IMF Executive Board Concludes 2022 Article IV Consultation with Bolivia
IMF News, September 14, 2022
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- Published: September 14, 2022
Summary of macroeconomic developments and outlook
- Economic contraction of 8.7 percent in 2020, followed by growth of 6.1 percent in 2021 led by mining, construction, and agriculture.
- Current account surplus of 2 percent of GDP in 2021, supported by higher global commodity prices.
- Inflation was 1.9 percent yoy in June 2022.
- International reserves declined from US$5.28 billion at end-2020 to US$4.3 billion at end-July 2022.
- Growth projections:
- 3.8 percent yoy in 2022, bringing GDP back to its pre-pandemic level by late in the year.
- Inflation projection:
- 4.2 percent yoy by end-2022.
- Fiscal outlook:
- Fiscal deficit reduced from 12.7 percent of GDP in 2020 to 9.3 percent of GDP in 2021.
- Fuel subsidies estimated at 3.7 percent of GDP and projected fiscal deficit of 8.5 percent of GDP in 2022.
- Key risks:
- Spillovers from the war in Ukraine (higher energy prices raising subsidy costs and domestic inflation).
- Changes in external financial conditions from a global tightening cycle.
- Potential deterioration in credit quality after pandemic-era loan deferrals.
- Resurgence of the pandemic impacting public health and growth.
Executive Board assessment — achievements and vulnerabilities
- Social and development outcomes since 2000:
- Per capita GDP has more than tripled since 2005.
- Poverty rate fell from 66.4 to 36.3 percent (2000 to 2021).
- Extreme poverty declined from 45.3 to 11.1 percent (2000 to 2021).
- Life expectancy rose from 62 to 72 years.
- Primary school completion rate increased from 84 to 99 percent.
- Vulnerabilities highlighted:
- Heavy monetary financing of the deficit (more than one-third financed by the central bank) pressuring reserves.
- External position moderately weaker than fundamentals and desirable policies imply.
- Growing interdependence of the pension system and the government.
- Bank sector vulnerabilities due to loan restructuring and continued credit quotas and interest rate caps.
Policy recommendations and sequencing
- Fiscal policy and debt sustainability
- Implement a meaningful fiscal adjustment to restore debt sustainability, eliminate monetary financing, and rebuild international reserves.
- If maintaining the exchange rate peg, reduce the primary deficit to around 1.5 percent of GDP through a credible medium-term plan.
- Restraints on expenditures including:
- Eliminating the second supplementary year-end bonus ("doble aguinaldo").
- Constraining growth in public sector wages.
- Limiting growth in public investment.
- Scaling back subsidies.
- Broaden the tax base by addressing informality, strengthening tax and customs administration (IT modernization and improved governance), and adjusting tax policy to increase personal income taxes on higher income households.
- Fuel subsidy reform
- Combine reductions in fuel subsidies with compensation to the poorest deciles via cash transfer programs financed by a portion of budgetary savings.
- Deploy an effective communication strategy to highlight the regressive nature of energy subsidies and benefits of market-based pricing with targeted transfers.
- Monetary and exchange rate policy
- Increase central bank independence and institutional capacity.
- Carefully sequence transition to greater exchange rate flexibility to preserve reserves, reduce overvaluation, and yield net welfare gains.
- Consider adopting a flexible exchange rate alongside an inflation targeting monetary framework; prepare and communicate the transition, coordinate with macro policies, and accompany with institutional independence for the central bank.
- Reserve management
- Reduce dependence on currency swaps; build reserves from external sovereign borrowing and direct market purchases if fiscal reforms are implemented.
- Lengthen maturity of remaining swaps to lessen vulnerabilities; adopt other mechanisms if needed to maintain adequate domestic liquidity.
- Pension system
- Monitor interdependence with the government and consider diversifying pension fund assets into a wider range of assets, potentially including foreign currency assets, preceded by transition to professional and independent management; proceed carefully to avoid exacerbating external imbalances.
- Financial sector and regulation
- Closely monitor banks’ loan books post-pandemic restructuring to quickly identify credit quality deterioration.
- Gradually phase out credit quotas and interest rate caps that constrain bank profitability.
- Monitor capital adequacy and liquidity; advance anti-money laundering initiatives ahead of the FATF assessment expected later in the year.
- Governance, informality, and smuggling
- Implement programs to reduce smuggling and informality to shift activity into the formal economy, broaden the tax base, and improve tracking of economic developments.
- Reform tax and customs administration to track goods and improve compliance with import procedures.
- Supply-side and investment climate reforms
- Reform the hydrocarbons law to incentivize new investments and scale back requirements for producers to sell below cost domestically.
- Revise mining laws to incentivize private investment in lithium and other sectors.
- Loosen export limits and price controls, use international arbitration, develop a one-stop shop for foreign investors, and remove credit quotas and interest rate ceilings.
- Climate and green investment
- Increase the share of electricity generation from renewable energy and facilitate green investments.
- Expand on recent NDC commitments by setting clear emissions targets, accelerating lithium resource development, and positioning Bolivia as a destination for green investment.
Key statistics and projections (selected from Table 1)
- Population (millions, 2020): 11.7
- Poverty line (percent, 2020): 39.0
- Population growth rate (percent, 2021): 1.4
- Adult literacy rate (percent, 2015): 92.5
- Life expectancy at birth (years, 2019): 71.5
- GDP per capita (US$, 2021): 3,154
- Total unemployment rate (2020): 7.9
- IMF Quota (SDR, millions): 240.1
- Real GDP growth:
- 2019: 2.2
- 2020: -8.7
- 2021: 6.1
- 2022 (Proj.): 3.8
- 2023 (Proj.): 3.2
- 2024 (Proj.): 3.0
- Nominal GDP growth:
- 2019: 1.5
- 2020: -10.4
- 2021: 10.3
- 2022 (Proj.): 7.1
- 2023 (Proj.): 6.4
- 2024 (Proj.): 6.6
- CPI inflation (period average):
- 2019: 1.8
- 2020: 0.9
- 2021: 0.7
- 2022 (Proj.): 3.6
- 2023 (Proj.): 3.5
- CPI inflation (end of period):
- 2022 (Proj.): 4.2
- Investment (total, percent of GDP):
- 2019: 19.9
- 2020: 15.8
- 2021: 16.8
- 2022 (Proj.): 17.9
- Combined public sector net lending/borrowing (overall balance, percent of GDP):
- 2019: -2.6
- 2020: -7.7
- 2021: -3.1
- 2022 (Proj.): -1.6
- 2023 (Proj.): -1.0
- Revenues and grants (percent of GDP):
- 2019: 28.8
- 2020: 25.3
- 2021: 25.1
- 2022 (Proj.): 26.6
- Expenditure (percent of GDP):
- 2019: 36.1
- 2020: 38.0
- 2021: 34.4
- 2022 (Proj.): 35.0
- Total gross NFPS debt (percent of GDP):
- 2019: 59.3
- 2020: 78.0
- 2021: 80.5
- 2022 (Proj.): 82.3
- 2023 (Proj.): 84.3
- 2024 (Proj.): 86.1
- Current account (percent of GDP):
- 2019: -3.3
- 2020: -0.7
- 2021: 2.0
- 2022 (Proj.): -1.7
- 2023 (Proj.): -1.9
- Exports of goods and services (percent of GDP):
- 2019: 24.9
- 2020: 20.0
- 2021: 28.1
- 2022 (Proj.): 30.7
- Central Bank gross foreign reserves (in millions of U.S. dollars):
- 2019: 6,468
- 2020: 5,276
- 2021: 4,753
- 2022 (Proj.): 4,200
- 2023 (Proj.): 3,621
- 2024 (Proj.): 3,039
- Central Bank gross foreign reserves (in percent of GDP):
- 2019: 15.7
- 2020: 14.3
- 2021: 9.6
- 2022 (Proj.): 7.8
- Central Bank gross foreign reserves (in percent of ARA):
- 2019: 92.4
- 2020: 70.7
- 2021: 58.3
- 2022 (Proj.): 46.8
- 2023 (Proj.): 37.9
- 2024 (Proj.): 29.8
- Credit to the private sector (growth rates):
- 2019: 6.7
- 2020: 9.1
- 2021: 4.6
- Broad money (percent of GDP):
- 2019: 79.1
- 2020: 97.6
- 2021: 94.3
- 2022 (Proj.): 96.6
- 2023 (Proj.): 98.6
- 2024 (Proj.): 100.4
- Memorandum: Nominal GDP (in billions of U.S. dollars)
- 2019: 41.2
- 2020: 36.9
- 2021: 40.7
- 2022 (Proj.): 43.6
- 2023 (Proj.): 46.4
- 2024 (Proj.): 49.4
- Bolivianos/U.S. dollar (end-of-period) 6/:
- 2019: 6.9
Press Release No. 22305 — IMF Executive Board Concludes 2022 Article IV Consultation with Bolivia (September 14, 2022).
