Press Release: IMF Executive Board Concludes 2013 Article IV Consultation with Bolivia
IMF News, February 10, 2014
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- Published: February 10, 2014
Overview
- On January 27, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Bolivia.
- Good macroeconomic performance and active social policies since the mid-2000s helped Bolivia nearly triple income per capita and reduce poverty.
- Recent support came from high international commodity prices and rising volumes of natural gas exports.
- Twin surpluses in the fiscal and external accounts led net international reserves to increase to almost 50 percent of gross domestic product (GDP).
Macroeconomic performance and outlook
- Real GDP growth is projected at 6.7 percent in 2013, the highest growth rate of the last thirty years.
- Growth drivers: soaring hydrocarbon exports, strong private consumption, and accommodative macroeconomic policies.
- Growth is projected to remain above potential in 2014, sustained by hydrocarbon exports and a moderate fiscal impulse.
- External current account surplus: expected to narrow in 2013 and over the medium term due to softer terms of trade.
Inflation and monetary policy
- Food supply shocks triggered an increase in inflation in mid-2013.
- Authorities responded with rapid monetary tightening and measures to improve food supply.
- Staff projects inflation to fall to 5.5 percent by the end of 2014, contingent on anchoring inflation expectations; further tightening may be needed if inflationary pressures prove persistent.
- Executive Directors commended the authorities’ response and generally agreed that further monetary tightening could be needed if second-round effects persist.
- Directors recommended discontinuing central bank lending to public enterprises and noted that a savings fund established in line with international best practices could help channel such lending.
- Directors saw merit in gradually allowing greater exchange rate flexibility to help absorb external shocks.
Fiscal stance and public debt
- Fiscal stance expected to remain expansionary with important investment projects to industrialize the resource sector in the pipeline.
- Overall fiscal surplus projected to narrow to 0.6 percent of GDP in 2013 and turn to an overall deficit of 0.4 percent of GDP in 2014.
- Gross public debt expected to continue downward to 32.5 percent of GDP by end-2013, from 40 percent of GDP in 2009.
- Directors encouraged avoiding a pro-cyclical fiscal stimulus and saving budgetary resources to respond to adverse external shocks.
- Measures to improve the non-hydrocarbon fiscal balance suggested: better targeting fuel subsidies, enhancing efficiency of public investment and social transfers, and implementing tax administration reforms.
- Directors encouraged adoption of a medium-term fiscal framework to manage resource wealth, balancing intergenerational equity against immediate development needs.
External sector and reserves
- Net international reserves increased to almost 50 percent of GDP, providing ample buffers against external shocks.
- Gross international reserves (in millions of U.S. dollars): 8,580 (2009), 9,730 (2010), 12,019 (2011), 13,927 (2012), 14,534 (2013), 16,089 (2014).
- Directors noted the external position: merchandise export and natural gas remain significant shares of GDP, but terms of trade softness expected to narrow the current account surplus.
Financial sector and the Financial Services Law
- Bolivian financial system remains solid and well capitalized.
- The new Financial Services Law could significantly alter the financial landscape.
- Law features include:
- provisions to regulate lending rates and set minimum lending quotas for the productive sector and social housing;
- discretion to set floors on deposit rates;
- mechanisms to enhance consumer protection and financial access in rural areas.
- Directors stressed the need to continue to strengthen supervision, and recommended less distortionary instruments to promote financial inclusion.
- Directors welcomed Bolivia’s strengthened framework against money laundering and terrorist financing and urged its implementation.
Social policy, poverty reduction, and structural recommendations
- Social policies pursued ambitious redistributive and poverty reduction goals, increasing living standards of vulnerable households.
- Directors commended authorities’ progress in reducing poverty and called for continued efforts grounded in a comprehensive evaluation of existing programs.
- Directors emphasized broadening the economic base and raising productivity in light of changing world hydrocarbon markets.
- Recommendations to support private sector activity and growth: improve the business climate, create a predictable legal framework, and increase investment in infrastructure and human capital.
Executive Board assessment and policy recommendations (summary)
- Directors welcomed strong economic performance in 2013 and noted a favorable near-term outlook, while encouraging action on vulnerabilities and policy frameworks.
- Recommended macro stance: neutral, avoid pro-cyclical fiscal stimulus, save for adverse shocks.
- Fiscal reforms suggested: target fuel subsidies, improve public investment and social transfer efficiency, tax administration reforms, and adopt a medium-term fiscal framework.
- Monetary policy: be prepared for further tightening if inflation proves persistent; end central bank lending to public enterprises; consider a savings fund for such lending.
- Financial sector: strengthen supervision; use less distortionary tools for financial inclusion; implement anti–money laundering/terrorist financing framework.
- Structural reforms: broaden the economic base, raise productivity, improve business climate, and invest in infrastructure and human capital.
Selected economic indicators (highlights)
- Real GDP (annual percentage changes): 3.4 (2009), 4.1 (2010), 5.2 (2011), 6.7 (2012), 5.4 (2013), GDP deflator: -2.4 (2009), 8.8 (2010), 14.6 (2011), 6.9 (2012), 2.5 (2013), 6.0 (2014).
- CPI inflation (period average): 3.3 (2009), 9.9 (2010), 4.5 (2011), 5.7 (2012), 6.8 (2013).
- CPI inflation (end-of-period): 0.3 (2009), 7.2 (2010), 6.5 (2011), 5.5 (2012).
- Combined public sector—Revenues and grants (percent of GDP): 35.8 (2009), 33.2 (2010), 36.2 (2011), 37.9 (2012), 38.6 (2013), 37.3 (2014).
- Hydrocarbon related revenue (percent of GDP): 11.3 (2009), 10.2 (2010), 11.4 (2011), 13.0 (2012), 13.1 (2013), 12.2 (2014).
- Expenditure (percent of GDP): 31.5 (2009), 35.4 (2010), 36.1 (2011), 38.0 (2012), 37.7 (2013).
- Overall balance (percent of GDP): 0.0 (2009), 1.7 (2010), 0.8 (2011), 1.8 (2012), 0.6 (2013), -0.4 (2014).
- Total gross public debt (percent of GDP): 40.0 (2009), 38.5 (2010), 34.7 (2011), 33.4 (2012), 32.5 (2013), 29.7 (2014).
- Current account (percent of GDP): 4.3 (2009), 3.9 (2010), 7.8 (2011), 4.0 (2012), 3.1 (2013).
- Merchandise export (percent of GDP): 28.4 (2009), 32.4 (2010), 41.3 (2011), 39.1 (2012), 38.2 (2013).
- Natural gas (percent of GDP): 14.1 (2009), 16.1 (2010), 20.1 (2011), 18.4 (2012), 16.7 (2013).
- Merchandise imports (percent of GDP): 26.0 (2009), 28.3 (2010), 32.9 (2011), 30.4 (2012), 31.0 (2013), 31.7 (2014).
- Gross international reserves (millions of U.S. dollars): 8,580 (2009), 9,730 (2010), 12,019 (2011), 13,927 (2012), 14,534 (2013), 16,089 (2014).
- Gross international reserves (percent of broad money): 79.8 (2009), 80.0 (2010), 83.0 (2011), 71.3 (2012), 68.0 (2013).
- Money and credit—NFA of the banking system (changes in percent of broad money at the beginning of the period): 18.8 (2009), 8.2 (2010), 14.7 (2011), 13.5 (2012), 16.2 (2013), 10.8 (2014).
- NDA of the banking system (changes in percent of broad money): 1.4 (2009), 1.6 (2010), 4.4 (2011), 1.0 (2012), 5.1 (2013).
- Credit to the private sector (percent of broad money): 34.0 (2009), 36.0 (2010), 36.8 (2011), 39.0 (2012), 42.1 (2013), 42.5 (2014).
- Broad money (changes in percent): 19.7 (2009), 12.5 (2010), 17.7 (2011), 20.2 (2012), 17.2 (2013), 15.9 (2014).
- Interest rates (percent, end-of-period)—Deposits in local currency: 2.1 (2009), 0.9 (2010), 1.2 (2011). Loans in local currency: 9.1 (2009), 10.4 (2010), 10.6 (2011).
Press Release No. 14/45; February 10, 2014. IMF COMMUNICATIONS DEPARTMENT.