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Overview

When the commodities 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 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 such as cash transfers and credit deferrals to protect the most vulnerable population. However, the health crisis exposed some structural weaknesses such as the reduced capacity of the health system, the limited impact of the poor targeting of social protection programs, high labor informality, and high macroeconomic imbalances.

In the first months of 2021, the economy has shown important signs of recovery due to the improvement in the international environment and the relaxation of the isolation measures adopted at the beginning of the pandemic. The Government and society must join forces to advance vaccination and thus enable full recovery of economic activity and employment.  High public debt and modest international reserves could limit efforts to boost the economy only through expansionary policies, especially if the private sector does not play a more active and sustained role. 

In addition to the immediate challenges associated with the health crisis, sustainable recovery to inclusive growth poses some structural challenges for the country.  A consolidation process would help strengthen confidence in macroeconomic management and the sustainability of the exchange rate, as well as the generation of some policy space to face changes in the international environment or adverse climatic events in the future.

Limited gas reserves, 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 remaining opportunities in this area that, added to Bolivia's important mining potential, could be exploited by improving the investment environment, mainly in the fields of labor and tax regulation, to boost private investment and productivity, as well as to reduce high informality. For this growth to be sustainable in the long term, it is necessary to take precautions to avoid environmental degradation and mitigate the effects of climate change on the population and economic activity. This requires facing critical issues such as high deforestation, pollution, and over-exploitation of some basins, associated with the growth of cities and small-scale mining activity, and the possible adverse effects of extractive activities on delicate ecosystems such as protected areas and the salt flats.

Similarly, it is possible to improve the efficiency and progressiveness of public policies to protect the vulnerable population and improve the access and quality of public services without increasing spending in an unsustainable way. For this purpose, improving efficiency in the management of health and education services and social protection networks is feasible. Similarly, the impact of public spending on the population can be enhanced, improving coordination among government levels and strengthening the capacities of subnational governments.

Last Updated: Oct 11, 2021

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BOLIVIA +591 2 261-3300
Calle Fernando Guachalla, 342, Edificio Víctor, piso 9. La Paz
USA +1 202 473-1000
1818 H Street NW, Washington, DC 20433