On March 22, 2024, the Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation with Bolivia. This included discussions on the findings from the Financial Sector Assessment Program (FSAP) for Bolivia.
Bolivia's economic growth slowed to 2.5% in 2023 due to declining natural gas production, reduced public investment, and financial market instability. Inflation remained below 2% at year-end due to price controls and subsidies. However, a combination of factors such as lower natural gas exports and high fuel imports led to a wider current account deficit estimated at 5% of GDP for 2023. Public debt rose to nearly 84% of GDP by the end of the year.
The IMF projects that Bolivia's growth will decelerate further to 1.6% in 2024, stabilizing around 2.2-2.3% in the medium term if current policies continue. Inflation is expected to rise to 4.5% in 2024 but stabilize around 4%. The outlook depends heavily on improved access to external financing; without it, fiscal or exchange rate adjustments may be necessary.
External factors like global conflicts and commodity price volatility could worsen fiscal imbalances and destabilize Bolivia's financial sector. Domestically, declining hydrocarbon production and higher inflation could impact growth and real incomes.
The IMF directors agreed with staff assessments but expressed concerns about Bolivia's financial situation marked by low reserves and uncertain fiscal financing. They emphasized "the urgency of a shift from current unsustainable policies" to avoid significant social and economic hardship.
Directors recommended a sustainable policy mix involving phased fiscal adjustment and an upfront devaluation to address external imbalances quickly. They stressed improving social safety nets for poorer households following any exchange rate realignment.
Additionally, they highlighted strengthening fiscal institutions for credibility during adjustments and improving central bank governance towards inflation targeting. Directors also called for enhancing crisis preparedness according to FSAP recommendations.
A range of supply-side reforms was suggested by directors, including phasing out export ceilings and prioritizing public investment projects better. Strengthening regulatory frameworks for hydrocarbon exploration was seen as key for increased investment in those sectors.
Finally, directors recommended improving anti-money laundering measures (AML/CFT) and ensuring timely publication of macroeconomic data.