tighter monetary conditions.
    - Together with expected future real appreciation, this would disincentivize dollarization and help restore external balance.
    - Fiscal adjustment would rely on the gradual phase-out of fuel subsidies, tax increases, and rationalization of current expenditures.
    - Although the devaluation is expected to lead to initial spikes in inflation and debt-to-GDP ratio, the contraction in output would likely be less pronounced while the more competitive exchange rate would allow for international reserves rebuilding, leading to a faster recovery in output growth and a lower path for debt-to-GDP over the medium term.
- Assessment:
  - Provided the required policies for a successful transition are in place, a more gradual fiscal consolidation accompanied by an up-front exchange rate devaluation provides a less socially costly adjustment path and lower economic costs than relying solely on an up-front fiscal retrenchment.
  - A gradual adjustment of the exchange rate should be avoided; with usable international reserves effectively exhausted, it would likely fuel expectations of further depreciation, eroding confidence in the boliviano, and potentially triggering outflows from local currency assets.
  - Strengthening fiscal and central bank governance will be crucial for successful implementation of any policy adjustment strategy.

### Fiscal-policy design and social protection
- Fiscal adjustment should rely on high quality measures, backed by a strong institutional framework:
  - Phase out fuel subsidies coupled with targeted compensation to the most vulnerable and a public communication campaign underscoring the regressive nature of current subsidies.
  - Strengthen existing social safety nets, including by putting in place a unified social registry to enhance coverage and improve targeting.
  - Public sector wages will need to be reduced in inflation-adjusted terms.
  - Enhance public investment management.
  - Intensify efforts to modernize tax and customs administrations, improve compliance, and broaden the tax base.
  - Embed these efforts within a medium-term fiscal framework that demonstrates sustainability of Bolivia’s debt to enhance credibility and improve transparency and accountability.

### Monetary framework and sequencing
- A crawling peg should be implemented following the realignment of the exchange rate, accompanied by ancillary reforms:
  - The crawling peg would be the new nominal anchor of monetary policy, with the rate of crawl carefully calibrated and communicated to the public.
  - The central bank should strengthen capacity to actively undertake sterilization operations.
  - Existing caps on lending rates should be lifted to permit full transmission of monetary policy to the market.
  - As BCB institutional capacity develops, markets deepen, and macroprudential tools are put in place to prevent excessive FX or duration mismatches, the central bank should transition to an inflation targeting regime.
  - Preconditions for transition: stronger central bank independence and accountability, robust macroeconomic and financial statistics, and a clear central bank communication strategy.

### Financial sector reforms and crisis preparedness
- Improvements in crisis preparedness and contingency planning should be prioritized to safeguard financial stability:
  - ASFI should provide banks with guidance on recovery operations across various scenarios.
  - Resolution tools and legal safeguards should be aligned with international standards.
  - Introduce additional macroprudential instruments (e.g., liquidity regulation and additional capital buffers).
  - ASFI should designate the D-SIBs, develop resolution plans for such institutions, and, together with the BCB, enhance stress testing capacity.
  - Access to BCB emergency liquidity support should be tightened and accompanied by stricter supervision of banks that receive such support.
  - The deposit insurance fund should be recapitalized.
- Eliminating or relaxing credit quotas and interest rate controls is crucial to improve capital allocation and foster financial resilience.
- Harmonize banks’ regulatory frameworks to ensure fair competition.
- Subject public trust funds (fideicomisos) that provide bank-like credit to tighter oversight and clear cost-benefit assessments.
- Modernize the insolvency framework and improve reliability and coverage of the credit registry.
- Implement a comprehensive financial inclusion strategy.

### Structural reforms to boost medium-term growth
- Remove supply-side impediments and strengthen governance and regulatory frameworks:
  - Hydrocarbon and lithium laws should incentivize private exploration by adjusting the government revenue share and domestic sales restrictions, reducing compliance costs and regulatory uncertainty, and implementing stringent environmental safeguards.
  - Unwind export ceilings and price controls, and support technological advancements.
  - Public investment projects should prioritize areas with high socioeconomic returns.
  - Advancements are needed in the AML/CFT legal framework to ensure its effective application.

### Statistics, transparency, and data dissemination
- The authorities agreed that timely publication of economic statistics fosters transparency and trust, and anticipate increasing its frequency over time, while emphasizing the risks of speculative use of sensitive economic data, including international reserves.
- Commitments and recent initiatives:
  - Enhance the accuracy and accessibility of national accounts and inflation statistics through a robust data collection law, standardized accounting practices, and modern valuation methods (shifting from fixed to mobile basis).
  - A comprehensive national accounts data overhaul is expected to be completed this year.
- Recommended statistical actions:
  - Resume the timely publication of key macroeconomic statistics.
  - Revert to the pre-2023 publication schedule for the external accounts (including international reserves) and for monetary statistics.
  - Accompany this with expanded coverage and frequency of non-financial public sector data, continued progress in rebasing both GDP and CPI, and adoption of the General Data Dissemination Standards.

*Source: 1bolea2025001-print-pdf - 37.*

### 48.      It is proposed that the next Article IV consultation with Bolivia be held on the standard

### It is proposed that the next Article IV consultation with Bolivia be held on the standard 12-month cycle.

### Real Sector Developments
- Economic activity moderated since end 2022.
- The moderation has been driven mostly by retail and financial services sectors.
- Investment remains the primary engine of economic expansion, mostly on account of public investment.
- Headline inflation has remained controlled despite the rise in food prices in 2023, driven by subsidies and price controls on key food and energy items that constitute a large component of the CPI basket.

### Fiscal Sector Developments
- The fiscal deficit remained elevated in 2023, but the non-hydrocarbon balance improved, reflecting some decline in capital expenditure and fuel subsidies.
- Revenues fell due to lower hydrocarbon proceeds in 2023.
- Fiscal policy was slightly contractionary in 2023.
- Public debt continues to increase after the sharp rise in 2020; the composition of public debt has become more tilted to domestic debt in the past three years.
- Selected fiscal numbers (percent of GDP unless otherwise indicated):
  - Total revenue: 25.1 (2021), 28.9 (2022), 28.3 (2023), projections: 27.6 (2024) to 26.7 (2029).
  - Total expenditures: 34.4 (2021), 36.0 (2022), 35.3 (2023), projections: 35.5 (2024) to 33.8 (2029).
  - Net lending/borrowing (overall balance): -9.3 (2021), -7.1 (2022), -7.0 (2023), projections: -7.9 (2024) to -7.1 (2029).
  - Non-hydrocarbon balance: -12.7 (2021), -12.8 (2022), -12.2 (2023), projections: -12.0 (2024) to -9.9 (2029).
  - Hydrocarbon related revenue: 3.6 (2021), 6.0 (2022), 5.4 (2023), projections: 4.3 (2024) to 3.0 (2029).
  - Total gross NFPS debt: 81.4 (2021), 80.4 (2022), 83.6 (2023), projections: 86.7 (2024) to 96.1 (2029).
- Monetary denomination fiscal table (Bs million) highlights:
  - Total Revenues: 70,000 (2021), 87,777 (2022), 90,346 (2023), projections up to 122,238 (2029).
  - Total Expenditures: 96,047 (2021), 109,432 (2022), 112,683 (2023), projections up to 154,703 (2029).
  - Net lending/borrowing (Fiscal Balance): -26,046 (2021), -21,655 (2022), -22,337 (2023), projections down to -32,465 (2029).
  - Nonfinancial public sector gross public debt (Bs million): 227,299 (2021), 244,279 (2022), 266,616 (2023), projections to 440,013 (2029).

### Monetary Sector Developments
- Rates on Central Bank paper increased substantially in 2023.
- Deposit and lending rates have seen a modest increase in 2023.
- Banks’ excess reserves have continued a gradual decline in 2023 while BCB open market operations have nearly stopped.
- Central bank lending to the central government has expanded significantly since the pandemic, and notably in 2023.
- Central bank foreign exchange interventions remain low.
- Dollarization ratios dropped in 2023, partially due to the exit of Banco Fassil.
- Monetary aggregates and reserves (levels and projections):
  - Central Bank gross international reserves (US$ million): 4,753 (2021), 3,796 (2022), 1,808 (2023), projections: 1,653 (2024), 1,555 (2025), 1,556 (2026–2027), 1,557 (2028), 1,556 (2029).
  - Base money (Bs million): 102,086 (2021), 104,686 (2022), 105,521 (2023), projections: 107,390 (2024) to 117,687 (2029).
  - Broad money (Bs million): 261,895 (2021), 259,095 (2022), 264,025 (2023), projections: 274,658 (2024) to 346,782 (2029).
  - Credit to the private sector (percent change): 4.6 (2021), 6.3 (2022), -0.4 (2023), projections: 3.0 (2024) to 6.2 (2027).
  - Foreign currency deposits (Bs million): 8,224 (2021), 8,594 (2022), 8,805 (2023), projections rising to 31,212 (2029).

### Financial Sector Developments
- Capital adequacy improved in 2023 with the exit of Banco Fassil, while NPL levels have risen further.
- Bank profitability continues to fall.
- The central bank reduced further the FX reserve requirements.
- Deposit and credit growth continued to fall in 2023, in part due to the failure of Banco Fassil.
- Lending rates increased across most types of credit; credit growth has been flowing mostly to “productive sectors” and real estate (social housing).
- Key financial indicators:
  - Regulatory capital to risk-weighted assets: 12.8 (2017) to 13.0 (2023Q2).
  - Nonperforming loans to total gross loans: 1.7 (2017) to 2.7 (2023Q2).
  - Provisions to Nonperforming loans (specific provisions only): 99.9 (2017) to 78.4 (2023Q2).
  - Return on Assets: 1.6 (2017) to 0.8 (2023Q2).
  - Liquid assets to short-term liabilities: 56.7 (2017) to 46.2 (2023Q2).
  - Foreign Currency Loans to Total Loans: 2.1 (2017) to 0.8 (2023Q2).

### External Sector Developments
- Export revenue from key sectors fell in 2023.
- Imports remained elevated in 2023; well-above the pre-pandemic levels.
- The current account deficit is estimated to have weakened further in 2023.
- Financial outflows were driven by negative FDI in 2023.
- International reserves are nearly depleted.
- Balance of payments and external sector key figures (US$ million and percent of GDP):
  - Current account balance (US$ million): 1,057 (2021), -194 (2022), -2,346 (2023), projections: -2,795 (2024) to -3,452 (2029).
  - Current account (percent of GDP): 2.6 (2021), -0.4 (2022), -5.0 (2023), projections: -5.7 (2024) to -5.2 (2029).
  - Exports of goods and services (percent of GDP): 28.5 (2021), 32.6 (2022), 28.5 (2023), projections: 27.0 (2024) to 24.9 (2029).
  - Imports of goods and services (percent of GDP): 26.3 (2021), 32.9 (2022), 34.4 (2023), projections: 33.6 (2024) to 29.9 (2029).
  - Financial account (net outflows, percent of GDP): -0.6 (2021), -1.5 (2022), -0.5 (2023), projections: -5.3 (2024) to -5.2 (2029).
  - Gross BCB international reserves (US$ million): see Monetary Sector Developments above.

### Key Social and Macro Projections (selected)
- Population (millions, 2021): 11.8
- Poverty rate (percent, 2021): 36.3
- Population growth rate (percent, 2021): 1.4
- Adult literacy rate (percent, 2021): 94.8
- Life expectancy at birth (years, 2021): 72
- GDP per capita (US$, 2021): 3,437
- Total unemployment rate (2021): 7.0
- IMF Quota (SDR, millions): 240.1
- Real GDP growth (percent): 6.1 (2021), 3.6 (2022), 2.5 (2023), projections: 1.6 (2024), 2.2 (2025–2029).
- CPI inflation (period average): 0.7 (2021), 1.7 (2022), 2.6 (2023), projections: 4.5 (2024), 4.2 (2025), 3.9 (2026–2029).
- Central Bank gross foreign reserves in millions of U.S. dollars: 4,753 (2021), 3,796 (2022), 1,808 (2023), projections: 1,653 (2024) and roughly 1,556–1,557 (2025–2029).

*Sources: National Institute of Statistics, Central Bank of Bolivia, Ministry of the Economy and Public Finances, ASFI, World Bank, SEDLAC, and Fund staff calculations and projections.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- The external position of Bolivia in 2023 was substantially weaker than the level implied by fundamentals and desirable policies.
- Persistent current account deficits and a substantial real exchange rate appreciation since 2015 have coincided with a deteriorating fiscal position under a de facto stabilized exchange rate regime.
- At end 2023, gross international reserves stood at US$1.8 billion, which is 1.3 months of projected 2023 imports, or 20.8 percent of the Fund’s 2023 reserve adequacy metric.

### Potential Policy Responses
- Commit to implementing structural reforms to reduce the fiscal deficit, while protecting the most vulnerable.
- If preserving the stabilized exchange rate, rely on significant internal adjustments to public and private demand.
- Alternatively, adopt a more flexible exchange rate regime, which would include an initial step devaluation to foster trade rebalancing and cushion the economy against external shocks.
- Fiscal consolidation should:
  - Rationalize spending.
  - Mobilize non-hydrocarbon revenues.
- Pursue measures to:
  - Reinvigorate private investment.
  - Improve productivity and competitiveness.

### Foreign Assets and Liabilities: Position and Trajectory
- Background findings:
  - Bolivia has been a net debtor since 2016Q4.
  - NIIP weakened from a net surplus of US$4.5 billion (13.6 percent of GDP) in 2014 to a net deficit of US$11.1 billion (23.9 percent of GDP) at end-2023.
  - Over half of foreign liabilities are in the form of loans and debt instruments; the remaining share is in equity, primarily as direct investment.
- Assessment and projections:
  - Over the medium term the NIIP is expected to continue to deteriorate by 3 to 4 percent of GDP per year, owing to sustained current account deficits.
  - To maintain the NIIP at the 2023 level of -23.9 percent of GDP would require a current account balance of about – 1.4 percent of GDP over the coming years.
  - Although current short-term gross external financing needs are limited (much external debt is long-term with relatively favorable terms), the NIIP is expected to fall further, posing a risk that future foreign financing may be done through riskier instruments.
- 2023 (% GDP) snapshot:
  - NIIP: -23.9
  - Gross Assets: 31.9
  - Debt Assets: 5.7
  - Gross Liab.: 55.9
  - Debt Liab.: 33.6

### Current Account
- Background findings:
  - Bolivia’s current account follows commodity price swings and related fiscal policy.
  - Collapse in commodity prices in 2015 and the associated increase in the budget deficit caused the current account to swing into deficit after a 10-year period of recurring surpluses.
  - Due to increased domestic demand and adverse trends in natural gas production, Bolivia turned into a net importer of fuels in 2022 for the first time in decades.
  - In the first three quarters of 2023, the current account deficit reached US$457 million (1.0 percent of GDP), compared to a US$0.8 billion surplus in the same period of 2022.
  - Net errors and omissions reached -3.7 percent of GDP in the same period and have averaged -3.1 percent of GDP over the last five years; they are estimated to reach -3.2 percent in 2023.
- Assessment:
  - The estimated cyclically adjusted CA balance stood at -5.2 percent of GDP in 2023.
  - The EBA-lite CA regression estimates a norm of –0.7 percent of GDP, implying a CA gap of -4.5 percent of GDP.
  - Overly expansionary domestic fiscal policy and inadequate reserve accumulation produced an estimated 4.5 percent of GDP deterioration of the 2023 CA relative to its norm.
  - The external position is assessed to be substantially weaker than the level implied by medium-term fundamentals and desired policies, consistent with weak fundamentals such as inadequate reserves and loss of market share in non-energy exports.

### Real Exchange Rate
- Background findings:
  - CPI-based real effective exchange rate (REER) has appreciated since end-2017.
  - As of end-2023, the REER has appreciated by 45 percent since the boliviano was pegged to the U.S. dollar in 2011.
  - From 2022 to 2023 the REER softened slightly, by around 2 percent, due to subdued domestic inflationary pressures relative to trading partners and falling commodity export prices (notably natural gas and soy).
- Assessment:
  - The CA gap and REER gap imply a REER overvaluation of 23.1 percent and 11.6 percent (applying an estimated elasticity of 0.20), respectively.
  - To realign the exchange rate with fundamentals, policies should focus on fiscal consolidation, and improving productivity and competitiveness.

### Capital and Financial Accounts: Flows and Policy Measures
- Background findings:
  - Net FDI inflow is projected at 0.6 percent of GDP compared to a three-year average of 0.3 percent of GDP net outflow from 2020–2022.
  - Restrictive capital flow measures have been employed, such as limits on foreign asset holdings and a tax on domestic dollar deposits.
  - The World Bank, IDB and CAF disbursed net external funding totaling roughly $700 million in 2023; however, future disbursements may be stalled due to disagreement in congress.
- Assessment:
  - The current account deficit has been mainly financed by running down international reserves.
  - Declining reserves, continued fiscal and current account deficits, and tight global financial conditions are expected to raise the cost of external funding, limiting prospects for further external sovereign bond issuance.
  - External financing costs continue to rise as Bolivia’s EMBI spread surpassed 2000 in November owing to economic and political turmoil.
  - To support sustainable and durable growth, authorities need policies that revitalize muted FDI inflows.
  - Bolivia’s substantial lithium resources could provide sizable FDI inflows if regulatory complexities and technological constraints can be overcome.

### FX Intervention and Reserves Level
- Background findings:
  - Bolivia has a stabilized exchange rate regime, with the boliviano pegged at a rate of 6.9 to the U.S. dollar.
  - Net international reserves fell from US$6.5 billion at end-2019 to US$1.7 billion at end-2023.
  - Bolivian commercial banks have swapped over US$3 billion to the BCB under the CPVIS program, which supported gross international reserves.
  - A ‘gold law’ was enacted in May 2023 to strengthen foreign reserves.
  - Deposit withdrawals in March/April 2023 added to high liquidity risk, forcing banks to ration FX.
  - The central bank provides around US$10 million (down from US$20 million) per week to banks to meet private FX demand.
  - During the first half of 2023 the central bank sold US$141 million to the public and US$1.1 billion to financial intermediation entities.
- Assessment:
  - Reserves are not adequate according to standard Fund metrics: end-2023 gross reserves equal 1.3 months of projected 2023 imports or 21 percent of the ARA.
  - Reserves have diminished from over 50 percent of GDP to about 4 percent of GDP in the last decade and are projected to continue falling (as a share of GDP and in terms of the ARA metric).
  - To preserve the stabilized exchange rate there is a need to accumulate reserves and correct internal imbalances, including through fiscal consolidation and supply side reforms.

*Source: Annex I. External Sector Assessment (content unit).*

### Annex III. Risk Assessment Matrix12F12F

### Annex III. Risk Assessment Matrix

### Global Risks — Key Risks, Likelihood, Impact, and Policy Responses
- Intensification of regional conflict(s).
  - Likelihood: High
  - Impact: Medium
  - Policy Response:
    - Strengthen international reserve buffers to mitigate the impact of adverse changes in global food and energy supply and potential spikes in inflation.
    - Phase out energy subsidies and utilize the resulting fiscal space to safeguard social programs during fiscal consolidation, ensuring debt sustainability.
    - Closely monitor financial risks, including potential risks to FDI.

- Commodity price volatility.
  - Likelihood: High
  - Impact: High
  - Policy Response:
    - Eliminate energy subsidies while strengthening social safety nets to protect vulnerable populations.
    - Accelerate transition to renewable energy.

- Abrupt global slowdown.
  - Likelihood: Medium
  - Impact: High
  - Policy Response:
    - Tailor fiscal policy strategies to address growth challenges, considering Bolivia’s cyclical position, and rebuild international reserve buffers to counter potential capital outflows.
    - Preserve the financial sector’s capital adequacy buffers to safeguard against the impact of global financial tightening, rising risk premiums, financial asset repricing, and subsequent asset quality deterioration.

- Monetary policy miscalibration.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response:
    - Calibrate monetary policy to address spillovers into Bolivia and anchor inflation expectations.
    - Enhance fiscal and external buffers.
    - Intensify the monitoring and supervision of financial institutions.

- Systemic financial instability.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response:
    - Intensify the monitoring and supervision of financial institutions and tighten regulations.

- Sovereign debt distress.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response:
    - Strengthen fiscal buffers through mobilization of revenue and rationalization of spending.
    - Intensify the monitoring and supervision of financial institutions and tighten regulations.

- Cyberthreats.
  - Likelihood: Medium
  - Impact: Low
  - Policy Response:
    - Enhance digital security of payment and financial system, improve public awareness, and prepare a contingency plan.

### Domestic Risks — Key Risks, Likelihood, Impact, and Policy Responses
- Rise in political risks, including widespread social unrest.
  - Likelihood: Medium
  - Impact: High
  - Policy Response:
    - Rebuild coalitions across party lines in the National Assembly and assess the macrocriticality of the ongoing reforms to elaborate strategies to get agreement in the approval process.
    - Strengthen international reserves.
    - Improve the targeting of social safety nets.

- Inability to regain confidence in the current policy mix leading to lower external financing.
  - Likelihood: High
  - Impact: High
  - Policy Response:
    - Implement fiscal reforms and consider realigning the official exchange rate to strengthen reserve buffers and address underlying sources of macro-vulnerabilities, including persistent twin deficits and monetary financing.

- Extreme climate events driven by rising temperatures.
  - Likelihood: Medium
  - Impact: Medium
  - Policy Response:
    - Maintain monetary policy stance that mitigates the impact of rise in food prices on domestic inflation.
    - Use fiscal space to support growth, while prioritizing social spending towards vulnerable populations.
    - Seek donor financing, strengthen financial resilience by reducing debt and better disaster risk layering, enhance post-disaster response, and accelerate shift to renewables.

### Risk Assessment Matrix — Notes on Interpretation
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path.
- The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below  0 percent, “medium” a probability between  0 and 30 percent, and “high” a probability between 30 and 50 percent).
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

*Source: Annex III. Risk Assessment Matrix, as provided in the IMF country report.*

### 10. Bolivia’s state-owned YLB is currently

### 10. Bolivia’s state-owned YLB is currently

### Fiscal regime for lithium extraction
- YLB is the sole stakeholder of Bolivia’s lithium extraction.4
- The government appropriates both the revenues foreseen by the relevant tax regime and the exploration profits (as the owner of YLB).
- If other companies were permitted to operate, they would be subject to the same tax regime as for all mining concessionaires.
- General features of the mining fiscal regime described:
  - Corporate income tax (CIT) rate: 25 percent.
  - Surcharge: 12.5 percent when the price of the extracted mineral is higher than a reference price.5
  - Immediate depreciation of the CIT base for exploration expenditures and other capital expenditures is permitted in accordance with accounting standards.
  - Five-year loss carryforward is allowed.
  - Special tax on extraordinary profits: rate of 25 percent applied to a modified measure of taxable profits.
  - Royalty: fixed rate of [3] percent applied to the gross value of the extracted minerals.

### Bolivia’s government take and international comparison
- Bolivia’s effective tax rate—considering the CIT, the surcharge and royalties—is estimated to be around 65 percent, similar to that in Chile and above Argentina’s and Australia’s.6
- International fiscal regimes for lithium extraction are diverse; generally:
  - There is typically no specific tax regime for lithium; the general mining tax regime is applied (notable exception: Chile).
  - Standard CIT plus ad-valorem royalties on production are common.7
- The special tax on extraordinary profits in Bolivia acts to capture economic rent (producer surplus) from lithium extraction.
- Policy observation: A more accommodative fiscal regime would:
  - Apply a standard CIT rate,
  - Limit royalties on production,
  - Use a profit-based tax to absorb producer surplus.

*4 The 2014 Mining Law and the 2017 Law for the Creation of Bolivian Lithium Deposits state that the extraction and industrialization process must be in the hands of the state.
5 Since the exact level of the price threshold is not publicly known, for simplicity it was assumed that the additional rate is always applied.
6 Bolivia’s effective tax rate is estimated to be around 65 percent, similar to that in Chile and above Argentina’s and Australia’s.
7 Royalties on production may dissuade investors as it is a further cost of extraction which is borne by the producer before profitability has been achieved.*

### Conclusion on lithium prospects
- Bolivia has significant potential to benefit from its lithium resources as the country with potentially the largest amount of lithium resources in the world.
- Higher demand for electric vehicles is expected to raise the price of lithium, but lithium alternatives bring uncertainty to future demand projections.
- Even if technological and regulatory obstacles are overcome:
  - Exploration of lithium is unlikely to fill future financing needs to the same measure as natural gas did in the past.
  - Current production of lithium is below peers in the lithium triangle (Argentina and Chile).
  - Extraction poses technological and regulatory difficulties.
  - Prospective export revenues from lithium, assuming authorities’ current production projections, will be significant but are not expected to outstrip current hydrocarbon export revenues and are unlikely to exceed revenue seen in the best years of hydrocarbon exports.

*Reference: Boer, L., Pescatori, A., & Stuermer, M. (2023). Energy Transition Metals: Bottleneck for Net-Zero Emissions?. Journal of the European Economic Association, jvad039.*

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### Annex VI. Implementing Energy Subsidy Reform in Bolivia

### Overview of the subsidy burden
- Annual cost of fuel subsidies has averaged 2 percent of GDP since 2009.
- Subsidy bill dynamics:
  - Peaked at 4.4 percent of GDP in 2022.
  - Fell to 4.0 percent of GDP in 2023 (equivalent to nearly 60 percent of the fiscal deficit) when Brent crude oil averaged $82.5 per barrel.
- Total energy subsidy cost in 2023: 14.4 percent of GDP.
  - Diesel subsidies: 6.6 percent of GDP.
  - Gasoline subsidies: 3.9 percent of GDP.
- Diesel subsidies in 2023 carried the highest explicit and implicit subsidy costs:
  - Explicit diesel subsidy: US$ 0.6 billion.
  - Implicit diesel subsidy: US$ 2.4 billion.
- In 2023, the total (implicit and explicit) subsidy bill in Bolivia amounted to 12.6 percent of GDP compared to 4.2 percent among regional peers.
- Retail prices of diesel and gasoline in Bolivia are nearly half of the average compared to neighboring countries, incentivizing cross-border fuel smuggling.

*1 Vehicles with foreign license plates pay international prices, which are updated quarterly.*

### Distributional incidence and inefficiencies
- Preserving energy subsidies is often justified by perceived effects on inflation, poverty reduction, and political stability.
- Empirical evidence:
  - Coady et al. (2015): richest 20 percent capture, on average, more than six times more in fuel subsidies than the poorest 20 percent.
  - Bolivia-specific studies:
    - Paz et al. (2013) and Laserna (2018): poorest quintile receives 5 percent of the subsidy; the richest 10 percent enjoy a share exceeding the poorest group's total.
    - Yánez et al. (2021): indirect subsidies concentrated in the middle stratum (64 percent) versus vulnerable (20 percent) and poor (6 percent).
  - Electricity and LPG subsidies: near-neutral distributive effects.
  - Gasoline subsidies: demonstrably regressive.

### Fiscal and welfare impacts of reform scenarios
- Partial energy subsidy reform (remove explicit subsidies or halve gap to efficient prices) expected fiscal savings: 5.3 percent of GDP.
- Full reform (eliminate all government support and account for full environmental costs) expected fiscal savings: 8.5 percent of GDP.2
- Environmental and welfare impacts:
  - Partial reform:
    - Environmental benefits: 5.8 percent of GDP.
    - Economic cost: 0.8 percent of GDP.
    - Welfare improvement: 5 percent of GDP.
  - Full reform:
    - Welfare improvement: 6.7 percent of GDP.
    - Environmental benefits: 9.2 percent of GDP.
    - Economic cost: 2.5 percent of GDP.
- Short-run macro effects:
  - Fuels and related products nearly 10 percent of consumption basket; regulated price increases could translate to nearly 6 percentage point increase in consumer prices.
  - Universal subsidies mean businesses would absorb price hikes, potentially amplifying inflation via pass-through.

*2 The authorities have recently announced a liberalization of fuel imports to private companies, including auctions for large buyers. This complements efforts to reduce reliance on fossil fuels including a higher ethanol blend in gasoline.*

*3 Economic welfare costs are measured by the value of forgone benefits to fossil fuel consumers less savings in supply costs. Local air pollution co-benefits are estimated as reductions in mortality and morbidity linked to illnesses exacerbated by air pollution exposure. Transport co-benefits stem from reductions in traffic accidents, maintenance expenditures, and traffic congestion. Costs of global warming are estimated using a carbon price trajectory starting at $60/ton in 2020 and increasing by $1.5/ton annually (Black et al., 2023).*

### Reform design principles and policy recommendations
- Adopt a multi-faceted, phased approach to energy subsidy reform that balances fiscal savings, social protection, and political economy considerations. Key elements:
  - Gradual implementation:
    - Phasing reduces social hardship and helps build public trust by demonstrating beneficial use of subsidy savings.
    - Mitigates inflationary pressures and allows time to implement social safety nets.
    - Brazil’s 1990s petroleum subsidy reform cited as an example of step-by-step strategy.
  - Combine price flexibility with robust, targeted social assistance:
    - Targeted transfers are more efficient than universal subsidies; example: Dominican Republic’s “Solidaridad” conditional cash transfer program.
    - Partial reforms can shield low-income households while reducing drawbacks of large universal subsidies (smuggling, climate impact).
  - Sequence reforms carefully to avoid unintended distortions:
    - Artificially low kerosene prices can lead to misuse and cross-border smuggling.
    - Rapid policy changes can provoke adverse behavioral responses (e.g., Turkey’s LPG subsidy curtailment and vehicle conversions).
  - Move from ad-hoc pricing to automatic pricing with adjustment mechanisms:
    - An automatic pricing mechanism moderates pass-through from international market fluctuations and improves macro-fiscal planning.
    - South Africa’s automatic pricing mechanism example: mirroring import parity prices to stabilize planning and incentivize investment.
  - Communicate effectively:
    - Clear messaging should explain who benefits from subsidies, the opportunity cost, and how savings will be redeployed to protect the vulnerable.
    - The 2010 Bolivian attempt to raise domestic fuel prices (proposal: 73 percent for gasoline, 83 percent for diesel) is a cautionary example where lack of communication led to rapid reversal within five days.
  - Maintain transparency in disclosure of government spending on fuel subsidies:
    - Full fiscal burden—including producer and consumer subsidies—is often not reflected in the budget.
    - Lack of public information can be a barrier to reform; Yemen’s experience shows public acceptance improves with transparent information campaigns.

### Strategic use of savings
- Reallocate fiscal savings from subsidy reform to:
  - Strengthen targeted social safety nets,
  - Invest in public policies that stimulate medium- and long-term growth,
  - Improve family well-being and income distribution,
  - Support transitions that mitigate environmental and economic costs.

Italic: Source: IMF country report content on Bolivia (chapter excerpts and Annex VI on energy subsidy reform).

### Annex VII. Fiscal Risks from Lending through Public Credit

### Annex VII. Fiscal Risks from Lending through Public Credit — Fideicomisos

### Risks and fiscal impact
- Risks from public sector credit can lead to increases in government deficits and debt liabilities and therefore warrant close monitoring.
- Credit fideicomisos are extrabudgetary entities that manage public funds but do not submit expenditure execution reports; while operating off-budget, establishment and closure of credit fideicomisos can trigger costs. Credit fideicomisos also incur expenses chargeable to prior fiscal years, which remain unaccounted for in the current budget.
- Fideicomisos serve diverse policy purposes, supporting underserved economic sectors and social functions, and include credit fideicomisos that are non-bank financial entities managed primarily by state-owned banks and funded by the public sector, mostly line ministries and the central bank.

### Data coverage, transparency, and institutional gaps
- Institutional coverage of Bolivia’s fiscal data is fairly broad, extending to the nonfinancial public sector (NFPS), but data on quasi-fiscal activities such as the execution of funds managed by public fideicomisos is absent.
- The IMF 2014 Fiscal Transparency Evaluation (FTE) for Bolivia found that consolidated risk reporting was lacking and more accurate forecasts were needed.
- The Ministry of Economy and Public Finance (MEFP) issued new reporting guidelines for credit fideicomisos in 2024, outlining mandatory information to be reported and submission schedules to build a comprehensive fideicomisos database; these efforts are in the early stage (targeting completion by end-2024) and the collected information is yet to be included in the budget documentation.
- Further advancements are needed to enhance data standardization, strengthen monitoring, and shift towards proactive fideicomisos oversight to foster trust and responsible management of public resources.

### Scope, oversight, and institutional arrangements
- There are roughly 90 fideicomisos, of which 36 are active.
- Of those fideicomisos, 15 offer credit, frequently at subsidized rates, to support specific objectives like infrastructure financing, economic development, import substitution, and social programs.
- ASFI exercises oversight over the credit fideicomisos it regulates (one-third of all credit fideicomisos), whereas other fideicomisos enjoy special regimes by decree.

### Key financial stock and performance indicators (preserve original figures)
- According to ASFI data at end-June 2023:
  - Total authorized volume of public credit fideicomisos managed by the two state-owned banks, including some non-credit elements: Bs. 21.9 billion (about 7 percent of GDP).
  - Of that total, Bs. 8.5 billion (39 percent) is currently allocated as credit.
- Public credit fideicomisos are equivalent to:
  - 4.6 percent of commercial bank credit (up from 4.1 percent at end-2018).
  - 12.9 percent of commercial banks’ corporate credit.
- Delinquency and provisioning trends:
  - Delinquency ratio increased from 2.9 percent in 2018 to 27.8 percent in June 2023. (Mainly due to a strong pickup in delinquencies at a large fideicomiso launched by the BCB after a multi-year grace period for debt service expired in 2022.)
  - Provisions coverage fell from 128 percent to 39 percent between 2018 and June 2023.
- Despite the increase in delinquent exposures, the capital ratio remained stable at around 60 percent, although other income may have helped offset these costs, thereby shielding the capital.

### Policy implications and recommendations (implicit in text)
- Consolidate and standardize reporting on fideicomisos and include collected information in budget documentation to improve fiscal transparency and consolidated risk reporting.
- Strengthen monitoring and proactive oversight of fideicomisos to better assess and mitigate fiscal risks stemming from off-budget public credit instruments.
- Continue implementation of MEFP reporting guidelines and complete the comprehensive fideicomisos database by the targeted end-2024 timeframe.

*Annex VII. Fiscal Risks from Lending through Public Credit — Fideicomisos*

### Annex VIII. Key 2024 FSAP Recommendations

### Annex VIII. Key 2024 FSAP Recommendations

### Bank Stress Testing
- Enhance the bank solvency stress testing frameworks, with forward-looking models integrating all relevant risks. ASFI, BCB
- Improve the granularity of supervisory data of restructured/reprogrammed loans, collect data on large deposits to assess deposit concentration risk and finalize a publicly available house price index. ASFI, BCB
- Require banks to regularly conduct solvency stress tests and engage them in an ongoing dialogue on methodologies and results. ASFI, BCB

### Systemic Risk Monitoring, Macroprudential Policy
- Enhance cooperation between members of the Financial Stability Council by creating an analytical working group for assessing financial sector risks. MEFP, BCB, ASFI
- Strengthen the role of BCB in the Financial Stability Council and increase the transparency and communication of FSC decisions. MEFP, BCB, ASFI
- Develop additional indicators for monitoring of systemic risk. ASFI, BCB
- Adopt additional macroprudential instruments, notably liquidity regulation and additional capital buffers, and borrower-based tools. BCB, MEFP, ASFI

### Bank Supervision and Regulation
- Introduce legal changes to (i) prioritize ASFI’s objective of promoting the safety and soundness of the banking system; (ii) guarantee ASFI’s independence; (iii) ensure legal protection for supervisors; and (iv) provide access to group-wide information. MEFP, ASFI
- Implement an effective risk-based supervision approach introducing proper use of expert judgment that allows a comprehensive, critical, and prospective assessment of the risk profile proportionate to the banks’ systemic importance, and improve supervisors’ capacities. ASFI
- Establish a framework for effective use of the supervisory corrective powers. ASFI
- Align the capital adequacy and liquidity frameworks, treatment of problem assets, credit risk provisioning, related parties’ management, interest rate risk in the banking book, and accounting standards to international guidelines and standards. ASFI

### Financial Integrity
- Strengthen the AML/CFT regime in line with the recommendations of Bolivia’s forthcoming mutual evaluation report. MEFP, CONAL

### Financial Safety Net and Crisis Management
- Establish guidance on recovery planning for banks, develop resolution plans, and develop designation for systemic banks. ASFI
- Bring resolution tools in line with the FSB Key Attributes and establish unambiguous quantitative triggers for initiation of intervention in the law, notably for illiquidity and undercapitalization. MEFP, ASFI
- Establish a formal deposit insurance unit, with dedicated staff, and bring design features in line with IADI Core Principles. BCB, MEFP, ASFI

### Financial Sector Development
- Adopt a dynamic approach to interest rate controls and review the level and scope of credit quotas in order to minimize unintended effects on access to finance and financial stability. MEFP, ASFI
- Strengthen design, oversight, and evaluation of state credit programs to ensure a more effective/transparent use of public resources and minimize negative impacts on competition and stability. MEFP, ASFI
- Implement a national financial inclusion strategy to coordinate key actions, including fully digitizing government-to-person payments. MEFP, ASFI, BCB, APS, MTEPS

*Source: 1bolea2025001-print-pdf - Annex VIII. Key 2024 FSAP Recommendations*

### introduction of higher-quality gasoline types at a higher price than the subsidized. The authorities

### 1bolea2025001-print-pdf - introduction of higher-quality gasoline types at a higher price than the subsidized. The authorities

### Financing context and fiscal financing options
- The scenario of more restrictive international financial conditions and political friction within the Assembly limited financing options.
- Authorities faced a difficult context to secure financing in 2023, including for amounts already contracted with multilateral and bilateral creditors.
- Despite the environment, the government met external debt service payments in 2023.
- Authorities are analyzing and exploring additional financing options, including thematic bonds, leveraging the country’s potential in that market.

### Monetary and external sector policy — measures and rationale
- Authorities adopted measures to contain pressures on international reserves and dollar availability resulting from:
  - an unfavorable external context affecting the export sector;
  - difficult access to the international financial market;
  - fuel import spending;
  - earning reduction from hydrocarbon exports;
  - a local speculative outbreak around the availability of dollars;
  - higher external debt payments due to larger interest rates.
- Measures implemented include:
  - collection of gold from the local market and financial operations with reserves by the Central Bank of Bolivia (BCB);
  - dollars provision to the financial system;
  - establishment of a band for commissions transfers and money orders abroad;
  - BCB’s dollar bonds issuance at attractive interest rates;
  - opening of a correspondent with the most important bank in China for direct transactions in the currencies of both countries.
- Government and private sector agreed on measures to reinforce exports and the generation and repatriation of foreign currency.
- Productive strengthening and the ongoing import substitution strategy are central to structurally bolstering reserves.
- The BCB highlights the stabilization of reserve levels in the last quarter of 2023.
- Authorities do not consider devaluation or exchange rate flexibility an appropriate response because they believe:
  - such moves would compromise macroeconomic stability with a stronger impact in magnitude and duration than staff estimates;
  - they would weigh more heavily on the vulnerable population;
  - exchange rate flexibility could increase dollarization and make the country more exposed to external shocks and harm monetary policy’s response space.
- Exchange rate stability is viewed as fundamental to price stability and overall economic stability.

### Financial policy, stability, and sector performance
- The Bolivian financial system remains stable and resilient despite shocks.
- Authorities cite a timely response to difficulties of one of the most important banks in the sector in the first semester of 2023, containing contagion to the rest of the system.
- The sector experienced unusual demand for foreign currency, mainly in the first part of 2023; as of December 2023, banks had dollar levels similar to those at end-2022.
- End-2023 financial sector metrics:
  - capitalization ratio above the requirement;
  - positive profit levels;
  - adequate asset quality;
  - high provisions.
- Non-performing loans (NPL) rate: 3.0 percent at end-2023 (noted as one of the lowest in the region); authorities state NPL measurement is stricter than the standard.
- Credits and deposits showed an important recovery, which continued in the first months of 2024.
- The financial system is highly Bolivianized:
  - 90 percent share of operations in local currency in deposits;
  - 99 percent share of operations in local currency in credits.
- Regulatory, supervisory, and macroprudential frameworks:
  - Guided by the Financial Services Law;
  - Financial System Supervision Authority (ASFI) has an explicit mandate to guarantee stability and solvency and independence in regulation and supervision;
  - Adequate capitalization and leverage above that required and that established in the Basel III framework, respectively;
  - Sharp decline in the deferred portfolio, not exceeding 3 percent of total credits;
  - ASFI performs close monitoring, including stress tests and models;
  - Institutional framework for risk monitoring, financial stability assessment, and macroprudential policy contributes to containing systemic risks.
- Crisis management and resolution framework established, with a defined institutional framework for the Deposit Insurance Fund (FPAH), which operates similarly to an insurance; the intervention experience at the beginning of 2023 is cited as demonstrating proper functioning.

### Financial inclusion and development finance
- Authorities highlight policies of credit and interest rate limits for prioritized segments to promote the productive sector and housing access for vulnerable populations.
- These loans reportedly have not generated negative impacts; many financial entities exceeded credit limits and maintained interest rates below established maximums.
- Progress noted in promoting microenterprise activities and small and medium-sized enterprises; guarantee funds created for certain sectors contributed to financial access.
- Productive Development Bank (BDP) continues to promote productive activity, especially in vulnerable areas, and is presented as complementary to the private financial sector.
- Authorities are developing the National Financial Inclusion Strategy.
- Progress on the AML/CFT framework is described as noteworthy, with a reiterated commitment to strengthening the framework in line with FATF international standards.

### Social policy — poverty, inequality, and protective measures
- Continuity of poverty and inequality reduction and improving living conditions remain priorities.
- Notable progress since 2006 was reversed in 2020 and has been restoring its trajectory since 2021.
- Efforts continued in 2022 and 2023, emphasizing protection from high international prices through subsidies for fuel and food.
- Conditional cash transfer programs continued to benefit vulnerable groups (children and adolescents in public education, mothers without health insurance, and the elderly).
- Significant public resources allocated to education and health sectors.
- Economic dynamism and labor market improvement contributed to better social outcomes.
- Authorities committed to strengthening the social protection system, including upgrading program targeting and efficiency.

### Structural reforms and productive diversification
- Efforts under PDES, 2021-2025, and the industrialization with import substitution policy aim to strengthen the productive sector and diversify the economy to improve resilience to external shocks.
- Public investment focuses on high-potential areas: biofuels and fertilizers, food sector, mining, and others.
- Authorities recognize broad potential in lithium production and its importance among critical minerals for the global energy transition.
- A first industrial plant for lithium carbonate production was launched at the end-2023; foreign investor project development is expected due to strong interest.
- Actions are being adopted to improve hydrocarbon sector prospects through an ongoing exploration strategy.
- Measures to boost the productive private sector include:
  - zero VAT for import and sales of capital goods;
  - a credit fund at a concessional rate of 0.5 percent for producers who promote import substitution;
  - limits for productive portfolio;
  - a recent agreement with the private sector including total export liberalization with the private sector’s commitment to guarantee domestic market supply and promotion of investments to boost productivity.
- Authorities consider productive bolstering essential to achieve a resilient and sustainable economy with improved welfare for the population.

*Source: 1bolea2025001-print-pdf - introduction of higher-quality gasoline types at a higher price than the subsidized. The authorities*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1bolea2025001-print-pdf.pdf_