## 1. Cost and Incidence of Fuel Subsidies in Bolivia

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### Context and structural constraints
- Hydrocarbon reserves fell from "8.95 trillion cubic feet (TCF) in 2019 to 4.48 TCF in 2023."
- Central bank financed about "80 percent of the deficit" in recent years; pension fund purchased remaining bonds.
- Exchange rate peg to the U.S. dollar is described as incompatible with ongoing deficit monetization, causing:
  - exhaustion of liquid international reserves;
  - widening parallel exchange rate gap;
  - import scarcity (notably for fuels);
  - rising inflation despite price subsidies and controls.
- Political tensions, recurrent social protests, El Niño/La Niña, and wildfires impose significant social and economic costs.
- Policy actions to date (partial): partial liberalization of fuel markets; promotion of biofuels; expanded tariff and VAT exemptions; strengthened AML/CFT and financial oversight; efforts to improve national accounts and PFM processes.

### Recent macroeconomic developments (selected indicators)
- Real activity and labor:
  - Growth moderated from "3.1 percent in 2023 to 2.1 percent in the first three quarters of 2024."
  - Investment contracted by "-7.5 percent"; a "0.75 percent y/y contraction expected for 2024Q4."
  - Underemployment above pre-pandemic levels; unemployment has fallen somewhat due to increased informal self-employment.
- Inflation:
  - Inflation stood at "10 percent at end-2024" and "reached 14.6 percent in March 2025."
  - Over one-third of the consumption basket rising by "20 percent or more"; less than "20 percent" of the basket exhibits inflation below "5 percent."
- External and trade shocks:
  - Hydrocarbon production contracting; "35 percent drop in crop planting during the winter of 2023" disrupted exports.
  - Imports down "14 percent during April–January."
  - Official estimate: November 2024 blockades cost "approximately US$ 1.7 billion."
- Fiscal outcomes:
  - Fiscal deficit surpassed "10 percent of GDP" in 2023 and 2024 (budget target was "7½ percent of GDP").
  - Total public debt was "95 percent of GDP at end-2024 (valued at the official exchange rate)."
  - SOE operating balance rose to "4.3 percent of GDP in 2024" after creation of a new SOE for gold purchases.

### Fiscal and external position — drivers and metrics
- Fiscal drivers: declining hydrocarbon revenues, import tax/VAT exemptions, increased social spending, higher interest payments, and fuel subsidies.
- Gross reserves at end-2024: "US$2bn (about 2 months of import cover)" comprising "US$1.9bn in encumbered gold and US$90mn in liquid assets."
- Central bank gold purchases: about "1 ton of gold per month from domestic producers (about US$80mn)."
- Central bank raised "US$268 million from issuing dollar-denominated debt" (of which "US$200 million" to the pension fund).
- Reserve coverage: "23 percent of the ARA metric."
- Unidentified financing required to maintain current policies: "around 3 percent of GDP in 2025–26" and rising thereafter.
- Pension fund holds "16 percent of GDP in government debt or 32 percent of total pension fund investments."
- SRDSF assessment: near-term risk of sovereign distress is "high."

### Monetary and financial sector developments
- Central bank operations:
  - Issued around "5 percent of GDP in central bank securities to the market in 2023 and 2024."
  - Raised limit on financial institutions’ investment in inflation-linked securities from "10 to 20 percent of assets" in November 2024.
  - Created a complementary reserve requirement remunerated at low rates.
- Monetary transmission hampered by regulatory caps on bank lending rates.
- Given low reserves, central bank curtailed FX liquidity provision to the private sector, prioritizing government fuel import payments and external debt service; businesses increasingly transact in the parallel market.

### Policy measures implemented in 2024–25 (selected items with exact deadlines)
- VAT exemption on imported capital goods and industrial plants. 31-Dec-25
- Tariff and Specific Consumption Tax exemption on imported flex and hybrid vehicles. 11-May-27
- VAT exemption on private fuel (gasoline, diesel) and crude oil imports. 31-Dec-25
- Tariff and VAT exemption on inputs for biodiesel plants. 31-Dec-25
- Tariff exemptions for import of specific products. 2/ Temporary (expiry dates vary by product)
- Removal of fuel subsidy for mining and agriculture producers. 3/ Temporary 4/
- YPFB authorized to buy FX from public commercial bank and use crypto currencies to pay for fuel imports. 3/ Temporary 4/
- Introduction of higher octane fuels with lower subsidy component. 5/ Permanent
- Liberalization of fuel import for commercialization in the domestic market. 13-Nov-27
- Expansion of direct food subsidies to flour, butter, yeast, sugar, rice, and corn. 6/ 31-Dec-25
(Notes 1/–6/ reproduced as in source.)

### Baseline outlook and risks (selected projections)
- Real GDP (percent): "3.1" (2023), "1.3" (2024), "1.1" (2025), "0.9" (2026), "0.6" (2027), "0.4" (2028), "0.2" (2029), "0.2" (2030).
- CPI inflation (period average): "2.6" (2023), "5.1" (2024), "15.1" (2025), "15.8" (2026), "17.1" (2027), "18.2" (2028), "19.6" (2029), "20.9" (2030).
- Primary NFPS balance: "-8.7" (2023), "-7.3" (2024), "-9.5" (2025), "-9.2" (2026), "-8.9" (2027), "-8.7" (2028), "-8.4" (2029), "-8.0" (2030).
- Total gross NFPS debt 1/: "90.8" (2023), "95.0" (2024), "90.4" (2025), "91.4" (2026), "92.8" (2027), "95.5" (2028), "98.5" (2029), "101.8" (2030).
- Gross international reserves (USD millions): "1,808" (2023), "2,009" (2024), "2,118" (2025), "2,199" (2026), "2,160" (2027), "2,231" (2028), "2,290" (2029), "2,312" (2030).
- In percent of ARA: "20.6" (2023), "23.0" (2024), "22.3" (2025), "20.5" (2026), "17.4" (2027), "15.3" (2028), "13.1" (2029), "10.9" (2030).
- Unidentified financing inflows (USD millions): "0.0" (2023), "0.0" (2024), "-805" (2025), "-2115" (2026), "-2500" (2027), "-3890" (2028), "-4880" (2029), "-6190" (2030).
- Risk assessment: without sizable external financing, current policies are unsustainable; sovereign distress risk is "high."

### Authorities’ assessment and near-term outlook
- Authorities expect growth "around 2 percent" for 2024 and "3.5 percent in 2025."
- Authorities expect inflation will drop to "7.5 percent of GDP this year."
- Authorities cite underinvestment in gas exploration and congressional gridlock impeding multilateral loan disbursements as drivers of FX liquidity constraints.
- Proposed supports: new external debt issuances, BCB’s domestic gold purchases, and improved agricultural production/export prospects.

### Policy prescriptions from staff — exchange rate, monetary, and fiscal
- Exchange rate and monetary policy:
  - The peg to the U.S. dollar is assessed as untenable; staff advises a step devaluation of the official exchange rate to realign with fundamentals and rebuild reserves.
  - After realignment, maintain tight monetary policy; remove interest rate controls and halt monetary financing.
  - Initially give up an exchange rate anchor and adopt a base money target; FX intervention should be tightly circumscribed.
  - As reserves improve, consider a hybrid crawling band and, ultimately, transition to inflation targeting.
- Fiscal policy:
  - Frontload a large fiscal adjustment to eliminate central bank financing and reduce sovereign distress risk.
  - Immediate priority: bring the primary deficit to "1 percent of GDP within the next 3 years."
  - Consolidation tools: eliminate fuel subsidies, retrench current spending, rationalize investment, mobilize new tax revenue, and strengthen social safety nets.
- Central bank and market infrastructure reforms:
  - Develop FX and money markets, FX hedging instruments, and macroprudential regulations to limit FX balance sheet mismatches.
  - Strengthen legal framework for central bank independence, governance, and mandate clarity.
  - Address central bank FX asset-liability mismatch; fiscal resources likely needed for recapitalization.

### Fuel subsidy diagnosis, incidence, and mitigation (Box 1 key figures)
- Imported fuels sold at around "½ their international price at present."
- Direct fiscal cost of fuel subsidies: "3.9 percent of GDP in 2024" (mostly gasoline and diesel).
- Opportunity cost including taxing fuel consumption and selling domestically produced fuels at subsidized prices: "5.2 percent of GDP."
- Distributional incidence:
  - Over half of subsidy transfers benefit the wealthiest quintile; only "7 percent" reaches the poorest households.
- Household impact of removing fuel subsidies:
  - Average household spending would increase by "0.6 percent" across all households ("2.6 percent" for households with positive fuel consumption).
  - Indirect effects through higher prices of other goods/services would add "0.9 percent" to households’ budgets.
  - Welfare change from removing subsidies: welfare would fall by "4 percent" for the most vulnerable segments and by "3 percent" for the wealthiest households.
- Targeted transfer options:
  - Fully compensating bottom 40 percent would cost around "40 percent of the fuel subsidy cost" (or "22 percent, if only gasoline subsidies were removed").
  - Alternative transfer mechanism budgeted at "30 percent" of realized subsidy savings with a "70 percent" coverage rate for the poorest quintile (declining to "1 percent" for the wealthiest) could overcompensate the two bottom quintiles while reducing negative impacts on others.

### Reform scenario: magnitude, timeline, and macro effects
- Assumption: structural fiscal adjustment of "8 percent of GDP" spread over the next three years; primary balance improves by only "7 percent of GDP" due to revenue declines and automatic stabilizers.
- Expected outcomes:
  - Arrest rise in public debt-GDP ratio and lower debt distress risks.
  - Initial devaluation and fuel liberalization create an initial inflation burst of "around 2 percentage points in end-2025."
  - Monetary restraint and fiscal adjustment should return year-on-year inflation to single digits by late 2027.
  - Short-term low growth and adjustment costs; strengthening the social safety net up-front is critical.
- Reform scenario projections (exact annual figures):
  - Real GDP: 3.1 (Est. 2023), 1.3 (2024), 0.1 (2025), 0.3 (2026), 0.8 (2027), 1.4 (2028), 2.0 (2029), 2.4 (2030).
  - CPI inflation (period average): 2.6 (Est. 2023), 5.1 (2024), 16.0 (2025), 16.5 (2026), 12.0 (2027), 8.7 (2028), 7.0 (2029), 5.5 (2030).
  - Primary NFPS balance: -8.7 (Est. 2023), -7.3 (2024), -4.4 (2025), -2.3 (2026), -0.3 (2027), 0.9 (2028), 1.5 (2029), 1.5 (2030).
  - Total gross NFPS debt: 90.8 (Est. 2023), 95.0 (2024), 118.9 (2025), 112.9 (2026), 104.9 (2027), 99.9 (2028), 95.5 (2029), 91.6 (2030).
  - Gross international reserves (USD million): 1808 (Est. 2023), 2009 (2024), 3774 (2025), 5282 (2026), 6744 (2027), 7806 (2028), 8900 (2029), 9971 (2030).
  - Bolivianos/U.S. dollar (end-of-period) Official (buy) exchange rate: 6.9 (Est. 2023), 6.9 (2024), 15.0 (2025), 15.1 (2026), 15.4 (2027), 15.9 (2028), 16.5 (2029), 16.9 (2030).

### Safeguarding financial stability — vulnerabilities and recommendations
- Banking sector metrics:
  - Average capital adequacy ratio: "13.5 percent in 2024" (regulatory minimum "10 percent").
  - NPLs rose to "3.2 percent of loans" in 2024.
  - Loan loss provisioning fell from "134 percent of NPLs at end-2023 to 130 percent at end-December 2024."
  - Banks hold a large stock of nondeliverable FX swaps with the central bank: average duration "one year" and account for "19 percent of base money."
- Recommendations:
  - Incentivize banks to increase provisions and strengthen supervision.
  - Raise frequency and comprehensiveness of stress tests; prepare bank resolution contingency plans.
  - Implement minimum liquidity ratios and consolidated capital requirements in early 2025.
  - Minimize recurrent regulatory forbearance and align prudential rules with international standards.
  - Consider temporary restrictions on withdrawals and capital outflows with clear unwinding plans if needed.

### Informality, potential growth, and supply-side priorities
- Informality indicators:
  - ILO data: "85 percent" of employment informal; "84 percent" of firms operate informally, accounting for "73 percent of GDP."
  - Hours worked fell by 14 percent from late 2015 (45 hours/week) to Q2 2024 (39 hours/week); hours in informal occupations fell "by nearly 20 percent, from 43 hours per week to 35 in Q2 2024."
- Potential TFP and growth:
  - Potential TFP declined since mid-2010s; potential growth accounting for informality estimated around "3.9 percent per year" with a tendency to fall.
  - As of Q2 2024, estimated output gap = "-1.05 percent"; if informality effects ignored, output gap = "+1.73 percent."
- Supply-side reform priorities:
  - Phase out export ceilings, price and interest rate controls, and credit quotas.
  - Improve agricultural productivity via R&D, reduced logistics costs, sustainable practices, and biotechnology.
  - Establish predictable regulatory frameworks for private investment in natural resources with environmental safeguards.
  - Focus public investment on infrastructure with crowding-in effects and transition to renewable energy.

### Governance, anti-corruption, and rule of law measures
- Legal and institutional actions:
  - Law No. 1390, 2021 (Law on Reinforcing the Fight against Corruption).
  - Supreme Decree No. 4872 (“Towards Digitalized and Transparent Public Management”).
  - National Plan for the Fight against Corruption 2024/2025 and digital complaint-tracking systems.
- Gaps and recommendations:
  - Enact a dedicated access-to-information law; expand and verify asset declarations; strengthen prosecutors’ autonomy and capacity.
  - Publish court judgments, improve judicial selection transparency, increase judiciary budget, and digitize cadastral/property registries.
  - Conduct systematic corruption risk assessments and adopt mitigation plans.

### Debt consolidation, baseline risks, and long-term pressures
- Public debt dynamics (selected baseline figures):
  - Public debt (Percent of GDP): 95.0 (Actual 2024); 90.8 (2025); 91.4 (2026); 92.8 (2027); 95.5 (2028); 98.5 (2029); 101.8 (2030).
  - Gross financing needs (Percent of GDP): 46.2 (2024), 28.1 (2025), 32.4 (2026), 33.3 (2027), 36.3 (2028), 37.6 (2029), 39.3 (2030).
- Long-term structural pressures:
  - Pension financing needs projected to rise from "2 percent of GDP in 2038 to 4 percent in 2050."
  - Climate adaptation and gradual exhaustion of natural gas reserves pose fiscal risks; lithium development is an upside possibility.
- Risk assessment summary:
  - Debt fanchart index (DFI): 4.0; Risk signal: High.
  - Gross financing needs financeability index (GFI): 16.2; Risk signal: Moderate.
  - Probability of missed crisis (2025-2030) if stress not predicted: "81.8 pct."

### Data issues and statistical capacity priorities
- Overall data adequacy median rating: B.
- Key data gaps and priorities:
  - Rebasing national accounts (current base: 1990) and CPI statistics.
  - Improve timeliness and granularity of external (international reserves) and monetary statistics.
  - Expand coverage of SOE operations and below-the-line fiscal transactions.
  - Authorities plan national accounts rebasing with donor and STA support, targeting dissemination in second quarter of 2025.

*Source: 1bolea2025002-print-pdf - 1. Cost and Incidence of Fuel Subsidies in Bolivia____________________________________________ 16*

### 1. Cost and Incidence of Fuel Subsidies in Bolivia____________________________________________ 16

### 1. Cost and Incidence of Fuel Subsidies in Bolivia____________________________________________ 16

### Context
- Bolivia faces acute macroeconomic vulnerabilities from longstanding policy imbalances exacerbated by negative shocks, including a rapid drop in natural gas production that is "undermining export and fiscal revenues."
- Key structural constraints and policy outcomes:
  - Natural gas reserves fell from "8.95 trillion cubic feet (TCF) in 2019 to 4.48 TCF in 2023."
  - Exchange rate regime is incompatible with ongoing monetization of the deficit, causing exhaustion of liquid international reserves, widening parallel exchange rate gap, import scarcity (notably for fuels), and rising inflation despite price subsidies and controls.
  - Political tensions and social protests hamper economic activity and prevent approval of multilateral loans while Bolivia has lost access to international capital markets.
  - Significant social and economic costs from El Niño and La Niña weather phenomena and devastating wildfires.
- Policy responses implemented to date (partial and with limited success):
  - Partial liberalization of fuel markets; removal of barriers to crypto trading; promotion of domestic biofuels; authorization of new biotechnologies to raise soy output.
  - Expanded tariff and VAT exemptions on imported goods; temporary export bans for certain foods; streamlined export procedures for other foods.
  - Authorities strengthened financial oversight and the AML/CFT framework; efforts underway to improve national account and monetary statistics, PFM processes, central bank operations, forecasting and policy analysis.
- Fiscal financing behavior:
  - Central bank financed about "80 percent of the deficit" in recent years; remainder met by bond purchases by the pension fund.

### Recent Developments
- Growth and activity:
  - Growth moderated from "3.1 percent in 2023 to 2.1 percent in the first three quarters of 2024."
  - Investment contracted by "-7.5 percent"; a "0.75 percent y/y contraction expected for 2024Q4."
  - Private consumption slowing, average working hours declined, real earnings decreasing, underemployment above pre-pandemic levels; unemployment has fallen somewhat due to increased informal self-employment.
- Inflation:
  - Inflation stood at "10 percent at end-2024" and "reached 14.6 percent in March 2025."
  - Over one-third of the consumption basket rising by "20 percent or more"; less than "20 percent" of the basket exhibits inflation below "5 percent."
- Sectoral shocks and trade:
  - Hydrocarbon production continues to contract; a "35 percent drop in crop planting during the winter of 2023" disrupted soy-related manufacturing exports in 2024.
  - Imports down "14 percent during April–January" contributing to an improved trade balance since mid-2024.
  - Gold exports collapsed after central bank purchase operations; agricultural exports falling due to prolonged drought, unseasonal rains and fuel shortages.
- Social disruptions:
  - Official estimates place the cost of November 2024 blockades alone at "approximately US$ 1.7 billion." Blockades were recurrent throughout the year.
- Fiscal outcomes:
  - Fiscal deficit surpassed "10 percent of GDP" in 2023 and 2024, exceeding the budget target of "7½ percent of GDP."
  - Total public debt was "95 percent of GDP at end-2024 (valued at the official exchange rate)."
  - SOE operating balance surged to "4.3 percent of GDP in 2024" following creation of a new SOE to acquire gold sold to the central bank.

### Fiscal and External Position
- Fiscal drivers of the imbalance:
  - Declining hydrocarbon-related revenues, import tax/tariff exemptions, increased social spending, higher interest payments, and fuel subsidies.
- External and reserves position:
  - Gross reserves at end-2024 stood at "US$2bn (about 2 months of import cover)" composed of "US$1.9bn in encumbered gold and US$90mn in liquid assets."
  - Central bank has been buying around "1 ton of gold per month from domestic producers (about US$80mn)" and raised "US$268 million from issuing dollar-denominated debt" (of which "US$200 million" to the pension fund).
  - Reserve coverage is inadequate at "23 percent of the ARA metric."
- Financing dynamics:
  - The cumulative amount of unidentified financing required to maintain current policies amounts to "around 3 percent of GDP in 2025–26" and increases over the medium term.
  - The Fund’s SRDSF finds the near-term risk of sovereign distress to be "high" due to low FX reserves, an overvalued official exchange rate, and high domestic financing needs.
  - The national pension fund holds "16 percent of GDP in government debt or 32 percent of total pension fund investments."

### Monetary and Financial Sector Developments
- Central bank actions:
  - The BCB expanded open market operations, issuing around "5 percent of GDP in central bank securities to the market in 2023 and 2024."
  - A complementary reserve requirement (remunerated at low rates) was created to lock up excess bank liquidity.
  - Issuance of inflation-linked securities rose in the second half of 2024; the limit on financial institutions’ investment in inflation-linked securities was raised from "10 to 20 percent of assets" in November 2024.
- Monetary transmission:
  - Transmission hampered by regulatory caps on bank lending rates.
- Liquidity and FX allocation:
  - Given low reserves, the central bank has severely curtailed FX liquidity provision to the private sector, prioritizing the government’s purchase of fuel imports and payment of external debt service, forcing businesses to increasingly transact in the parallel market.

### Policy Measures Implemented in 2024–25 (selected items from Text Table 1)
- Tax and trade measures (implementation deadlines noted exactly):
  - Extension of VAT exemption on imported capital goods and industrial plants. 31-Dec-25
  - Tariff and Specific Consumption Tax exemption on imported flex and hybrid vehicles. 11-May-27
  - Expedited tax refunds for exporters repatriating FX proceeds. Permanent
  - VAT exemption on private fuel (gasoline, diesel) and crude oil imports. 31-Dec-25
  - Tariff and VAT exemption on import of inputs for biodiesel plants. 31-Dec-25
  - Tax incentives for reinvestment of foreign companieś profits (from 25 to 75 percent). Permanent
  - Tariff exemptions for the import of specific products. 2/ Temporary (expiry dates vary by product)
- Fuel subsidy and supply measures:
  - Removal of fuel subsidy for mining and agriculture producers. 3/ Temporary 4/
  - YPFB authorized to buy FX from public commercial bank and use crypto currencies to pay for fuel imports. 3/ Temporary 4/
  - Introduction of higher octane fuels with lower subsidy component. 5/ Permanent
  - Streamlining of fuel import authorization process for companies. Permanent
  - Liberalization of fuel import for commercialization in the domestic market. 13-Nov-27
- Trade facilitation and restrictions:
  - Streamlined procedures for food exports (incl. corn, sugar, sorghum). Permanent
  - Suspension of vegetable oil and meat exports until domestic supply is normalized. Temporary
- Other measures:
  - Expansion of direct food subsidies to flour, butter, yeast, sugar, rice, and corn. 6/ 31-Dec-25

(Notes as in the source: 1/ Excludes financial measures. 2/ Includes car parts; wheat and wheat flour; corn; rice; pharmaceuticals; agricultural inputs (incl. machinery, pesticides); personal care products. Expiry dates vary by product, ranging from four months to two years. 3/ The final sale price is set by YPFB. 4/ Measure is expected to last while YPFB faces difficulties securing fuel provision given FX liquidity shortages in Bolivia. 5/ Premium Plus and Ultra Premium 100 gasolines; and Diesel ULS (biodiesel). 6/ Authorization of production and commercialization subsidies by state owned company EMAPA.)

### Outlook and Risks Ahead
- Baseline projections (selected indicators from Text Table 3; "Est." = estimated, "Proj." = projected):
  - Real GDP: "3.1" (2023), "1.3" (2024), "1.1" (2025), "0.9" (2026), "0.6" (2027), "0.4" (2028), "0.2" (2029), "0.2" (2030)
  - CPI inflation (period average): "2.6" (2023), "5.1" (2024), "15.1" (2025), "15.8" (2026), "17.1" (2027), "18.2" (2028), "19.6" (2029), "20.9" (2030)
  - Primary NFPS balance: "-8.7" (2023), "-7.3" (2024), "-9.5" (2025), "-9.2" (2026), "-8.9" (2027), "-8.7" (2028), "-8.4" (2029), "-8.0" (2030)
  - Total gross NFPS debt 1/: "90.8" (2023), "95.0" (2024), "90.4" (2025), "91.4" (2026), "92.8" (2027), "95.5" (2028), "98.5" (2029), "101.8" (2030)
  - Current account: "-2.5" (2023), "-4.3" (2024), "-2.6" (2025), "-3.2" (2026), "-3.8" (2027), "-4.2" (2028), "-4.6" (2029), "-4.7" (2030)
  - Gross international reserves (in USD millions): "1,808" (2023), "2,009" (2024), "2,118" (2025), "2,199" (2026), "2,160" (2027), "2,231" (2028), "2,290" (2029), "2,312" (2030)
  - In percent of ARA: "20.6" (2023), "23.0" (2024), "22.3" (2025), "20.5" (2026), "17.4" (2027), "15.3" (2028), "13.1" (2029), "10.9" (2030)
  - Financial account (-= net inflow): "-2.5" (2023), "-3.5" (2024), "-2.8" (2025), "-3.3" (2026), "-3.7" (2027), "-4.2" (2028), "-4.6" (2029), "-4.7" (2030)
  - Unidentified financing inflows (in USD millions): "0.0" (2023), "0.0" (2024), "-805" (2025), "-2115" (2026), "-2500" (2027), "-3890" (2028), "-4880" (2029), "-6190" (2030)
  - Memo: NPFS Net incurrence of liabilities (= - Overall balance): "10.9" (2023), "10.3" (2024), "12.7" (2025), "13.2" (2026), "14.2" (2027), "16.0" (2028), "17.2" (2029), "18.7" (2030)
  - Memo: of which, central bank (domestic): "8.7" (2023), "8.0" (2024), "9.8" (2025), "11.3" (2026), "11.8" (2027), "13.7" (2028), "14.4" (2029), "15.8" (2030)
- Risks and potential outcomes:
  - Without considerable and increasing amounts of external financing current policies are unsustainable; likely outcome is increasing depreciation of the parallel exchange rate, rising inflation, and worsening balance of payment imbalances.
  - The risk of sovereign distress is "high"; absent concerted fiscal consolidation the deficit will stay well-above "10 percent of GDP" and monetization is likely to remain the predominant financing source.
  - The precarious situation creates a high risk of an eventual disorderly adjustment; triggers could include intensifying inflationary pressures, increased scarcity of basic goods, weather shocks, waning confidence, or deposit and capital outflows.
  - Recent liberalization of crypto trading could provide an alternative channel for deposit and capital outflows, pressuring the banking system and complicating capital flow management.

*Source: 1bolea2025002-print-pdf - 1. Cost and Incidence of Fuel Subsidies in Bolivia____________________________________________ 16*

### 13.      The authorities recognize the recently challenging economic conditions but

### 13.      The authorities recognize the recently challenging economic conditions but

### Authorities’ assessment and near-term outlook
- Authorities highlight the resilience of the Bolivian economy despite complex external and local circumstances.
- Identified contributors to growth and inflationary pressures: adverse weather shocks, road blockages, and FX speculation.
- Authorities expect a higher growth rate than staff for 2024: "around 2 percent."
- Authorities expect growth to recover to "3.5 percent in 2025" with recently advanced measures to stabilize FX and fuel availability.
- Authorities expect inflation will drop to "7.5 percent of GDP this year."
- Authorities acknowledge risks posed by low international reserves and attribute FX liquidity constraints to: past underinvestment in natural gas exploration and congress gridlock impeding multilateral loan disbursements.
- Implemented measures are said to have contributed to stabilize international reserves in 2024.
- Short-term reserve supports envisaged: new external debt issuances, the BCB’s domestic gold purchases, and better prospects on production and exports of the agricultural sector.
- Over time authorities plan ongoing SOE investments and support to the private productive sector to generate new export revenues and facilitate import substitution to lessen external imbalances.

### Restoring macroeconomic stability — overall prescription
- Bolivia should reorient its economic strategy away from the current exchange rate peg to the U.S. dollar, which "cannot be sustained with scarce reserves."
- Recommend replacing the peg with a regime that:
  - realigns the nominal exchange rate with fundamentals;
  - allows it to fluctuate with market conditions; and
  - relies on control of domestic currency liquidity to maintain price stability.
- For effectiveness, removal of caps on interest rates is necessary so domestic deposit and loan rates may "quickly reach market clearing levels."
- Monetary framework must be accompanied by a large fiscal adjustment that:
  - enables elimination of central bank financing of the budget (to stop domestic currency liquidity injections via that source);
  - reduces the risk of sovereign distress.
- Attention required to vulnerable populations and possible weaknesses in the financial system during the transition.
- Consideration of temporary controls on capital outflows or limits on deposit withdrawals may be needed to preserve financial and macroeconomic stability.
- The longer reforms are delayed, "the costlier the eventual adjustment will be."

### A. Re-Anchoring Monetary and Exchange Rate Policies — key findings and policy recommendations
- "The longstanding peg to the U.S. dollar has become untenable."
- Realigning the official exchange rate together with a large fiscal adjustment is necessary to:
  - ensure macroeconomic stability;
  - eliminate FX shortages; and
  - rebuild international reserves.
- Staff advises a step devaluation of the exchange rate. A devaluation that overshoots the prevailing parallel exchange may be needed to:
  - account for the public sector being a net buyer of FX;
  - generate expectations of future appreciation; and
  - facilitate rebuilding international reserves.
- Short-term public balance sheet impact would be large but unavoidable, strengthening the case for frontloading fiscal consolidation.
- Realignment and adjustments to fuel subsidies will push up inflation initially; countervailing forces include tight domestic liquidity, fiscal consolidation, and an initial growth slowdown.
- Up-front real exchange rate adjustment expected to:
  - improve competitiveness;
  - compress imports;
  - incentivize expansion of export industries; and
  - support foreign capital inflows and demand for local currency assets.
- Given high gross external financing needs in the near term (notably from Eurobonds maturing in "2026–28"), pre-emptive debt actions may need consideration.

### Monetary policy stance and implementation
- Maintaining tight monetary policy after realignment is essential to keep inflation in check.
- Immediate actions required:
  - removal of interest rate controls; and
  - halting monetary financing.
- Given uncertainty on the equilibrium exchange rate and insufficient reserve buffers, the central bank should give up an exchange rate anchor immediately following depreciation.
- Adopt a base money target to ensure domestic currency liquidity is restrictive.
- Interest rates need to rise endogenously to clear demand for local currency assets.
- FX intervention should be tightly circumscribed given limited reserves; focus interventions on steadily rebuilding international reserves and allowing the nominal exchange rate to find a market-determined equilibrium.
- As reserve adequacy improves, consider a hybrid system with a crawling band arrangement and short-term interest rates as main policy tool.
- Longer-term goal: shift to an inflation targeting regime, recognizing time needed to build infrastructure and capacity.

### Central bank operational and institutional reforms
- Central bank is strengthening operational capacity to monitor and adjust liquidity, including through open market operations.
- Ongoing efforts to upgrade economic forecasting capabilities and central bank macro-financial modelling.
- Urgent needs include: developing FX and money markets, creating markets for FX hedging instruments, and implementing macroprudential regulations to limit FX balance sheet mismatches (examples: limits on FX net open positions and higher capital requirements for unhedged FX loans).
- Improve monetary policy communication to explain the new framework to public and market participants.
- Enhance BCB’s legal framework to:
  - improve central bank independence;
  - strengthen governance; and
  - clearly define its mandate to build institutional credibility.
- Current FX asset-liability mismatch at the central bank implies fiscal resources will likely be needed over time to recapitalize the central bank.

### Restrictions on withdrawals and capital outflows; banks’ FX swap stock
- Restrictions on deposit withdrawals and capital outflows may need consideration as temporary emergency measures complementing broader reforms; must have clear unwinding plans.
- Deployment of restrictions should align with IMF Institutional View on The Liberalization and Management of Capital Flows.
- Removing interest rate controls and allowing rates to move flexibly will stabilize but pressure private sector balance sheets (especially short-duration and/or floating-rate debt).
- A large stock of banks’ nondeliverable FX swaps held by the central bank:
  - have average duration of "one year";
  - account for "19 percent of base money."
- Cost of these swaps would jump following a depreciation; full redemption at maturity could be destabilizing, undermining FX reserve accumulation and monetary aggregate targeting.
- Consider options: extending maturities or mandatory roll over of maturing liabilities into new, longer-duration instruments.

### Authorities’ views summarized
- Authorities consider a sizable change in the nominal exchange rate "disruptive" and expect parallel market pressures driven by currency speculation to wane this year.
- Current measures are deemed sufficient to control inflation, including stepped up sterilization efforts, continued efforts to combat smuggling, price controls for basic goods, and temporary import tax relief.
- Authorities reaffirm commitment to guarantee adequate supply of essential goods and protect purchasing power.
- Interest rate controls are seen as key to achieving socially desirable distribution of investment, promoting the productive sector, and facilitating access to affordable housing; no adjustments seen as necessary in the near term.

### B. Restoring sustainability to public finances — diagnosis
- Structural decline in hydrocarbon-related revenue has rendered current spending patterns unaffordable.
- Tax revenues fell from "nearly 34 percent of GDP in 2013–14" to "20 percent of GDP in 2024" as the hydrocarbon windfall waned.
- Current spending rose over the past 5 years from "about 26 to 32 percent of GDP" due to higher wage costs, extensive subsidies, consumption of goods and services, and rising interest payments.
- Financing constraints led to scaled down public investment while other poorly targeted outlays remained large.

### Fiscal consolidation: magnitude and immediate priority
- A large, sustained, and broad-based fiscal consolidation is necessary to restore debt sustainability and eliminate monetary financing.
- Fiscal adjustment needs are large (see Annex II, Table 7 in the source).
- Reforms should focus on:
  - retrenching excessive current spending;
  - rationalizing investment through enhanced efficiency; and
  - mobilizing new tax revenue.
- Reforms must be complemented by prompt efforts to strengthen the social safety net.
- Immediate priority: bring the primary deficit to "1 percent of GDP within the next 3 years" through measures including those below.

### Fiscal policy measures recommended
- Eliminating fuel subsidies (Box 1):
  - A concerted strategy to eliminate fuel subsidies is essential.
  - A strong and well-targeted social transfer system is imperative prior to such reform.
  - Clear communication, a concrete timeline, and mitigation policies required.
  - Consider adopting an automatic pricing mechanism to align prices with costs; later stage: tax fuels to offset environmental externality.
  - Recent temporary removal of diesel subsidies for mining and agriculture may help short-run supply but is not a structural solution.
  - Food-related subsidies estimated at "0.2 percent of GDP in 2024" and could be restructured to concentrate benefits to poor households.
- Reviewing public employment and lowering public sector real wages:
  - Bolivia has a relatively low share of public employment but a government wage bill that has increased significantly and surpasses regional peers.
  - Review compensation policies across NFPS agencies, cap real wage growth, and eliminate the extraordinary year-end bonus (doble aguinaldo).
  - Reassess scope of public services and strengthen governance to generate efficiency savings.
- Overhauling the social transfer system to improve targeting and coverage:
  - Current programs focus on specific demographic groups and leave non-elderly adults poorly covered.
  - Insufficient administrative data limits effective means-testing.
  - Improved targeting requires a comprehensive registry merging administrative information and leveraging census data; until then use proxy-targeting methods (household characteristics, geography, other proxies).
- Enhancing public investment management:
  - Better planning, allocation/prioritization, and execution of capital spending to boost efficiency and reduce costs.
  - Transparent ex-post assessment of projects.
  - Consider a Public Investment Management Assessment (PIMA).
  - Strengthen governance of public fideicomisos and harmonize regulatory frameworks with private sector.
- Mobilizing tax revenues:
  - Remove recently implemented import tax and VAT exemptions.
  - Expand the VAT base (including to digital services).
  - Raise the VAT rate (currently below regional comparators).
  - Modernize tax and customs administration: strengthen compliance risk management, streamline processes, leverage IT systems, foster collaboration between tax and customs administrations.
  - Disincentivize informality in labor market, trade, and mining to broaden the tax base.
  - Over a longer horizon consider: (i) introduction of a progressive personal income tax (PIT); (ii) improvements in taxation of immobile property; (iii) reducing the minimum transaction tax rate ("3 percent of gross income"); and (iv) expanding property taxes.
  - Yields from these measures take time but prompt implementation would enhance credibility of medium-term fiscal adjustment.
- Other measures: improve efficiency of current spending and strengthen governance of SOEs to bolster their financial stability.

### Box 1 — Cost and incidence of fuel subsidies (key figures and findings)
- Imported fuels are sold at around "½ their international price at present," representing a direct fiscal cost of "3.9 percent of GDP in 2024" (mostly gasoline and diesel).
- Opportunity costs from taxing fuel consumption and selling domestically produced fuels at subsidized prices raises the fiscal burden to "5.2 percent of GDP."
- Cost would rise significantly upon a realignment of the official exchange rate.
- Distributive analysis: over half of subsidy transfers benefit the wealthiest quintile, with only "7 percent" reaching the poorest households.
- Staff estimates removing fuel subsidies would increase average household spending by "0.6 percent" across all households ("2.6 percent" considering only households with positive fuel consumption); indirect effects through higher prices of other goods and services would add "0.9 percent" of households’ budget.
- Welfare change from removing fuel subsidies: welfare would fall by "4 percent" for the most vulnerable segments and by "3 percent" for the wealthiest households.
- Targeted transfers can mitigate welfare costs:
  - Fully compensating households in the bottom 40 percent of the income distribution would cost around "40 percent of the fuel subsidy cost" (or "22 percent, if only gasoline subsidies were removed").
  - An alternative social transfer mechanism budgeted at "30 percent" of realized subsidy savings, with "70 percent" coverage rate for the poorest quintile (declining to "1 percent" for the wealthiest), could overcompensate the two bottom quintiles while still reducing negative impacts on others.

*Source: IMF staff analysis as presented in the cited chapter.*

### 21.      A coherent fiscal framework should underpin the implementation of this consolidation

### 21.      A coherent fiscal framework should underpin the implementation of this consolidation

### Medium-Term Fiscal Framework (MTFF) and transparency
- A legal framework for a Medium-Term Fiscal Framework (MTFF) is a key priority to:
  - integrate fiscal projections into the annual budget process;
  - foster closer inter-agency collaboration;
  - embed a transparent roadmap for fiscal policy emphasizing a commitment to debt sustainability.
- The MTFF should:
  - incorporate a broad risk assessment calibrated to macroeconomic volatility, the potential for climate shocks, and possible financial needs of the SOEs;
  - be published alongside the budget;
  - include regular stakeholder consultations to discuss priorities within overall fiscal constraints.
- Timely publication of fiscal accounts, including financial flows of individual SOEs, is essential to enhance transparency and enable effective stakeholder engagement (Annex IV).

### C. A Potential Reform Scenario — summary and macroeconomic effects
- Assumptions:
  - An important fiscal adjustment of 8 percent of GDP in structural terms spread over the next three years.
  - The primary balance improves by only 7 percent of GDP due to declining non-tax revenue and the effect of automatic stabilizers.
- Expected impacts:
  - Arrest the rise in the public debt-GDP ratio and bring gross financing needs to more manageable levels, lessening debt distress risks and facilitating access to new external financing.
  - Initial devaluation and liberalization of fuel prices will create an initial burst of inflation of around 2 percentage points in end-2025.
  - Monetary restraint and fiscal adjustment should bring year-on-year inflation back to single digits by late 2027.
  - Adjustment process will create a period of low growth while the economy re-equilibrates; strengthening the social safety net up-front is critical to protect the most vulnerable.
  - Over the medium term: improved growth prospects, lower inflation, realignment of the exchange rate, slower domestic demand, reduced imports, and investment in export industries to reduce the current account imbalance and allow for a gradual increase in reserves.

- Fiscal revenue measures noted in staff estimates (footnote context retained):
  - An increase in VAT rates from 13 to 15 percent could yield additional revenue of ¾ percent of GDP.
  - A comprehensive PIT could raise 1.85 percent of GDP in revenues over the long term (but likely lower yields initially).
  - Property taxes could represent about 1 percent of GDP.
  - Significant, albeit uncertain, payoffs from improvements in tax administration (IMF Working Papers WP/23/231 and WP/20/142, and IMF Staff Discussion Note SDN/2023/006).

### Reform Scenario — key projections and indicators (Text Table 4, exact figures preserved)
- Contribution of measures to fiscal adjustment (impact on fiscal balance, relative to previous year):
  - Lower public consumption of goods and services: 0.5 (2026), 0.2 (2027), 0.1 (2028)
  - Lower capital spending: 1.1 (2025), -0.1 (2026), 0.0 (2027)
  - Partial freeze in public salaries (5 percent cap on nominal growth of public sector compensation in 2025-27): 1.2 (2025), 1.2 (2026), 0.7 (2027)
  - Rationalization of fuel subsidies (Domestic fuel prices increase by 50 percent per year in 2025-26 and 15 percent a year in 2027-28): -0.2 (2025), 2.3 (2026), 1.0 (2027), 0.9 (2028)
  - Mobilization of tax revenue: 0.5 (2028), 0.5 (2029), 0.5 (2030)

- Economic Outlook under Reform (exact annual figures):
  - Real GDP (percentage change): 3.1 (Est. 2023), 1.3 (2024), 0.1 (2025), 0.3 (2026), 0.8 (2027), 1.4 (2028), 2.0 (2029), 2.4 (2030)
  - CPI inflation (period average): 2.6 (Est. 2023), 5.1 (2024), 16.0 (2025), 16.5 (2026), 12.0 (2027), 8.7 (2028), 7.0 (2029), 5.5 (2030)
  - Primary NFPS balance: -8.7 (Est. 2023), -7.3 (2024), -4.4 (2025), -2.3 (2026), -0.3 (2027), 0.9 (2028), 1.5 (2029), 1.5 (2030)
  - Total gross NFPS debt: 90.8 (Est. 2023), 95.0 (2024), 118.9 (2025), 112.9 (2026), 104.9 (2027), 99.9 (2028), 95.5 (2029), 91.6 (2030)
    - of which: external debt: 29.9 (Est. 2023), 27.6 (2024), 51.8 (2025), 44.5 (2026), 40.4 (2027), 37.5 (2028), 36.7 (2029), 32.9 (2030)
  - Current account: -2.5 (Est. 2023), -4.3 (2024), 0.6 (2025), -0.2 (2026), -0.6 (2027), -1.0 (2028), -1.2 (2029), -1.1 (2030)
  - Gross international reserves (in USD million): 1808 (Est. 2023), 2009 (2024), 3774 (2025), 5282 (2026), 6744 (2027), 7806 (2028), 8900 (2029), 9971 (2030)
    - In percent of ARA: 20.6 (Est. 2023), 23.0 (2024), 41.1 (2025), 51.9 (2026), 60.3 (2027), 65.1 (2028), 69.0 (2029), 72.0 (2030)
  - Real Exchange Rate (Bolivianos/USD, 2018=100): 112.3 (Est. 2023), 110.0 (2024), 211.1 (2025), 186.3 (2026), 173.1 (2027), 167.9 (2028), 166.4 (2029), 164.9 (2030)
  - Bolivianos/U.S. dollar (end-of-period) Official (buy) exchange rate: 6.9 (Est. 2023), 6.9 (2024), 15.0 (2025), 15.1 (2026), 15.4 (2027), 15.9 (2028), 16.5 (2029), 16.9 (2030)

- Memorandum items (NPFS Net incurrence of liabilities = - Overall balance):
  - NPFS Net incurrence of liabilities: 10.9 (Est. 2023), 10.3 (2024), 9.3 (2025), 7.3 (2026), 4.2 (2027), 2.6 (2028), 1.3 (2029), 1.1 (2030)
    - External: 0.5 (Est. 2023), -0.3 (2024), 5.9 (2025), 4.0 (2026), 0.9 (2027), -0.7 (2028), -1.7 (2029), -2.0 (2030)
    - Domestic: 10.5 (Est. 2023), 10.6 (2024), 3.4 (2025), 3.3 (2026), 3.3 (2027), 3.3 (2028), 3.0 (2029), 3.1 (2030)
    - of which: central bank: 8.7 (Est. 2023), 8.0 (2024), ... (2025 onward undisclosed in table)

### Exchange regime and FX restrictions
- Bolivia’s current foreign exchange system gives rise to an exchange restriction subject to approval by the Fund:
  - Exchange restriction arises from authorities’ rationing of FX liquidity and prioritization of certain transactions by state entities in allocation of FX (mainly for fuel imports and external debt service).
  - Resulted in FX shortages, undue delays for current international transactions, and the emergence of a parallel market where FX is available at a premium.
  - Authorities have not requested approval for these exchange restrictions.
  - Staff’s recommended policy adjustment would pave the way for complete removal of restrictions as international reserve buffers accumulate.

### Authorities’ views on reform and FX
- Authorities concur that some fiscal reforms are necessary but prefer a more gradual adjustment and expressed concerns that substantial fuel subsidy changes could negatively affect vulnerable groups and essential sectors such as agriculture.
- They prioritize bolstering the social safety net and view a "Census of the Poor" and collaboration with development partners as critical to improve targeting of social transfers.
- Authorities note a large share of the budget is already dedicated to health, education, and other social spending.
- Structural fiscal reforms under consideration: enhancing fiscal planning and public investment management; gradual fuel subsidy reform building on recent measures.
- On revenues: substantial efforts to enhance tax administration to improve compliance and combat smuggling; they don’t see VAT reviews as necessary at this stage.
- On FX provision: authorities assert the central bank is not restricting FX provision—citing no obligation for exporters to deliver FX to the central bank and no duty for the central bank to provide FX to the financial system. They emphasize low liquid FX reserves are due to the trade deficit, market speculation, and impediments to external loan disbursements.
- Authorities note the central bank continues to sell USD to banks (as an accrual) and directly to individuals through its public commercial bank; recent regulatory changes aim to ease private FX market constraints and curb speculation.

### D. Safeguarding Financial Stability — vulnerabilities and policy priorities
- Systemic risks and recent developments:
  - Deposits are falling in real terms; net interest margins under pressure due to interest rate controls constraining banks’ ability to raise loan rates; credit growth is slowing.
  - Bank profitability boosted by gains from trading FX in the offshore parallel market.
  - Average capital adequacy ratio improved to 13.5 percent in 2024 (above regulatory minimum of 10 percent).
  - Banks no longer accepting new FX deposits in absence of FX liquidity provision by the BCB; banks actively reducing FX-denominated liabilities and increasing long dollar positions (many FX assets are nondeliverable swaps with the central bank).
  - Non-performing loans (NPLs) rose, particularly in mortgages, microcredit, and credit to SMEs; average NPLs remain 3.2 percent of loans.
  - A large share of reprogrammed loans (about 16 percent) and renewed regulatory forbearance following protests and wildfires likely to further impair credit quality.
  - Loan loss provisioning: fell from 134 percent of NPLs at end-2023 to 130 percent at end-December 2024.

- Recommended priorities:
  - Incentivize banks to proactively increase provisions against potential credit deterioration.
  - Prioritize increased financial oversight and rigorous implementation of existing capital and liquidity requirements.
  - Raise the frequency and comprehensiveness of stress tests and prepare detailed bank resolution contingency plans.
  - Provide clearer mandates and authorities for ASFI to access high-frequency data and assume control of a failing bank.

- Regulatory strengthening underway (FSAP recommendations, Annex V):
  - Enhanced stress testing methodologies on interest rate risk and alignment of market risk exposure measurements with international standards.
  - Limits on banks’ profit distribution imposed; plans to establish minimum liquidity ratios and consolidated capital requirements in the first half of 2025.
  - Improvements to granularity of deposit data and development of a housing price index; recommendation to complement with borrower-based indicators.
  - Updating intervention rules, recovery planning guidelines, and criteria to identify systemically important entities.

- Governance and prudential measures recommended:
  - Strengthen central bank’s role within the Financial Stability Council and improve transparency of Council decisions.
  - Legal reforms to prioritize ASFI’s objectives, ensure independence, provide legal protections for supervisors, and align regulations with international standards.
  - Align capital adequacy and liquidity frameworks, treatment of problem assets, provisioning, limits on related party transactions, and limits on interest rate risk with international standards.
  - Reverse recent reduction of risk weights for social housing loans.
  - Minimize recurrent use of regulatory forbearance to mitigate moral hazard and enhance accuracy and transparency of reported capital positions.

### Pension fund (Gestora) recommendations
- Current issues:
  - Pension fund assets concentrated in low-yielding fixed-term deposits and public sector debt.
  - Continuous expansion in number of contributors, but population ageing will worsen the financial position.
  - Concerns that potential forced reduction in replacement rate may discourage participation.
- Policy recommendations:
  - Diversify investments across private and public debt instruments and explore foreign investment options (limit on foreign assets raised from 10 to 20 percent of portfolio).
  - Pace changes in investment allocations carefully to avoid excessive strain on the banking sector or rapid shift toward overseas assets, recognizing macrofinancial impacts.
  - Advance appointment of the Board of the Gestora based on stringent technical criteria (as provided for in Law 65 of 2010).
  - Increase operational and financial independence of the pension supervisor from the government to build trust, transparency, and accountability.
  - Advance actuarial analyses of the sustainability of the semi-contributory and non-contributory (Renta Dignidad) pillars to inform future reform needs (which may include recalibration of retirement ages, payout rules, or contributions).
  - Design contingency plans for a range of financial shocks to enhance risk management.

### Virtual assets, AML/CFT, and associated risks
- Virtual assets:
  - Ban on virtual assets lifted in June 2024 following a GAFILAT recommendation.
  - In six months after liberalization, transaction volumes exceeded US$135 million.
  - Rapid market growth calls for enhanced oversight of bank exposures to crypto entities and lending to trading platforms.
  - Recommended measures: ringfencing banks’ balance sheets, regulating providers, ensuring consumer protection, and applying guidance from the Bank for International Settlements' Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions (July 2022).
  - Crypto assets could be used to bypass capital flow management (CFM) measures; future CFM design should account for cryptocurrencies with reinforced monitoring of cross-border flows and ML/TF risks.

- AML/CFT:
  - GAFILAT assessment adopted December 2023 highlights need for progress in understanding Bolivia’s ML/TF risks, accessing beneficial ownership information, and strengthening ML/TF investigations and prosecutions.
  - The Financial Action Task Force will discuss potential gray listing of Bolivia in June 2025, which could result in further pressures on correspondent banking relations and investment inflows.

### Authorities’ views on financial stability
- Authorities consider the financial system resilient with adequate buffers:
  - Deposits and credit continue to expand; profitability increased in 2024 and capital buffers rose.
  - Liquidity significantly exceeded prudential ratios.
  - NPLs increased due to exogenous factors but remain low relative to regional peers; banks’ provisions assessed as adequate.
  - ASFI committed to strengthen crisis management and preparedness tools and align some provisions with international guidelines.
  - Authorities do not see merit in proposed governance changes for financial supervision, asserting current framework adequate with defined interinstitutional coordination mechanisms.
  - Gestora: nominal returns increased since it took over management of pension fund assets and further diversification into foreign assets is envisaged; actuarial analysis planned.
  - Virtual assets: small trading volumes suggest minimal risk and banks (currently the only service providers) are under ASFI supervision.

### E. Sustaining Potential Growth — supply-side reform priorities
- Key constraints noted: slowed labor force growth since the pandemic, falling average hours worked (especially in the informal sector), falling capital-to-GDP ratio despite relatively high public investment, and continued secular decline in total factor productivity (Annex VI).
- Policy recommendations to reverse adverse trends and support external rebalancing, job creation, and higher living standards:
  - Phase out export ceilings, price and interest rate controls, and credit quotas to improve resource allocation and promote new investments (including in agriculture).
  - Enhance agricultural productivity and resilience through reduced market regulations, R&D investments, reduced logistics costs, better natural resource management (sustainable farming methods), expanded access to fertilizers, and use of biotechnology.
  - Establish a clear, predictable regulatory framework to attract private investment in natural resources with strict environmental safeguards (for hydrocarbons and lithium).
  - Foster private investment in non-extractive sectors by reducing tax and regulatory burdens, modernizing labor regulations, and improving the rule of law to decrease uncertainty and secure property rights (Section F).
  - Focus public investment on closing infrastructure gaps and projects with strong crowding-in effects and/or clear social benefits (such as transition to renewable energy).

*Source: IMF staff report chapter/section as provided in the supplied content.*

### 35.      Decisive steps are needed to reduce economic informality and raise labor force

### Decisive steps are needed to reduce economic informality and raise labor force

### Informality, labor market distortions, and recommended reforms
- Findings
  - Informality acts as a safety valve for employment but constrains productivity and facilitates tax evasion (Annex VII).
  - Disincentives for workers to join the formal market include: the availability of generous noncontributory pensions, weak unemployment insurance, the low quality of healthcare provided with formal employment, relatively high minimum wages, rigid hiring and firing rules, high rates of taxation, and red tape.
  - Higher wage, more skilled labor is more likely to work in formal employment.
- Policy recommendations to reduce informality
  - Reduce the marginal tax on labor.
  - Provide a stronger link between social contributions and benefits.
  - Enforce tax, labor, and other regulations.
  - Raise skills to increase the share of higher-wage formal employment.
  - Strengthen wage bargaining frameworks to involve employers, employees, and government to promote formalization and mitigate unfavorable wage-price feedback loops.

### Authorities’ views on productive capacity and formalization
- Authorities’ stance
  - Authorities view the public sector as critical for transformation through significant investments in strategic sectors to generate new sources of growth, crowd-in private investment, and foster economic formalization.
  - Continued promotion of private sector productive activity includes efforts to reduce red tape, lower taxation of investment goods, and open the use of biotechnology in agriculture to support production.
  - Quotas and price controls (including interest rates) are seen by the authorities as instrumental to direct resources to priority sectors, manage supply, control inflation, and protect the population’s well-being.

### Strengthening governance and anti-corruption measures
- Recent actions and context
  - Law No. 1390, 2021 (Law on Reinforcing the Fight against Corruption) was promulgated.
  - An updated national policy on transparency and the fight against corruption was adopted in 2023 (“Towards Digitalized and Transparent Public Management” (Supreme Decree No. 4872)) as foreseen by the Economic and Social Development Plan (2021-2025).
  - The National Plan for the Fight against Corruption 2024/2025 was recently approved; digital systems to track and manage complaints were developed and processing of criminal prosecution and proceedings improved.
  - Perceptions of corruption remain negative, undermining public trust, deterring investment, contributing to social unrest, and adversely affecting the country’s risk premium.
- Further governance measures recommended
  - Enhance access to information, including through a dedicated law.
  - Expand the asset declarations system to disclose a wider range of conflicts of interest and facilitate public access.
  - Strengthen capacities and integrity of law enforcement officials.
  - Conduct corruption risk assessments and adopt mitigation plans.
  - Improve judicial independence, integrity, and efficiency through adequate resource allocation, publication of all judgments, and a transparent, participatory selection process for judicial candidates.
  - Improve registration of property rights via better inter-agency coordination and public access to registers.
  - Enhance transparency and incentivize public participation in government oversight (Annex VIII).

### Staff appraisal: macroeconomic risks, diagnostics, and policy program
- Key macroeconomic diagnostics and risks
  - Large fiscal deficits, mostly financed by the central bank in a fixed exchange rate regime, have depleted international reserves amid a secular decline in export revenue and tight external financing constraints.
  - The 2024 external position is assessed to be substantially weaker than the level implied by medium-term fundamentals and desirable policies.
  - The private sector faces FX and fuel shortages and transacts at a parallel exchange rate that is over 80 percent weaker than the official rate.
  - Domestic output is estimated to have grown at a mere 1.3 percent in 2024.
  - Inflation reached a decade high of 14.6 percent in early 2025.
  - Political tensions, roadblocks, and a severe drought compound macroeconomic strains.
  - The risk of debt distress is escalating due to: a high public debt-to-GDP ratio, low FX reserves, and an overvalued official exchange rate.
  - Potential shocks include unsustainable macroeconomic policies, sociopolitical tensions, inability to meet external debt obligations, global trade disruptions, worsening terms of trade, banking system shocks, rising inflation, basic goods scarcity, food price shocks, and electoral uncertainties.

- Monetary and exchange rate framework recommendations
  - Replace the current peg to the U.S. dollar with a monetary policy framework that realigns the exchange rate with fundamentals while maintaining tight control over domestic currency liquidity to anchor price stability.
  - Given uncertainty about the equilibrium exchange rate and low reserves, the central bank could initially adopt a base money target.
  - Lift interest rate and credit controls to allow effective transmission of monetary conditions.
  - Target FX interventions under the new framework toward reserve accumulation.
  - Discontinue central bank financing of the fiscal deficit.
  - Consider temporary, emergency restrictions on deposit withdrawals and capital outflows to support the adjustment.
  - As reserve adequacy improves, consider transitioning to a hybrid system utilizing a crawling band and short-term interest rates.
  - Strengthen the central bank’s operational and institutional framework to support transition to a flexible exchange rate and, eventually, to inflation targeting.

- Fiscal consolidation and revenue measures
  - The primary deficit would need to be reduced to 1 percent of GDP within the next three years.
  - Suggested measures include: cuts in the wage bill, elimination of fuel subsidies, and improved public investment management.
  - Remove import tax and VAT exemptions, expand the VAT base, and increase the VAT rate.
  - Strengthen tax and customs administration; consideration could be given to introducing a progressive income tax and expanding property taxes.
  - Establish an institutional framework for medium-term budgeting to provide a transparent roadmap focused on restoring debt sustainability.

- Exchange rate adjustment and its impacts
  - A step devaluation exceeding the current level of the parallel exchange rate will likely be necessary to meet public sector FX needs, promote capital inflows, and rebuild international reserves.
  - The devaluation will negatively impact the public sector's balance sheet initially; fiscal consolidation measures are expected to guide debt back to a sustainable trajectory.
  - Inflation will rise immediately after the exchange rate adjustment and elimination of subsidies, and will subsequently stabilize to single digits as a result of tight fiscal and monetary policies.
  - Depreciation is expected to enhance competitiveness, reduce imports, attract foreign investment, and stimulate export industries, ultimately eliminating external imbalances.

- Social protection priorities during adjustment
  - Quickly overhauling the social safety net is a priority to manage adjustment costs for the population.
  - Given limited fiscal resources, social assistance should focus on the most vulnerable households.
  - Initial targeting improvements could use proxy methods linking eligibility to observable household characteristics.
  - Over time shift to means-testing through a unified database to guarantee coverage for low-income households and prevent benefit duplication.

- Financial sector resilience and supervision
  - Expand recent methodological improvements to stress-testing and market risk assessment; increase frequency and comprehensiveness of stress tests.
  - Establish guidance on recovery planning for banks.
  - Implement new liquidity and consolidated capital requirements, and limits on bank profit distribution to build capital buffers.
  - Minimize regulatory forbearance to reduce moral hazard and align with international standards.
  - Align governance of the Financial Stability Council and financial supervisor (ASFI) with international standards.
  - Establish adequate regulation and supervision of virtual assets to prevent financial vulnerabilities and financial integrity risks.
  - Continue efforts to improve the AML/CFT framework to forestall a negative GAFILAT assessment that could impair correspondent bank relationships.

- Public pension fund (Gestora) reforms
  - Diversify Gestora’s investments to achieve a balanced portfolio between public and private debt instruments and increase the share of foreign assets to improve returns and strengthen the fund's actuarial position.
  - Bolster risk management by developing contingency plans for financial shocks.
  - Proceed with Board appointments based on stringent technical criteria.
  - Enhance the operational and financial independence of the pension supervisor to foster trust, transparency, and accountability.

- Supply-side reforms to boost potential growth and formalization
  - Phase out export ceilings, price controls, and credit quotas to improve resource allocation and attract new investments.
  - Establish a clear regulatory framework to encourage private investment in natural resource exploration with robust environmental safeguards.
  - Prioritize public investment to close infrastructure gaps and finance projects with clear social benefits.
  - To boost private investment in non-extractive sectors and reduce informality: reduce tax burden on labor and capital, modernize labor laws, and strengthen the rule of law.
  - Enhance agricultural productivity by reducing market regulations and providing incentives for R&D investments.

### Key statistics and timelines (as reported)
- Text Table 5 covers: 2015Q4–2024Q2.
- Workers in occupations more likely to be informal include: small farm workers, self-employed, domestic workers, family workers, apprentices and members of cooperatives (note 1/).
- National policy and planning references and dates:
  - Law No. 1390, 2021.
  - “Towards Digitalized and Transparent Public Management” (Supreme Decree No. 4872).
  - Economic and Social Development Plan (2021-2025).
  - National Plan for the Fight against Corruption 2024/2025.
- Macroeconomic figures:
  - Estimated GDP growth in 2024: 1.3 percent.
  - Inflation in early 2025: 14.6 percent.
  - Parallel exchange rate: over 80 percent weaker than the official rate.
  - Target primary deficit: 1 percent of GDP within the next three years.

*Source: IMF staff report excerpt.*

### 50.      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: "Economic activity continues to moderate but has been volatile."
- Growth composition:
  - "Retail and services explain the bulk of growth surprises."
  - Sectoral contributions to GDP growth (illustrative categories shown): Agriculture; Hydrocarbons; Mining; Manufacturing & Construction; Commerce, Finance and Services; Transportation & Communication; Other Sectors.
- Investment and imports: "Investment and imports dropped significantly in recent quarters."
  - "Private investment led the contraction in capital formation."
- Prices and inflation:
  - "Producer, wholesale, and consumer price inflation accelerated, pushed by tradable components."
  - "Food and services inflation are at a decade-long peak."
- Sources cited: National Institute of Statistics, Central Bank of Bolivia, Haver, SEDLAC, World Bank, and Fund staff calculations.

### Fiscal Sector Developments
- Fiscal balance and drivers:
  - "The fiscal deficit remained sizable in 2024..."
  - Fiscal outlays driven by "rising fuel subsidies, social transfers, and other current expenditures..."
  - "A fall in hydrocarbon-related revenues and tax collections was compensated by higher SOE profits."
  - "Fiscal policy stance is estimated to have tightened in 2024 on account of windfalls from intervention in the domestic gold market."
- Public debt and financing:
  - "Public debt keeps growing after the notable surge in 2020."
  - "Limited access to external financing has shifted the composition of public debt towards domestic sources."
- Fiscal impulse: Chart referenced as "Fiscal Impulse 2/ (Percent of GDP)" showing negative and positive values across years.
- Selected fiscal aggregates (Table 1 and Table 2a, 2b highlights):
  - Combined public sector: Revenues and grants 27.8 (2023), 28.4 (2024), 24.8 (2025), 24.2 (2026), 23.8 (2027), 23.7 (2028), 23.6 (2029), 23.5 (2030) (percent of GDP).
  - Expenditure: 38.7 (2023), 38.7 (2024), 37.5 (2025), 37.4 (2026), 38.1 (2027), 39.7 (2028), 40.8 (2029), 42.2 (2030) (percent of GDP).
  - Net lending/borrowing (overall balance): -10.9 (2023), -10.3 (2024), -12.7 (2025), -13.2 (2026), -14.2 (2027), -16.0 (2028), -17.2 (2029), -18.7 (2030) (percent of GDP).
  - Total gross NFPS debt: 90.8 (2023), 95.0 (2024), 90.4 (2025), 91.4 (2026), 92.8 (2027), 95.5 (2028), 98.5 (2029), 101.8 (2030) (percent of GDP).
  - Hydrocarbon related revenue (percent of GDP): 2.8 (2023), 2.2 (2024), 1.9 (2025), 1.6 (2026), 1.3 (2027), 1.1 (2028), 0.8 (2029), 0.6 (2030).

### Monetary Sector Developments
- Interest rates and liquidity:
  - "Interbank rates have dropped since their March 2023 peak but remain above historical levels."
  - "Deposit and lending rates have been stable in the last year, despite inflationary pressures."
  - Interbank and government bill/bond rates plotted (Interbank rate; 1-year local currency bill rate; 3-month local currency bill rate (RHS); 1-year inflation-indexed bond rate (RHS); 2-year inflation-indexed bond rate (RHS)).
- Banking reserves and central bank credit:
  - "Banks' excess reserves have markedly increased in the past year."
  - "Central bank credit to the central government continues to expand."
- FX provision and dollarization:
  - "Central bank FX provision to banks through the Bolsin dropped abruptly in mid-2023. 1/"
  - "Dollarization ratios stabilized at low levels after the 2023 drop related to the exit of Banco Fassil."
- Monetary aggregates and dollarization indicators:
  - M1, M2, M3, M4 dollarization series and Monetary Aggregates (percent of monetary aggregate) chart referenced.
- Monetary Survey highlights (Table 5):
  - Central Bank gross international reserves (In millions of U.S. dollars): 1,808 (2023), 2,009 (2024), 2,118 (2025), 2,199 (2026), 2,160 (2027), 2,231 (2028), 2,290 (2029), 2,312 (2030).
  - Base money (Bs million): 115,160 (2023), 126,676 (2024), 140,604 (2025), 165,950 (2026), 198,063 (2027), 238,206 (2028), 286,171 (2029), 349,950 (2030).
  - Credit to the private sector (percent change): -2.1 (2023), 4.0 (2024), 7.5 (2025), 7.2 (2026), 6.9 (2027), 6.6 (2028), 6.6 (2029), 7.2 (2030).

### Financial Sector Developments
- Stability and performance:
  - "Capital adequacy ratios are above the regulatory minimum, while NPLs have been rising..."
  - "...and bank profitability has been declining."
- Policy measures and credit trends:
  - "The authorities reduced reserve requirements on FX deposits three times to support liquidity and lending."
  - "Credit growth has been muted since the exit of Banco Fassil."
  - "The microcredit lending rate is the most affected by the Financial Services law."
  - "Lending has fallen across 'productive' and other sectors."
- Financial indicators (Table 6 and Table on Financial Sector Indicators):
  - Regulatory capital to risk-weighted assets: 12.8 (2017), 12.8 (2018), 13.0 (2019), 13.1 (2020), 12.9 (2021), 12.8 (2022), 13.4 (2023), 13.5 (2024) (percent).
  - Nonperforming loans to total gross loans: 1.7 (2017), 1.7 (2018), 1.9 (2019), 1.5 (2020), 1.5 (2021), 2.1 (2022), 2.9 (2023), 3.2 (2024) (percent).
  - Return on Assets: 1.6 (2017), 1.3 (2018), 1.5 (2019), 0.9 (2020), 1.0 (2021), 1.1 (2022), 1.1 (2023), 1.0 (2024) (percent).
  - Return on Equity: 12.9 (2017), 10.9 (2018), 11.8 (2019), 4.8 (2020), 7.1 (2021), 8.2 (2022), 8.9 (2023), 7.2 (2024) (percent).
  - Provisions to Nonperforming loans: 99.9 (2017), 94.6 (2018), 91.3 (2019), 119.7 (2020), 111.2 (2021), 88.1 (2022), 80.4 (2023), 75.7 (2024) (percent).

### External Sector Developments
- Trade and exports:
  - "Exports declined in 2024 due to central bank gold purchases, poor agricultural weather, and maturing natural gas reservoirs."
  - Export components cited: Natural gas; Minerals (non-gold and gold); Soybeans and derivatives.
- Imports and current account:
  - "Imports compressed across all segments in 2024."
  - "The current account deficit including net errors and omissions narrowed in 2024."
  - Current account balance (US$ million): -1,145 (2023), -1,297 (2024), -1,468 (2025), -2,094 (2026), -2,925 (2027), -3,907 (2028), -5,099 (2029), -6,288 (2030).
  - Current account (percent of GDP): -2.5 (2023), -2.7 (2024), -2.6 (2025), -3.2 (2026), -3.8 (2027), -4.2 (2028), -4.6 (2029), -4.7 (2030).
- Financial inflows and reserves:
  - "Financial inflows have been driven by 'other investment' since 2023."
  - "Gross international reserves remain near their legal minimum in 2024."
  - Gross BCB international reserves (US$ million): 1,808 (2023), 2,009 (2024), 2,118 (2025), 2,199 (2026), 2,160 (2027), 2,231 (2028), 2,290 (2029), 2,312 (2030).
  - Reserves in percent of GDP: 4.0 (2023), 4.1 (2024), 3.8 (2025), 3.3 (2026), 2.8 (2027), 2.4 (2028), 2.1 (2029), 1.7 (2030).
- Balance of payments particulars (Table 4 highlights):
  - Exports, c.i.f. (US$ million): 10,778 (2023), 8,923 (2024), 8,811 (2025), 9,103 (2026), 9,446 (2027), 9,889 (2028), 10,357 (2029), 10,838 (2030).
  - Imports, c.i.f. (US$ million): 11,490 (2023), 9,904 (2024), 9,134 (2025), 9,936 (2026), 10,902 (2027), 12,071 (2028), 13,312 (2029), 14,377 (2030).
  - Remittances, net (US$ million): 1,184 (2023), 1,122 (2024), 1,128 (2025), 1,172 (2026), 1,203 (2027), 1,224 (2028), 1,224 (2029), 1,198 (2030).

### Key Economic and Social Indicators; Projections Summary
- Demographics and social:
  - Population (millions, 2024): 11.3
  - Population growth rate (percent, 2024): 1.4
  - Life expectancy at birth (years, 2024): 68.7
  - Poverty rate (percent, 2023): 36.5
  - Adult literacy rate (percent, 2023): 95.2
  - Total unemployment rate (2024Q3): 3.6
- Macroeconomic projections (selected):
  - Real GDP growth (percent): 3.1 (2023), 1.3 (2024), 1.1 (2025), 0.9 (2026), 0.6 (2027), 0.4 (2028), 0.2 (2029), 0.2 (2030).
  - Nominal GDP (percent change): 2.6 (2023), 6.5 (2024), 16.4 (2025), 16.9 (2026), 17.9 (2027), 18.7 (2028), 19.9 (2029), 21.1 (2030).
  - CPI inflation (period average): 2.6 (2023), 5.1 (2024), 15.1 (2025), 15.8 (2026), 17.1 (2027), 18.2 (2028), 19.6 (2029), 20.9 (2030).
  - CPI inflation (end of period): 2.1 (2023), 10.0 (2024), 15.6 (2025), 16.8 (2026), 17.5 (2027), 18.9 (2028), 20.3 (2029), 21.3 (2030).
  - Exports of goods and services (percent of GDP): 26.2 (2023), 20.7 (2024), 18.0 (2025), 16.0 (2026), 14.1 (2027), 12.4 (2028), 10.9 (2029), 9.4 (2030).
  - Imports of goods and services (percent of GDP): 28.6 (2023), 23.3 (2024), 20.4 (2025), 18.9 (2026), 17.4 (2027), 16.1 (2028), 14.7 (2029), 13.0 (2030).
- Memorandum items:
  - Nominal GDP (in billions of U.S. dollars): 45.5 (2023), 48.4 (2024), 56.3 (2025), 65.9 (2026), 77.6 (2027), 92.1 (2028), 110.4 (2029), 133.8 (2030).
  - Bolivianos/U.S. dollar (end-of-period): 7/6.9 (notation as in source).
  - Oil prices (U.S. dollars per barrel): 80.6 (2023), 79.2 (2024), 72.0 (2025), 68.2 (2026), 66.9 (2027), 64.4 (2028), 66.0 (2029), 65.8 (2030).
  - Energy-related subsidies to SOEs (percent of GDP): 3.9 (2023), 4.0 (2024), 3.4 (2025), 2.9 (2026), 2.5 (2027), 2.3 (2028), 2.0 (2029), 1.6 (2030).

*Source: IMF staff compilation and projections as presented in the document.*

### Annex I. External Sector Assessment

### Annex I. External Sector Assessment

### Overall Assessment
- The external position of Bolivia in 2024 was substantially weaker than the level implied by fundamentals and desirable policies.
- Bolivia has run persistent current account deficits and experienced a substantial real exchange rate appreciation since 2015.
- These external imbalances have matched a deteriorating fiscal position in the context of an overvalued Bolivian peso that follows a de facto fixed exchange rate regime.
- At end-2024, reserves stood at US$2 billion, which is 2 months of projected 2024 imports, or 23 percent of the Fund’s 2 24 reserve adequacy metric.

### Potential Policy Responses
- Commit to implementing structural fiscal reforms to permanently lower the fiscal deficit, while protecting the most vulnerable.
- With a solid fiscal plan in place, an orderly realignment of the official exchange rate will support external rebalancing and allow for a rebuilding of international reserves over time.
- Monetary policy will need to be restrictive for some time to prevent unstable price dynamics and stave-off capital outflows.
- After an initial step devaluation, a more flexible exchange rate regime would cushion the economy against external shocks.
- Supply-side reforms are essential to improve productivity and competitiveness.

### Foreign Assets and Liabilities: Position and Trajectory
Background
- Bolivia has been a net debtor since 2016Q4.
- The net international position (NIIP) has weakened from a net surplus of US$4.5 billion (13.6 percent of GDP) in 2014 to a net deficit of US$13.0 billion (-26.9 percent of GDP) at end-2024.
- The decline in net foreign assets reflects persistent current account deficits following the commodity boom cycle (2012–2017) and the accompanying fiscal expansion.
- Over half of foreign liabilities are in the form of loans and debt instruments, with the remaining share in equity, primarily as direct investment.

Assessment
- Over the medium term the NIIP is expected to continue to deteriorate by 1 to 2 percent of GDP per year, owing to sustained current account deficits.
- To maintain the NIIP at the 2024 level of -26.9 percent of GDP would require a current account balance of about -1.4 percent of GDP over the coming years.
- Although Bolivia’s current short-term gross external financing needs are limited, as much of its external debt is long-term, with relatively favorable financing terms, the NIIP is expected to fall further posing a risk that future foreign financing may be done through riskier instruments.

Key 2024 external balance figures (% GDP)
- NIIP: -26.9
- Gross Assets: 27.8
- Debt Assets: 6.2
- Gross Liab.: 54.6
- Debt Liab.: 32.5

### Current Account
Background
- The current account in Bolivia follows commodity price swings and, relatedly, fiscal policy.
- With the collapse in commodity prices in 2015 and associated increase in the budget deficit, the current account swung sharply 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 2024, the current account deficit reached a US$1.3 billion (2.7 percent of GDP), compared to a US$1.1 billion deficit in 2023.
- Net errors and omissions reached -2.6 percent of GDP in 2024.

Assessment
- The cyclically adjusted CA balance stood at -2.7 percent of GDP in 2 24.
- Considering Bolivia’s weak reserve coverage and heightened external liabilities, external sustainability considerations suggest a CA norm of 2.0 percent of GDP, which would be consistent with bringing reserves near 100 percent of the ARA metric over the medium-term.
- IMF staff assesses the CA gap to be about –4.9 percent of GDP.
- Errors and omissions of -2.6 percent of GDP suggest an even weaker external position.

### Real Exchange Rate
Background
- CPI-based real effective exchange rate (REER) has been on an appreciating trend since end-2017.
- As of end-2024, the REER has appreciated by 50 percent since the boliviano was pegged to the U.S. dollar in 2011.
- From 2023 to 2024 the REER strengthened slightly, by around 3 percent, owing to domestic inflationary pressures.

Assessment
- Staff-assessed CA gap implies a REER gap of about 26 percent in 2024 (with an estimated elasticity of 0.20 applied).
- To support realignment of the exchange rate with fundamentals, policies should focus on fiscal consolidation, improving productivity and competitiveness.

### Capital and Financial Accounts: Flows and Policy Measures
Background
- The net FDI inflow is projected at – 0.4 percent of GDP in 2024 compared to a three-year average of 0.3 percent of GDP net inflow from 2020–2022.
- Restrictive capital flow measures, such as limits on foreign asset holdings and a tax on domestic dollar deposits remain in place.
- The World Bank, IDB and CAF provided net new external funding totaling roughly $1.3 billion in 2024, however, due to disagreement in congress future disbursements may be stalled.

Assessment
- The current account deficit has been mainly financed by running down international reserves until 2023 and, more recently, purchases of domestic gold and BCB financial operations.
- Low levels of reserves, and continued fiscal and current account deficits, together with the 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 EMBIG spread surpassed 2000 in November owing to economic and political turmoil.
- To support sustainable and durable growth, the authorities need to put in place 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
- 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 have remained near their legal minimum since August 2023, rising to US$2 billion in end-2024 on the back of gold valuation effects.
- The BCB is relying on domestic purchases of gold bullion and financial operations to cope with the FX drain.
- The BCB has imposed restrictions on gold exports by local producers to facilitate its purchases of gold and is purchasing about 1 ton of gold locally per month (equivalent to about US$80mn).
- The BCB’s purchases have resulted in a collapse in gold exports and a larger trade deficit, which partly offsets the positive impact on reserves.
- The BCB’s recent issuance of USD denominated paper captured US$260mn. Of those, US$200mn were subscribed by the public pension fund.
- The BCB has also nearly stopped providing FX to the private sector.

Assessment
- The international reserves level is not adequate according to standard Fund metrics.
- Latest data at end-2024 show that reserves stand at 2.1 months of projected 2024 imports and 23 percent of the ARA metric.
- Usable FX reserves have remained extremely low (about 10 percent of total) since 2023.
- To preserve the stabilized exchange rate and ensure external sector sustainability, there is a need to accumulate reserves and correct internal imbalances including through fiscal consolidation, supply side reforms, and exchange rate realignment.

*Source: Annex I. External Sector Assessment, 1bolea2025002-print-pdf*

### 5. Debt consolidation across sectors:

### 5. Debt consolidation across sectors:

### Public debt structure and short-term financing pressures
- Outstanding external sovereign bonds total USD1.85 billion (about 4.1 percent of 2023 GDP).
- External bond interest payment of USD110 million in 2025; principal amortization resumes in 2026, with the first of three instalments of a USD1 billion bond maturing in 2028.
- Most remaining external debt consists of multilateral and bilateral loans on concessional terms.
- Gross fiscal financing needs surged in 2024, with domestic debt service estimated to have accounted for 39 percent of GDP due to heavy reliance on short-term domestic credit.
- Short-term domestic refinancing needs are expected to fall materially as much of the short-term domestic debt is anticipated to be refinanced through a long-term loan during 2025.

### Baseline scenario projections (selected numeric indicators)
- Public debt (Percent of GDP): Actual 2024: 95.0; 2025: 90.8; 2026: 91.4; 2027: 92.8; 2028: 95.5; 2029: 98.5; 2030: 101.8; 2031: 106.0; 2032: 110.3; 2033: 115.2; 2034: 120.2.
- Change in public debt (Percent of GDP): 2024: 4.3; 2025: -4.2; 2026: 0.6; 2027: 1.4; 2028: 2.8; 2029: 2.9; 2030: 3.3; 2031: 4.2; 2032: 4.4; 2033: 4.8; 2034: 5.1.
- Primary deficit (Percent of GDP): 2024: 7.3; 2025: 9.5; 2026: 9.2; 2027: 8.9; 2028: 8.7; 2029: 8.4; 2030: 8.0; 2031: 7.6; 2032: 7.2; 2033: 7.0; 2034: 6.6.
- Automatic debt dynamics (Percent of GDP): 2024: -2.5; 2025: -10.1; 2026: -6.0; 2027: -5.1; 2028: -3.9; 2029: -3.7; 2030: -3.2; 2031: -2.2; 2032: -1.9; 2033: -1.3; 2034: -0.8.
- Gross financing needs (Percent of GDP): 2024: 46.2; 2025: 28.1; 2026: 32.4; 2027: 33.3; 2028: 36.3; 2029: 37.6; 2030: 39.3; 2031: 40.9; 2032: 41.8; 2033: 42.4; 2034: 42.7.
  - Of which: debt service (Percent of GDP): 2024: 38.9; 2025: 18.6; 2026: 23.2; 2027: 24.5; 2028: 27.6; 2029: 29.3; 2030: 31.5; 2031: 33.5; 2032: 34.7; 2033: 35.6; 2034: 36.3.
  - Local currency (Percent of GDP): 2024: 35.5; 2025: 15.7; 2026: 20.3; 2027: 22.1; 2028: 25.3; 2029: 27.7; 2030: 30.1; 2031: 32.3; 2032: 33.7; 2033: 34.7; 2034: 35.5.
  - Foreign currency (Percent of GDP): 2024: 3.1; 2025: 2.8; 2026: 2.8; 2027: 2.3; 2028: 2.3; 2029: 1.5; 2030: 1.3; 2031: 1.0; 2032: 0.8; 2033: 0.7; 2034: 0.6.
- Memo indicators:
  - Real GDP growth (percent): 2024: 1.3; 2025: 1.1; 2026: 0.9; 2027: 0.6; 2028: 0.4; 2029: 0.2; 2030: 0.2; 2031: 0.2; 2032: 0.2; 2033: 0.2; 2034: 0.2.
  - Inflation (GDP deflator; percent): 2024: 5.1; 2025: 15.1; 2026: 15.8; 2027: 17.1; 2028: 18.2; 2029: 19.6; 2030: 20.9; 2031: 21.3; 2032: 21.3; 2033: 21.3; 2034: 21.3.
  - Effective interest rate (percent): 2024: 3.5; 2025: 4.3; 2026: 5.8; 2027: 8.2; 2028: 11.2; 2029: 13.1; 2030: 15.5; 2031: 17.7; 2032: 18.5; 2033: 19.4; 2034: 20.1.

### Assessment of baseline realism and uncertainties
- The baseline assumes continuation of current policies, a fixed exchange rate, and a rapid rise in inflation while average interest rates rise only modestly—conditions that significantly lower the debt-to-GDP ratio in the short term but are unsustainable.
- The baseline is surrounded by considerable uncertainty; lower growth or a lower GDP deflator path, as well as higher interest rates, would lead to higher debt-to-GDP outcomes.
- Assumption in the 2025 budget law: external financing will be secured to fulfill public external payment obligations; sources of such funding remain uncertain.
- Forecast track record: the staff notes persistent misses in projections of the public debt-to-GDP ratio and the primary deficit.

### Medium-term risk assessment (selected indicators and signals)
- Debt fanchart module:
  - Fanchart width (percent of GDP): 87.1
  - Terminal debt-to-GDP x: 85.0
  - Debt fanchart index (DFI): 4.0
  - Risk signal: High
- Gross financing needs (GFN) module:
  - Average baseline GFN (percent of GDP): 34.5
  - GFN financeability index (GFI): 16.2
  - Risk signal: Moderate
- Banking exposure: Initial Banks' claims on the general govt (pct bank assets): 1.1; Chg. In banks' claims in stress (pct banks' assets): 12.1
- Final assessment indicators:
  - Prob. of missed crisis, 2025-2030, if stress not predicted: 81.8 pct.
  - Prob. of false alarms, 2025-2030, if stress predicted: 3.4 pct.
- Interpretation: medium-term risk analysis points to high and increasing overall risks; DFI flags high risk while GFN module suggests moderate risk reflecting more contained refinancing risk for central bank held securities and commodity reliance (more than two-thirds of total exports from commodities).

### Long-term structural pressures: pensions, climate, and natural resources
- Pension financing:
  - Pension financing needs projected to increase two-fold, from 2 percent of GDP in 2038 to 4 percent in 2050.
  - Permanent adjustment examples (pp of GDP per year): 30 years: 1.5%; 50 years: 3.5%; Until 2100: 6.3%.
  - Policy implication: robust pension reforms and enhanced targeting of social safety nets are needed to ensure long-term debt sustainability.
- Climate change adaptation:
  - Adaptation costs would raise the debt burden significantly in the long term, posing additional sustainability risks.
  - An increase in carbon pricing in line with past IMF advice could help compensate the fiscal impact of such costs.
- Natural resources:
  - Baseline assumes gradual exhaustion of natural gas reserves leading to significantly lower royalties and taxes and a worse fiscal position.
  - Upside risks: potential development of lithium extraction capacity could partially offset the decline in hydrocarbon-related revenues and improve debt dynamics.

### Risk Assessment Matrix: selected risks and recommended policy responses
- Global risks:
  - Trade policy and investment shocks — Likelihood: High; Impact: Medium.
    - Policy response: Calibrate monetary policy, enhance fiscal and external buffers, intensify financial institution monitoring and supervision.
  - Sovereign debt distress — Likelihood: High; Impact: Medium.
    - Policy response: Strengthen fiscal buffers through revenue mobilization and spending rationalization; intensify financial supervision and tighten regulations.
  - Commodity price volatility — Likelihood: Medium; Impact: High.
    - Policy response: Eliminate energy subsidies, strengthen social safety nets, and accelerate transition to renewable energy.
- Structural risks:
  - Deepening geoeconomic fragmentation — Likelihood: High; Impact: Medium.
    - Policy response: Enhance international cooperation, implement open trade policies, diversify supply chains, invest in infrastructure, and foster public-private partnerships.
  - Cyberthreats — Likelihood: High; Impact: Low.
    - Policy response: Enhance digital security of payment and financial systems, improve public awareness, and prepare contingency plans.
  - Climate change — Likelihood: Medium; Impact: High.
    - Policy response: Maintain monetary policy to mitigate food-price impacts, prioritize social spending, seek donor financing, reduce debt and improve disaster risk layering, and accelerate renewables transition.
- Domestic risks:
  - Speculative attack/sudden stop risk — Likelihood: High; Impact: High.
    - Policy response: Strengthen reserve buffers and address persistent fiscal deficits and monetary financing.
  - Increase in corruption and weakening of rule of law — Likelihood: High; Impact: High.
    - Policy response: Strengthen governance and anti-corruption frameworks.
  - Rise in political risks / social unrest — Likelihood: Medium; Impact: High.
    - Policy response: Rebuild political coalitions, assess macrocriticality of reforms, mobilize support for vulnerable groups, and implement a credible medium-term adjustment plan to rebuild fiscal space, control inflation, and improve growth prospects.

*Source: IMF staff estimates and projections, extracted from the chapter "5. Debt consolidation across sectors."*

### Annex IV. Data Issues

### Annex IV. Data Issues

### Data Adequacy Assessment — key ratings and findings
- Overall median rating: B.
- Sectoral median ratings listed: National Accounts B; Prices B; Government Finance Statistics B; External Sector Statistics B; Monetary and Financial Statistics B; Inter-sectoral Consistency B.
- Data Quality Characteristics (Granularity): B.
- Questionnaire assessment outcome indicators in text:
  - "The data provided to the Fund are adequate for surveillance."
  - "The data provided to the Fund have some shortcomings but are broadly adequate for surveillance."
  - "The data provided to the Fund have some shortcomings that somewhat hamper surveillance."
  - "The data provided to the Fund have serious shortcomings that significantly hamper surveillance."
- Staff assessment rationale (verbatim elements):
  - "Although data provided to the Fund is broadly adequate for surveillance, granularity and timeliness has deteriorated since 2022, most notably for external (notably timeliness of international reserves information) and monetary statistics."
  - "Timeliness of fiscal data provision to the Fund has improved more recently, but low frequency and limited coverage of SOE operations and financial transations (below the line) hinders visibility into fiscal risks."
  - "Rebasing the national accounts (current base: 1990) and CPI statistics, as well as expanding coverage of the non-financial public sector (including fiscal contingencies) are also priorities to provide a more adequate measurement of the economy's GDP and growth development."

### Coverage, consistency, frequency and timeliness — detailed points
- Coverage assessments (from heatmap-style listing):
  - Coverage: National Accounts A; Prices B; Government Finance Statistics B; External Sector Statistics B; Monetary and Financial Statistics B; Inter-sectoral Consistency B.
  - Consistency: National Accounts B; Prices C; Government Finance Statistics B; External Sector Statistics B; Monetary and Financial Statistics B; Inter-sectoral Consistency B.
  - Frequency and Timeliness: National Accounts B; Prices A; Government Finance Statistics C; External Sector Statistics B; Monetary and Financial Statistics B; Inter-sectoral Consistency A.
- Specific note: "When the questionnaire does not include a question on a specific dimension of data quality for a sector, the corresponding cell is blank."
- Use of data in Article IV: "Staff does not use any data and/or estimates in the staff report in lieu of official statistics."
- Other data gaps: "." (no additional items specified in source).

### Timeliness, recent changes, and ongoing work
- Timeliness and frequency: "Timeliness and frequency of publication of macroeconomic data remains lacking with respect to the pre-2023 standards."
- Improvements since 2024 Article IV:
  - "Provision of fiscal and monetary indicators to the Fund has improved since the 2024 Article IV consultation."
- National accounts rebasing:
  - "The authorities are in the process of rebasing Bolivia’s national accounts (current base: 1990), supported by donors, with the objective of disseminating the series in the second quarter of 2025."
  - "They are also receiving STA support to compile updated series for quarterly national accounts."
- Other data development efforts: "Efforts are also under way to improve data on deposits and develop a housing price index."

### Corrective actions and capacity development priorities (staff recommendations)
- Revert to the pre-2023 data publication calendar and enhance granularity and coverage of fiscal statistics (including SOEs).
- Support for rebasing national accounts: "The National Statistics Agency is currently receiving CD support from STA for a rebasing of national accounts."
- Priority data expansions: rebasing national accounts (current base: 1990), rebasing CPI statistics, and expanding coverage of the non-financial public sector (including fiscal contingencies).
- Improve timeliness and granularity especially for:
  - External statistics (timeliness of international reserves information).
  - Monetary statistics.
  - Coverage of SOE operations and below-the-line financial transactions.

### Participation in data dissemination standards
- Bolivia participates in the Enhanced General Data Dissemination System (e-GDDS) and first posted metadata in November 2000 but "is yet to disseminate the data recommended under the e-GDDS."

### Table of Common Indicators Required for Surveillance — selected entries (as of March 4, 2025)
- Exchange Rates: Daily (D) — Frequency of Data: Daily; Frequency of Reporting: Daily; Frequency of Publication: DDD.
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Daily (D) — Frequency of Data: Daily; Frequency of Reporting: Daily; Frequency of Publication: DDD.
- Reserve/Base Money: Date of Latest Observation Oct-24; Date Received Jan-25; Frequency: M M M; Publication/Reporting codes: O, LO, LO, OO,O,O,O, (as listed).
- Broad Money: Date of Latest Observation Oct-24; Date Received Jan-25; Frequency: M M M.
- Central Bank Balance Sheet: Date of Latest Observation Oct-24; Date Received Jan-25; Frequency: M M M.
- Consolidated Balance Sheet of the Banking System: Date of Latest Observation Oct-24; Date Received Jan-25; Frequency: M M M.
- Interest Rates: Date of Latest Observation Oct-24; Date Received Jan-25; Frequency: M M M.
- Consumer Price Index: Date of Latest Observation Jan-25; Date Received Feb-25; Frequency: M M M.
- Revenue, Expenditure, Balance and Composition of Financing — General Government: Date of Latest Observation Dec-24; Date Received Jan-25; Frequency: M M M; Data quality/methodological soundness and accuracy codes shown in source (LO, O, LO, OO, LO, LNO, O, LO).
- Revenue, Expenditure, Balance and Composition of Financing — Central Government: Date of Latest Observation Dec-24; Date Received Jan-25; Frequency: M M M; data quality codes as in source (LO, LO, LNO, LOLO, O, O, O, LO).
- Stock of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation Dec-24; Date Received Jan-25; Frequency: M M M.
- External Current Account Balance: Date of Latest Observation Sep-24; Date Received Jan-25; Frequency: Q Q Q; data quality codes as in source (O, LO, LO, LOLO, O, LO, O, LO).
- Exports and Imports of Goods and Services: Date of Latest Observation Sep-24; Date Received Jan-25; Frequency: Q Q Q.
- GDP/GNP: Date of Latest Observation Sep-24; Date Received Jan-25; Frequency: A A A; data quality/methodological soundness codes as in source (LO, LO, LO, OLNO, LO, LNO, O, LO).
- Gross External Debt: Date of Latest Observation Dec-24; Date Received Feb-25; Frequency: Q Q Q.
- International Investment Position: Date of Latest Observation Sep-24; Date Received Jan-25; Frequency: Q Q Q.
- Footnotes included in the source enumerate definitions of frequency codes and data quality assessment scales (O, LO, LNO, NO, NA) and clarify specific dataset content (e.g., central government fiscal data: "Bolivia does not compile central government fiscal data.").

### Data limitations highlighted for surveillance and analysis
- Informality-related data reliability issues: "Assessing potential output growth in economies with high informality—such as Bolivia’s—is notoriously difficult."
- Labor statistics concerns:
  - Labor force participation, investment, and unemployment data are "unreliable" due to informality.
  - "The falling unemployment rate in recent quarters could be misinterpreted without considering the concomitant rise in underemployment."
- Consequence for TFP and potential output measurement: misestimation of potential labor leads to inaccurate TFP (Solow residual) because "The Solow residual is inversely proportional to the estimated levels of potential capital and labor."
- Specific measurement notes:
  - National accounts current base: 1990.
  - Capital-output ratio calibration: "about 3.5."
  - Labor income share: "about 66 percent" of GDP; capital income share: "34 percent" of GDP (period under study: 2015-2024).
  - Hours-worked changes: average hours worked fell by 14 percent from 45 hours per week in late 2015 to 39 hours in Q2 2024.
  - Hours worked in informal occupations decreased "by nearly 20 percent, from 43 hours per week to 35 in Q2 2024."

*Source: Annex IV. Data Issues, 1bolea2025002-print-pdf - Annex IV. Data Issues.*

### 9.      Our estimates of potential TFP for Bolivia show a continuous decline since the mid-

### 9. Our estimates of potential TFP for Bolivia show a continuous decline since the mid-2010s

### Potential TFP, labor distortions, and the output gap
- Potential TFP estimates show a continuous decline since the mid-2010s.
- When accounting for informality-induced distortions, potential TFP post-pandemic is slightly higher than it would be if those distortions were not present, because:
  - The slowdown in capital accumulation has not been fully offset by the faster increase in total effective hours worked.
  - "Only a higher average Solow residual can explain the observed levels of production of this period."
- As of Q2 2024:
  - Estimated output gap = -1.05 percent.
  - If effects of informality on potential labor are ignored, estimated output gap = +1.73 percent.
- The finding that potential output is higher when informality is accounted for implies the economy underperformed relative to its true productive capacity in Q2 2024.

### Potential growth and future prospects
- Estimates that incorporate informality suggest current potential growth is around 3.9 percent per year, "with a tendency to fall henceforth."
- This 3.9 percent rate "has remained unchanged over the past decade."
- Factors likely to reduce potential growth going forward:
  - Rising informality,
  - Declining average hours worked,
  - Continuing decline in TFP,
  - Slowing capital accumulation in the most recent period.
- An estimate of potential growth for the last three years that excludes the distorting effects of informality on total hours worked shows a potential growth rate that is 1.10 percentage points lower than before the pandemic.

### Annex VII — Informality in Bolivia: key empirical findings
- Labor and firm-level prevalence:
  - International Labor Organization data points to 85 percent of employment being in the informal economy.
  - 84 percent of firms operate informally, accounting for 73 percent of GDP.
- Sectoral patterns:
  - Informality is higher in the services sector.
  - 78 percent of services value added is in the informal sector (compared with 69 percent of manufacturing value added).
- Trends over time:
  - The share of informal firms rose from around 80 percent in 2016 to 84 percent in 2023.
  - The share of informal employment rose from 76 percent in 2016 to 85 percent in 2023.
- Drivers identified for rising informality since 2016 include a decline in export sectors, slower per capita income growth, higher unemployment, and a larger footprint of the state.
- Informality provides a flexible margin of adjustment that buffers shocks: it is countercyclical and exhibits greater wage and price flexibility.

### Model calibration and shock propagation (Annex VII)
- A dynamic stochastic general equilibrium model for a small open economy with informal and formal sectors was calibrated to Bolivia using the past twenty years of macro data and assuming a fixed exchange rate regime.
- Key modeling features:
  - Dual formal and informal sectors.
  - Nominal price and wage rigidities in the formal sector; full price and wage flexibility in the informal sector.
  - Tax evasion and lower productivity in the informal sector.
  - Traded goods rely more on formal inputs; non-traded goods rely more on informal inputs.
- Comparative results (economies with and without an informal sector):
  - A sharp devaluation raises import prices and foreign demand for exports; because Bolivia’s exports are mostly commodities which are slow to adjust, informality:
    - Reduces the negative output and inflationary impact of an increase in import prices or other domestic supply shocks.
    - Bolsters output gains from an increase in foreign demand while softening inflationary impact.
    - Buffers the negative output impact of a domestic contraction in demand (e.g., a large fiscal contraction) but amplifies the deflationary impact.
- Model simulations presented include responses to:
  - A 30% devaluation of the fixed exchange rate (GDP and inflation responses compared "No Informality" vs "Informality").
  - A 3% of GDP fiscal contraction (GDP and inflation responses compared "No Informality" vs "Informality").

### Governance, corruption, and implications for informality (Annex VIII summaries linked to informality)
- Corruption perceptions and governance indicators:
  - Worldwide Governance Indicators: control of corruption dropped from -0.69 (2018) to -0.85 (2023).
  - Bolivia’s Corruption Perception Index (CPI) score has been trending down since 2014.
  - Latinobarómetro 2020 indicated 44 percent of respondents believed it was acceptable to pay the price of some corruption if problems were solved.
- Fiscal and institutional impacts:
  - The Annual Report of the Comptroller General’s Office indicated detected corruption and recovery of assets exceeded 200 million Bolivianos (around 30 million USD) in 2021.
  - Bolivia’s national risk assessment for AML/CFT identifies corruption as a major threat, highlighting weak judicial system and insufficient institutional capacities.
  - Credit ratings referenced: Standard & Poor's CCC+ with negative outlook; Moody's Caa3 with stable outlook; Fitch recently downgraded Bolivia to CCC-.
- Structural vulnerabilities:
  - Heavy dependence on commodity exports and significant state participation in strategic sectors raise corruption risks, especially in extractive industries and state-owned enterprises.
  - A large informal sector both facilitates rent-seeking and is driven by negative corruption perceptions (additional expected costs of formalizing a business).
- Policy direction:
  - Strengthening anti-corruption and rule of law frameworks is essential to improve public trust, the business environment, investment, tax compliance, and long-term growth.
  - Recent measures include:
    - Law No. 1390, 2021 (Law on Reinforcing the Fight against Corruption).
    - Development of a draft law for a risk management system for prevention and fight against corruption.
    - Updated national policy on transparency and fight against corruption in 2023.
    - 2024/2025 National Plan for the Fight against Corruption.
    - Digital systems for tracking and managing complaints (SITPRECO) and improved processing of criminal prosecution and proceedings (JL-2).
  - Effective implementation of these measures remains a challenge.

*International Monetary Fund — Bolivia (excerpts from the cited chapters and annexes in the supplied content).*

### 7.      Promoting access to information plays a vital role in ensuring transparency and

### 1bolea2025002-print-pdf - 7.      Promoting access to information plays a vital role in ensuring transparency and

### Access to information and transparency
- Bolivia lacks a dedicated law or specific legal rules governing access to information, despite the 2009 constitutional requirement of promoting transparency in governance and a related bill pending approval at the Legislative Assembly.
- This legal gap:
  - Grants excessive discretion to individual government bodies.
  - Creates significant hurdles for public access to information.
  - Reduces transparency and accountability.
- The enactment of an access-to-information law is expected to advance institutional transparency by, inter alia, controlling and monitoring the management of assets and accounts of officials in charge of public financial resources and private companies having contracts with public companies.
- The Supreme Decree “Towards Digitalized and Transparent Public Management” (Supreme Decree No. 4872) is noted as an initiative in this area.

### Public perception and international assessments
- According to the 2024 Latin America Corruption Survey, 66 percent of respondents held that anti-corruption laws were not effective in Bolivia.
- International review mechanisms (UNCAC Implementation Review Mechanism and MESICIC under the Inter-American Convention against Corruption) have identified a range of challenges regarding Bolivia’s implementation of anti-corruption conventions, on both enforcement and prevention.

### Conflicts of interest and related legal gaps
- Existing legal rules include submission of affidavit on the information of family members and prohibition of “incompatibility”, but:
  - Public officials are not obliged to systematically declare potential conflicts of interest.
  - Public officials are not obliged to report external work or projects undertaken after assuming their position in government, leaving loopholes for corrupt interests.
- Post-employment restriction applies only to freely appointed high-level public officials (art.130 of Supreme Decree 29894), potentially limiting scope for reducing undue advantage and encouraging ethical behavior.

### Asset declarations: verification and publication
- Bolivian law obliges all public officials to submit sworn declarations of assets and income (Art. 53, Civil Service Statute).
- Verification of these declarations is relatively limited—performed either on a random basis or after a denunciation—and is not risk-based relative to corruption vulnerabilities of positions.
- Authorities envisage automating the verification process.
- Publication practice:
  - Relevant declarations are published in summary format on the CGR’s website (Art. 8, Supreme Decree 2).
  - Access requires registration using a national ID (preventing anonymity).
  - The previous practice of disclosing historical declarations to facilitate public oversight has been suspended.

### Capacity and integrity of law enforcement
- Challenges exist in ensuring autonomy and sufficient resources for public prosecutors and investigators, including low salaries and limited professional capacities.
- Operational issues:
  - A number of prosecutors are in office on an interim basis.
  - Police officers rotate frequently, potentially hampering job security and continuity of investigations.
- Weak governance, low salaries, and limited professional capacities (e.g., in conducting international cooperation and asset recovery) create incentives for corruption and clientelism.
- Recommendation: More stringent rules on declaring conflicts of interest, verification of asset declarations and imposition of disciplinary measures are advised, particularly for anti-corruption prosecutors and investigators.

### Corruption risk assessments and digital tools
- The Anti-Corruption Policy includes objectives and measures on corruption risk assessments and digital tools; the Vice Ministry of Transparency and Fight against Corruption has initiated corruption risk assessments.
- Bolivia has not yet formally identified positions considered particularly vulnerable to corruption, limiting the targeting of integrity measures for high-risk personnel (e.g., law enforcement, tax and customs collections).
- A thorough, systematic assessment of corruption risks across government bodies can enhance understanding of vulnerabilities and calibration of anti-corruption measures.
- Strengthening digital measures to facilitate public reporting in all branches and access to information is critical.

### Judicial selection, integrity, and resource constraints
- Selection process:
  - Judges for the Supreme Court (TSJ), Plurinational Constitutional Tribunal (TCP), and Agro-Environmental Court, as well as members of the Council of the Judiciary, are preselected and nominated by the Legislative Assembly and elected by universal suffrage.
  - Recent elections improved transparency of the preselection process, but lack of fixed preselection standards and procedures, inconsistent practices across Joint Commissions, and scope for political influence may jeopardize judicial independence and objectivity.
- Judicial integrity:
  - The Ibero-American Model Code of Judicial Ethics (Plenary Chamber Agreement 36/2018) applies to all members of the judiciary.
  - Strong perception of corruption in the judiciary persists and undermines public trust; a 2022 general population poll illustrated a 19 percent increase of respondents who believed engagement in corrupt practices by judges and magistrates.
  - The Council of the Judiciary exercises disciplinary control (Art. 195(2), Constitution), but limited information is available.
  - Only judgements issued by the TSJ, TCP and Agro-Environmental Court are published in Bolivia.
- Resources and service delivery:
  - The judiciary faces persistent insufficient budget (less than 0.5% of national budget).
  - Prior widespread use of temporary judges created backlogs and burdens; authorities reported that 98% of judges had been institutionalized up to date, significantly reducing the number of interim judges.
  - Contract enforcement and resolution of land disputes are time-consuming and at risk of political influence and corruption.
  - International arbitration is not permitted when the dispute is against the government or an SOE, according to the Arbitration Law 2015.

### Land governance and cadastral systems
- Bolivia’s land registration is decentralized and fragmented across different registers that are not always publicly accessible:
  - Rural cadastral registry (National Institute of Agrarian Reform, INRA).
  - Urban cadastral registry (Cadaster Unit).
  - Local registries (municipal governments).
  - Property Rights Registry (Real Estate Offices under the judicial branch).
- Except the rural cadastral registry, other registers are not publicly accessible.
- Bureaucratic delays, cumbersome dispute resolution, and fragmented records increase corruption risks and create uncertainties in property rights protection.
- Digitalization of cadastral plans and property records remains limited due to lack of resources, despite efforts in rural land reform supported by the IADB.
- Strengthening inter-agency coordination (state and municipal governments; administrative and judicial branches) is essential to ensure integrity of land registration.

### Summary of policy recommendations and prioritized actions
- The report recommends prioritizing the following actions to accelerate anti-corruption and rule of law reforms:
  - Expediting the enactment of a dedicated law governing access to information and strengthening the use of digital tools to facilitate public participation and scrutiny of the development and implementation of public policies.
  - Enhancing the asset declarations system, including extending such declarations to include a wider conflict of interest disclosure and enabling the easy access to asset declarations and disclosure of historical data to facilitate public oversight.
  - Enhancing capacities and integrity of law enforcement officials and mitigating political influence, including granting enough resources to relevant bodies, enhancing professional capacities of prosecutors and investigators (e.g., in international cooperation and asset recovery), further reducing the number of interim prosecutors, ensuring continuity of investigations, and strengthening verification of asset declarations of these officials.
  - Designating the National Council against Corruption, Illicit Enrichment and Money-Laundering to perform a systematic corruption risk assessment, with a view to understanding key vulnerabilities, identifying positions/sectors particularly vulnerable to corruption, and adopting mitigation plans accordingly.
  - Implementing the UN Special Rapporteur’s recommendations on maintaining judicial credibility and independence, in line with international best practices.
  - Strengthening judicial integrity and transparency by publishing decisions/judgements of all courts.
  - Establishing a dedicated budget for the judiciary to reduce backlogs for effective enforcement of contracts and resolution of land disputes.
  - Strengthening inter-agency coordination in land registration to ensure consistency and accuracy of data, enhancing digitization of cadastral plans and property records, and enabling public access to various land registers.

_Italic: Source — Excerpt from 1bolea2025002-print-pdf (BOLIVIA STAFF REPORT FOR THE 2025 ARTICLE IV CONSULTATION — INFORMATIONAL ANNEX)_

### 7.5 percent are expected for 2025. Given the high level of uncertainty and risks to the economic

### 7.5 percent are expected for 2025. Given the high level of uncertainty and risks to the economic

### Fiscal Policy
- Authorities agree on the need for fiscal consolidation and are pursuing it with a more gradual approach to safeguard economic recovery and social and political stability.
- The government highlights the reduction in the fiscal deficit level in 2024 and reaffirms commitment to continuing actions to contain it.
- Revenue-side stance:
  - Further efforts are essential to broaden the tax base, but reforms to the VAT rate and the introduction of personal income tax are not considered necessary at the current conjuncture.
  - Primary focus on improving revenue collection through tax administration measures, leveraging digitalization and strengthening the capacity of tax administrators, and incentivizing formalization.
  - IMF technical assistance on tax administration has been relevant.
- Tariff deferrals intended to contain imported inflationary pressures are temporary.
- Spending-side measures and fuel subsidies:
  - Authorities continue adopting actions to address the high burden of fuel subsidies on fiscal accounts while avoiding abrupt withdrawal that could generate social unrest and severely impact the most vulnerable and strategic sectors.
  - Gradual and structural reform measures include:
    - Acceleration of public investment projects for the construction of biodiesel plants.
    - Incentives for private sector participation through tax exemptions for the import of industrial plants and equipment.
    - Progress in the introduction of new, higher-quality gasoline and diesel at higher than subsidized prices.
    - Establishment of free fuel importation and sale by the private sector.
  - These measures aim to reduce dependence on fuel imports and the need for foreign currency.
- Other spending management:
  - Continued efforts to improve public investment management and transparency and efficiency of public procurement through the program Subasta Electrónica.
  - Payroll composition: approximately 54 percent of the budget is allocated to the education and health sectors; only 2 percent of the budget is allocated to executive branch employees.
  - The second bonus, Segundo Aguinaldo, is triggered only when a certain level of economic growth is reached, which is currently below the threshold.
  - Social protection programs target vulnerable groups (public education students, pregnant women without access to health insurance, and the elderly), with agreement on the importance of improving efficiency and targeting.
- Financing constraints and debt:
  - The government faced a difficult scenario for access to external financing in 2024.
  - The national Legislative Assembly’s systematic blockage of bilateral and multilateral loans totaling more than US$1.8 billion to date forced reliance on domestic financing.
  - Blockage in access to external financing caused negative net external debt transfers starting in 2023, contributing to pressures on foreign currency availability.
  - Despite challenges, the country continues to regularly meet its debt service obligations.
  - External public debt reached 24.4 percent of GDP as of February 2025, reflecting a downward trend.

### Monetary and Exchange Rate Policies
- Foreign exchange liquidity pressures arose from multiple factors: decline in hydrocarbon production; export sector affected by climate-related events, roadblocks, and weakened external demand; rising fuel subsidy costs; speculation; and parliamentary refusal to approve external financing.
- Government actions to address foreign currency supply include:
  - Purchase of gold on the domestic market by the Central Bank of Bolivia (BCB).
  - Issuance of BCB bonds in US dollars.
  - Establishment of limits on fees for transfers abroad.
  - Authorization of use of crypto assets.
  - Structural measures: initiatives to strengthen the export sector, facilitation of tax refund mechanisms (CEDEIM), creation of a single window for foreign trade, public projects and incentives for the private sector under the import substitution strategy.
- Authorities disagree with staff’s assessment that their actions have limited the supply of foreign currency; they assert efforts to ensure supply despite BCB not being obligated to provide foreign currency to the market.
- Exchange rate stance:
  - Authorities consider a sharp and frontloaded depreciation, as recommended by staff, would have a high cost for the economy and population.
  - Expectation that adopted measures will gradually address foreign exchange market challenges.
- International reserves and monetary framework:
  - Net international reserves stabilized since September 2023, increased in 2024, and continued a similar trend in the first quarter of this year, reaching a level of around US$2.3 billion.
  - Ongoing efforts to strengthen the BCB’s institutional capacity.
  - Existing framework, including sterilization measures, has worked well in containing inflationary pressures.

### Financial Policy
- Financial system performance:
  - Remained solid despite shocks; after failure of one of the system’s largest banks in 2023, impact was contained.
  - In 2024 the sector recorded capitalization levels above the minimum required, profit growth of 27 percent, low non-performing loan ratios, adequate provisioning levels, and a low degree of exposure to public sector debt.
  - Relief measures for borrowers affected by local shocks continued without affecting system solvency.
  - Actions were adopted to protect users’ access to foreign currency amid foreign exchange liquidity pressures.
- Role of financial regulation in development:
  - Interest rate ceilings and portfolio minimums are intended to foster the productive sector and facilitate access to homeownership and/or better housing conditions.
  - Government committed to closely monitoring the financial system to ensure soundness and solvency.
- Regulatory and supervisory progress in 2024:
  - ASFI improved stress testing framework, information granularity, systemic risk monitoring, liquidity indicators, crisis management, intervention, and resolution framework.
  - These advances aim to reinforce supervision, regulation, and containment of systemic risks in line with international standards.
  - Authorities consider the current Financial Stability Board coordination framework, based on the country’s Financial Services Act, to have worked adequately and see no changes necessary at this stage.
- AML/CFT:
  - Authorities highlight significant progress in implementing GAFILAT’s recommendations to improve framework efficiency.
  - Government is awaiting a decision by the organization next June.

### Structural Reforms
- Productive strengthening is a main objective, pursued through public investment projects and incentive measures to boost the private sector.
- Public sector projects:
  - Major investment projects in mining, food, and manufacturing are being implemented and are expected to yield results in the short and medium term.
  - Ambitious exploration plan in hydrocarbons aims to reverse the downward trend in production.
- Private sector measures:
  - Tax incentives for import of capital goods.
  - Financing at preferential interest rates for projects related to import substitution and export promotion.
  - Openness to the use of biotechnology.
- External integration:
  - Bolivia’s accession as a Full Member of MERCOSUR and an Associate State of the BRICS is expected to strengthen foreign trade through opening new markets, foreign investment, human capital, and productive activity.
- Anti-corruption and governance:
  - Significant progress in anti-corruption frameworks, including:
    - 2021 Law to Strengthen the Fight Against Corruption.
    - Development of a system for tracking complaints and cases of corruption in the public sector.
    - Institutionalization of transparency offices in public sector entities.
    - Effective system for asset declaration of public sector officials.
  - Authorities commit to continuing efforts to fight corruption and improve governance frameworks for efficient use of public resources and development of economic activities.

*Source: IMF content unit provided.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1bolea2025002-print-pdf.pdf_