On January 27, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Bolivia.
Good macroeconomic performance and active social policies since the mid-2000s have helped Bolivia to nearly triple income per capita and reduce poverty. In recent years, the economy benefitted from high international commodity prices and rising volumes of natural gas exports. Coupled with twin surpluses in the fiscal and external accounts, net international reserves have increased to almost 50 percent of gross domestic product (GDP), providing ample buffers against external shocks. Social policies have pursued ambitious redistributive and poverty reduction goals, increasing living standards of vulnerable households.
Real GDP growth is projected at 6.7 percent in 2013, the highest growth rate of the last thirty years, supported by soaring hydrocarbon exports, strong private consumption, and accommodative macroeconomic policies. Growth is projected to remain above potential again in 2014, sustained by hydrocarbon exports and a moderate fiscal impulse. Notwithstanding elevated export volumes, the external current account surplus is expected to narrow in 2013 and over the medium term on the back of softer terms of trade.
Food supply shocks triggered an increase in inflation in mid-2013, but the authorities responded with rapid monetary tightening and measures to improve food supply. Staff expects the authorities will succeed in anchoring inflation expectations and inflation is projected to fall to 5.5 percent by the end of 2014, though further tightening may be needed if inflationary pressures prove persistent.
The fiscal stance is expected to remain expansionary, with important investment projects to industrialize the resource sector in the pipeline. The overall fiscal surplus is projected to narrow to 0.6 percent of GDP in 2013 and turn to an overall deficit of 0.4 percent of GDP in 2014. Gross public debt is expected to continue its downward trajectory to 32.5 percent of GDP by end-2013, from 40 percent of GDP in 2009.
The Bolivian financial system remains solid and well capitalized, but the new Financial Services Law could alter significantly the financial landscape. The law establishes a comprehensive legal framework for the regulation of financial services, financial institutions, and financial groups. The law includes several good provisions that, if effectively implemented, will help strengthen the safety net and the integrity of the financial system. However, the law’s general thrust is to subordinate financial sector activities to social objectives with instruments that could create risks to financial stability. Main features of the law include: (i) provisions to regulate lending rates and set minimum lending quotas for the productive sector and social housing; (ii) discretion to set floors on deposit rates; and (iii) mechanisms to enhance consumer protection and financial access in rural areas.
Executive Board Assessment2
Executive Directors welcomed Bolivia’s strong economic performance in 2013, which saw higher economic growth, strong fiscal and external positions, and improved standards of living. They noted that the near-term outlook is favorable, but encouraged the authorities to address some vulnerabilities and improve the policy frameworks.
Directors agreed that a neutral macroeconomic policy stance is appropriate for the period ahead in view of the favorable growth outlook and the closed output gap. Accordingly, they encouraged the authorities to avoid a pro-cyclical fiscal stimulus and save budgetary resources to respond to adverse external shocks. More broadly, Directors stressed the need to improve the non-hydrocarbon fiscal balance to secure medium-term sustainability. Measures could include better targeting fuel subsidies, enhancing the efficiency of public investment and social transfers, and implementing tax administration reforms. Taking note of the authorities’ plans, Directors also encouraged the adoption of a medium-term fiscal framework to manage resource wealth, balancing intergenerational equity against immediate development needs.
Directors commended the authorities’ response to the rise in inflation in mid-2013. They generally agreed that further monetary tightening could be needed if second-round effects prove persistent. Directors noted that continued reliance on market-based allocation of financial resources is important and recommended that central bank lending to public enterprises be discontinued. They considered that a savings fund established in line with international best practices could help channel such lending. Directors generally saw merit in gradually allowing greater exchange rate flexibility to help absorb external shocks.
Directors took note of the sound state of Bolivia’s financial sector but stressed the need to continue to strengthen supervision. While recognizing the social objectives of the new Financial Services Law, Directors considered that less distortionary instruments to promote financial inclusion could be employed. Directors welcomed Bolivia’s strengthened framework against money laundering and terrorist financing and urged its implementation.
Directors commended the authorities’ progress in reducing poverty. They called for continued efforts to address longstanding social challenges, which could be grounded in a comprehensive evaluation of existing programs. They also noted that the changing world hydrocarbon market calls for broadening the economic base and raising productivity to sustain strong growth. In this regard, Directors emphasized the importance of improving the business climate, including by creating a predictable legal framework, to promote private sector activity. Greater investment in infrastructure and human capital will also be critical.
|(Annual percentage changes)|
|Income and prices|
|CPI inflation (period average)||3.3||2.5||9.9||4.5||5.7||6.8|
|CPI inflation (end-of-period)||0.3||7.2||6.9||4.5||6.5||5.5|
|(In percent of GDP)|
|Combined public sector|
|Revenues and grants||35.8||33.2||36.2||37.9||38.6||37.3|
|Of which: Hydrocarbon related revenue||11.3||10.2||11.4||13.0||13.1||12.2|
|Total gross public debt||40.0||38.5||34.7||33.4||32.5||29.7|
|Of which: Natural gas||11.3||14.1||16.1||20.1||18.4||16.7|
|Gross international reserves|
|In millions of U.S. dollars||8,580||9,730||12,019||13,927||14,534||16,089|
|In percent of broad money||79.8||80.0||83.0||80.0||71.3||68.0|
|(Changes in percent of broad money at the beginning of the period)|
|Money and credit|
|NFA of the banking system||18.8||8.2||14.7||13.5||16.2||10.8|
|NDA of the banking system||6.7||1.4||1.6||4.4||1.0||5.1|
|Of which: Credit to the private sector (in percent of GDP)||34.0||36.0||36.8||39.0||42.1||42.5|
|Interest rates (percent, end-of-period)|
|Deposits in local currency||2.1||0.9||1.7||1.2||…||…|
|Loans in local currency||9.1||10.4||10.8||10.6||…||…|
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.