IMF Executive Board Concludes 2016 Article IV Consultation with Bolivia
IMF News, December 22, 2016
Source details
- Canonical URL
- IMF Executive Board Concludes 2016 Article IV Consultation with Bolivia
Other formats
Bibliographic details
- Published: December 22, 2016
Main findings and outlook
- On December 9, 2016, the Executive Board of the IMF concluded the Article IV consultation with Bolivia.
- Growth has been strong, averaging around 5 percent since 2006, and poverty has fallen by a third during the commodity boom.
- Real GDP growth is projected at 3.7 percent in 2016.
- In the medium term, growth is expected to converge towards 3.5 percent, consistent with the new commodity price normal.
- A continued supportive fiscal policy and rapid credit growth linked to the Financial Services Law are buttressing activity and offsetting a major drought and temporary supply shocks in gas production.
- The sizable fiscal and external surpluses that prevailed over the past decade are turning into large twin deficits. Fiscal and external current account deficits will remain wide.
- Risks to the outlook are tilted to the downside, including:
- potential additional weakness in key emerging markets,
- further dollar strength,
- a larger-than-expected impact of the drought,
- longer-term uncertainties about future oil prices, the extent of natural gas discoveries and export contract renewals, and the possibility of excessive credit growth volatility.
Executive Board assessment and policy recommendations
- Directors commended the authorities for sound macroeconomic management and poverty reduction during the past commodity boom.
- Given still sizable buffers, Directors encouraged a carefully measured approach to adjusting to a less favorable external environment.
- Fiscal policy:
- Directors underscored risks from large and widening fiscal deficits.
- They encouraged improving the non-hydrocarbons primary balance through streamlining expenditures while increasing efficiency.
- Recommended an early transition to a credible medium-term fiscal framework to assure debt sustainability, account for the state of the business cycle, and build cushions to absorb volatility in hydrocarbon prices.
- Advised ensuring the financial health of state-owned enterprises (SOEs), exercising greater oversight of their activities, and strengthening evaluation and transparency of their investments.
- Central bank and exchange rate policy:
- Directors stressed merits of enhancing the independence of the central bank.
- Advised phasing out the central bank’s exposures to SOEs to avoid potential conflicts with the commitment to price stability.
- Most Directors encouraged considering gradually permitting greater exchange rate flexibility to improve competitiveness, facilitate adjustment to lower commodity prices, and protect against future external shocks.
- Financial sector and financial inclusion:
- Directors welcomed overall soundness of the financial sector but encouraged addressing growing vulnerabilities.
- Noted that quotas and interest caps under the Financial Services Law appear to induce banks to expand credit rapidly, potentially increasing risks and undermining financial inclusion.
- Suggested modifying key provisions of the regulations to reduce distortions and avoid unnecessary buildup of risk.
- Saw scope to utilize more market-oriented mechanisms to achieve greater financial inclusion.
- Structural reforms and social policy:
- Directors agreed that accelerating structural reforms and improving the business climate are central to improving medium-term growth prospects.
- Encouraged improving incentives for hydrocarbons exploration, bringing wages back in line with productivity, and addressing the severe water shortage.
- Praised significant declines in inequality and poverty over the last decade and recommended preserving these gains.
- Considered that better targeting and improved efficiency of social spending could mitigate negative impacts of lower commodity prices on inequality and poverty.
Key statistics (selected)
- Social and demographic indicators (2015 unless otherwise noted):
- GDP per capita (U.S. dollars, 2015): 2,900
- Poverty headcount ratio (percent of population, 2015): 38.6
- Population (millions, 2015): 11.5
- Gini index (2015): 47.0
- Life expectancy at birth (years, 2014): 68
- Adult literacy rate (percent, 2015): 95.1
- Infant mortality rate (per thousand, 2015): 30.6
- Net primary education enrollment rate (2011): 82.2
- Selected economic indicators and baseline projections:
- Real GDP: 2015: 4.8; 2016: 3.7; 2017: 3.9; 2018: 3.5
- Real GDP excluding hydrocarbons: 2015: 3.8; 2016: 3.6
- GDP deflator: 2015: -4.6; 2016: -2.0; 2017: 4.2; 2018: 4.7
- CPI inflation (period average): 2015: 2.0
- Total investment (percent of GDP): 2015: 19.2; 2016: 20.9; 2017: 19.1; 2018: 18.0; 2019: 17.3; 2020: 16.5; 2021: 15.8
- Public sector investment: 2015: 12.2; 2016: 11.0; 2017: 10.3; 2018: 9.8
- Private sector investment: 2015: 8.4
- Gross domestic savings: 2015: 13.2; 2016: 11.9; 2017: 14.0; 2018: 14.4; 2019: 14.8; 2020: 14.3
- Gross national savings: 2015: 12.8; 2016: 14.1; 2017: 13.9; 2018: 13.8
- Saving/investment balances (various years shown): 8.0; 8.1; -0.6; -6.1; -8.1; -5.0; -4.0; -2.9; -2.6; 1.7; 1.8; 0.7; -2.3; -6.9; -6.7; -6.2; -5.4; -5.3; 6.7; -1.3; 2.3; 2.7; 2.9
- Combined public sector revenues and grants (percent of GDP): 2015: 37.7; 2016: 35.0; 2017: 35.2; 2018: 34.5
- Of which: Hydrocarbon related revenue (percent of GDP): 2015: 10.2; 2016: 13.0; 2017: 12.7; 2018: 9.1; 2019: 6.4; 2020: 6.4
- Expenditure (percent of GDP): 2015: 44.6; 2016: 43.0; 2017: 41.9; 2018: 40.7; 2019: 40.1; 2020: 39.2
- Current expenditure (percent of GDP): 2015: 29.1; 2016: 27.8; 2017: 27.5; 2018: 27.4; 2019: 27.3
- Capital expenditure (percent of GDP): 2015: 12.6
- Non-hydrocarbon balance, before nationalization costs (various years shown): -9.6; -9.7; -11.1; -13.2; -14.1; -12.2; -11.4; -10.2; -9.0; -8.6
- Total gross NFPS debt (percent of GDP): 2015: 46.7; 2016: 47.6; 2017: 48.8; 2018: 49.4; 2019: 51.2; 2020: 52.0
- NFPS deposits (percent of GDP): 2015: 15.1; 2016: 8.5; 2017: 7.9; 2018: 7.3
- External sector and reserves:
- Current account (percent of GDP, selected years): 2010: 0.3; 2011: 2.4; 2012: -5.8; 2013: -7.6; 2014: -4.7; 2015: -3.8
- Merchandise exports (percent of GDP): 2010: 32.4; 2011: 41.3; 2012: 37.9; 2013: 21.8; 2014: 19.3; 2015: 18.5
- Of which natural gas (percent of GDP): 2010: 16.1; 2011: 20.1; 2012: 18.1; 2013: 7.0; 2014: 7.6
- Merchandise imports (percent of GDP): 2010: 28.3; 2011: 32.8; 2012: 31.4; 2013: 31.6; 2014: 25.4; 2015: 23.4
- Capital and financial account (percent of GDP, selected years): -0.9; 1.2; -0.4; -0.1
- Net Central Bank foreign reserves (in millions of U.S. dollars): 2010: 9,730; 2011: 12,019; 2012: 13,927; 2013: 14,430; 2014: 15,123; 2015: 13,056; 2016: 10,344; 2017: 8,330; 2018: 6,721; 2019: 5,570; 2020: 4,442; 2021: 3,945
- Reserves in percent of broad money: 2010: 80.0; 2011: 83.0; 2012: 71.4; 2013: 64.7; 2014: 48.1; 2015: 36.5; 2016: 26.4; 2017: 19.5; 2018: 10.9
- Money and credit:
- Credit to the private sector (annual growth): 2010: 19.9; 2011: 23.0; 2012: 19.4; 2013: 18.9; 2014: 17.6; 2015: 17.5; 2016: 10.0
- Credit to the private sector (percent of GDP): 2010: 36.8; 2011: 39.0; 2012: 40.9; 2013: 43.7; 2014: 51.5; 2015: 59.5; 2016: 61.6; 2017: 62.8; 2018: 63.9; 2019: 64.9; 2020: 65.7
- Broad money (annual growth): 2010: 12.5; 2011: 20.2; 2012: 16.2; 2013: 15.6; 2014: 9.3; 2015: 9.2
- Interest rates (percent, end-of-period): Deposits (effective rate): 10.8; Lending (effective rate): 10.6
- U.S. dollar and dollar-indexed deposits (in percent of total deposits): 43.8; 26.3
- U.S. dollar and dollar-indexed credit (in percent of total credit): 30.7; 21.3
- Memorandum items:
- Nominal GDP (in billions of U.S. dollars, selected years): 24.1; 30.9; 33.8; 37.6; 44.4; 47.9
- Oil prices (in U.S. dollars per barrel): 2010: 79.0; 2011: 104.0; 2012: 105.0; 2013: 104.1; 2014: 96.2; 2015: 50.8; 2016: 50.6; 2017: 53.1; 2018: 54.4; 2019: 56.3
Observations on vulnerabilities and policy trade-offs
- Authorities are using policy buffers to advance development objectives in their Patriotic Agenda 2025, which contributes to the shift from surpluses to twin deficits.
- Rapid credit growth linked to regulatory features of the Financial Services Law poses risks to financial stability and may undermine financial inclusion if not adjusted.
- Phasing out central bank exposures to SOEs and enhancing central bank independence are recommended to protect price stability.
- Greater exchange rate flexibility, coupled with structural reforms, could help competitiveness and external adjustment.
IMF Communications Department — Press Release No. 16/577 (Executive Board conclusion, December 9, 2016).