After the commodity boom ended in 2014, Bolivia relied on significant public spending and increasing domestic credit to maintain high economic growth. In a less favorable context, these measures increased public debt and reduced international reserves and fiscal savings accumulated during the boom. The health and economic crisis triggered by the COVID-19 pandemic exacerbated this situation.
Following the pandemic, Bolivia achieved an important economic recovery and poverty reduction thanks to the easing of isolation measures and an improved external environment, including the rise in international prices of the main export products. However, high public debt, declining natural gas production and modest international reserves have limited government efforts to boost growth and have exerted pressure on the foreign exchange market, where an incipient parallel exchange rate has emerged.
Additionally, Bolivia is exposed to different risks associated with the international context such as the volatility of commodity prices, the global economic slowdown and rising international interest rates. Bolivia is also vulnerable to climate-related disasters such as the drought currently affecting several regions around the country and the onset of El Niño in late 2023 or early 2024.
In this context, a sustainable recovery requires facing some structural challenges. Bolivia could benefit from a strategy to address macroeconomic imbalances, promote the more active role of the private sector -- including companies of all sizes and foreign investors -- and boost resilience to changes in the international environment and adverse climate events. Achieving these objectives while continuing to improve service delivery and protecting the most vulnerable population requires improving fiscal policy efficiency and progressiveness.
Limited gas reserves, high fuel subsidies, an increasingly challenging regional gas market and global efforts to decarbonize the energy sector make it necessary to seek alternatives to gas exports. Encouraging private investment would help accelerate growth, promote employment quality and diversify the economy with a view to achieving a world less dependent on fossil fuels.
Last Updated: Oct 02, 2023