Thanks to high commodity prices, increased mineral and natural gas exports and a prudent macroeconomic policy, economic growth in Bolivia averaged 4.9% between 2004 and 2014. In this context, despite the significant expansion of public investment, the country has maintained current account and fiscal surpluses that have enabled it to accumulate important macroeconomic cushions. International reserves equal 46% of GDP and public sector deposits in the Central Bank have reached 27% of GDP. Public debt has remained below 40% of GDP after the implementation of multilateral debt relief programs, which reduced the debt from 94% of GDP in 2003.
The positive economic context reduced moderate poverty, from 63% in 2002 to 45% in 2011, whereas the Gini Index fell from 0.60 to 0.49 between 2002 and 2013. These impressive results reflect the fact that citizens living in poverty were the population segment that most benefitted from the economic bonanza, especially through an increase in earnings.
Following the decline in international oil prices, Bolivia faces the challenge of maintaining these positive economic and social results in a less favourable global environment. Oil prices have a delayed effect on natural gas export prices, for which reason Bolivia has only partially felt the decrease in commodity prices. Nevertheless, external accounts have experienced a decline that has triggered a decrease in international reserves, from US$15.1 billion in late 2014 to US$14.3 billion in August 2015. The fiscal balance will experience a deficit this year – as it did in 2014 – following continuous surpluses between 2006 and 2013. Although growth remains strong as compared with other countries of the region, an economic deceleration has been observed throughout the year.
Adapting to the new international context – which many analysts believe will be permanent – is essential for maintaining growth and continuing to reduce poverty, which still affects 45% of Bolivians. The country should continue its prudent macroeconomic management, which makes use of the cushions available to ensure a smooth transition to the new equilibrium while consolidating public confidence. It is crucial to strengthen the efficiency and progressive increase of public spending to preserve macroeconomic balances without threatening the social advances achieved over the past decade. From a broader perspective, Bolivia needs to increase investment in exploration, which is important for ensuring the sustainability of its critical natural gas exports. Moreover, it is essential to promote increased private investment by strengthening the investment environment and investment in key infrastructure and by improving education quality in the long term. Increased private investment that complements public investment will create more jobs and increase diversity and productivity in non-extractive sectors.
Last Updated: Sep 29, 2015