After the commodity boom ended in 2014, Bolivia resorted to high public spending and growing domestic credit to maintain its high economic growth. These measures resulted in an increase in public debt and a reduction in international reserves and the fiscal savings accumulated during the boom.
The health crisis caused by COVID-19 plunged the economy into a recession that led to a rebound in poverty. The Government deployed different initiatives to protect the most vulnerable, including emergency cash transfers and the deferred payment of utility bills and credits. As in other countries, the health crisis exposed the reduced capacity of the health system, the limited impact of poorly targeted social protection programs, high labor informality, and large macroeconomic imbalances.
In 2021, the economy staged a significant recovery owing to improvements in the international environment and the relaxation of lockdown measures. However, high public debt and modest international reserves could limit efforts to boost the economy through expansionary policies alone, especially if the private sector does not play a more active and sustained role.
On the other hand, in addition to its high vulnerability to climate-related disasters, Bolivia is exposed to different risks associated with the international context, such as the volatility of commodity prices, the global slowdown, the increase in international interest rates, and the rise in food prices. These risks could affect the sustainability of the Government's efforts to protect the economy and the population.
In this context, sustainable recovery requires addressing some structural challenges. A fiscal consolidation process could contribute to strengthening confidence in macroeconomic management and the sustainability of the exchange rate, as well as creating some policy space to deal with changes in the international environment or adverse climate events in the future.
Limited gas reserves, high fuel subsidies, an increasingly challenging regional market, and global efforts to decarbonize the energy sector make it necessary to seek alternatives to gas exports. There are still some opportunities in this area that, coupled with Bolivia's significant mining potential, could be exploited by improving the investment climate, mainly in the fields of labor and tax regulation, to boost private investment and productivity, as well as to reduce high informality.
Last Updated: Oct 10, 2022
