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Bolivia Sources of Growth (Part I): A Sectorial View

July 25, 2014


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World Bank

The study has identified key constraint of growth at aggregate as well as sectorial levels (for hydrocarbon, mining, and agriculture) and proposed a broad menu of policy options. It has provided an entry point for policy discussion with Bolivian authorities and has helped inform the preparation of the next SCD and CPFs.

Challenge

Bolivia has entered the 2000s as one of the poorest economies in Latin America, after several decades of instable economic performance. Since then, however, the country has been marked by historically high and stable growth rates, prudent macro policies and strong social gains—in terms of poverty and inequality reduction. These achievements were partially driven by an extremely favorable external environment. Despite its strong performance in recent years, Bolivia was not able to close the income gap with the rest of Latin America—or other regions in the world. Bolivia’s authorities consider sustaining and fostering the current growth process as key priorities. In this context, the objective of the study was to inform the government policy debate by identifying the main barriers to growth not only at macro level, but within key economic sectors.

Solution

The study identified the main constraints to growth at macro and sectorial levels for key sectors, and proposed policy options to release these constraints, i.e. to bring Bolivia to a faster growth path. To do so, the study analyzed in detail Bolivia’s recent economic performance identifying the main determinants and constrains to economic and productivity growth. The study also looked at the effects of growth on poverty reduction and shared prosperity. Finally, the study evaluated key production sectors (hydrocarbon, mining, and agriculture), emphasizing their potential contribution to growth and identifying bottlenecks that limit this potential. Close coordination with the client guided the design and preparation of the study. In effect, the scope, main objective, and key sectors to be considered have been discussed with the Ministry of Planning. Preliminary versions of each chapter have also been discussed with the Minister and her technical team, before the completion of the report.

Results

Main messages: In the past decade, Bolivia took advantage of a favorable external environment to implement a robust macroeconomic framework and sustain high growth, driven by an expansion of extractive activities and public investment. Labor-intensive sectors—particularly agriculture—lagged behind. Growth translated into significant social gains. Poverty and inequality fell, while the income of the bottom 40 percent increased three times faster than the average. Notwithstanding, Bolivia could not reduce its per capita GDP gap vis-à-vis other countries. Bolivia’s performance may have been greater with higher productivity gains and private investment. This represents untapped opportunities for future growth and social progress. Sustaining growth will entail combining private and public efforts, in line with Bolivia’s development framework, to boost investment, particularly in extractive industries, while enhancing productivity in labor-intensive sectors such as agriculture.

Main messages and recommendations were discussed with the Ministry of Planning and UDAPE, the Government’s Think Tank. Planning implements the National Development Plan, while UDAPE provides analysis and policy guidance to the Executive. As the new NDP—which would have broad repercussions in the country—is still under construction, it is too early to assess the extent of the study’s impact. The study is also informing the upcoming SCD and CPF, which will guide the WB activities in the following years.



Bank Group Contribution

The task was financed by Bank Budget only. USD150.000 were budgeted to Part I. Cumulative assigned budget (including the ongoing Part II of the study, to be delivered next fiscal year) attains USD300.000. The study was conceptualized and fully developed by World Bank technical staff in close coordination with the Bolivia Government.

Partners

As mentioned before, the study has been coordinated with the Ministry of Planning and UDAPE, the Governments Think Tank.

Moving Forward

The team will complete the second part of the Study (cross-cutting issues), looking again for discussions with the client and UDAPE on findings and recommendations. Dissemination of both parts will be agreed with the client—though parts of the study have already been discussed with universities and specialized journalists. Depending on the client, the team will engage with other stakeholders to more broadly discuss the main findings and recommendations of the Study. The core team will also be involved in the Bolivia SCD that will heavily borrow from this study.

Beneficiaries

Direct beneficiaries are the Ministry of Planning (Ms. Viviana Caro, Minister) that is in charge of the National Development Plan, and UDAPE (Ms. Maria Delgadillo, Executive Director), that provides analysis and policy guidance to the Executive. The Minister of Planning has been directly involved in the discussion of the study, since the design. The menu of policy options proposed by the study would promote growth and further social gains, potentially benefiting broad segments of the Bolivian society.

 





Map of projects in Bolivia