BOLIVIA: STAFF REPORT FOR THE 2013 ARTICLE IV CONSULTATION

International Monetary Fund. Western Hemisphere Dept.

doi:10.5089/9781475550528.002.A001

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International Monetary Fund. Western Hemisphere Dept.

International Monetary Fund. Western Hemisphere Dept.
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Publication Date:: 10 Feb 2014

eISBN:: 9781475550528

Language:: English

Keywords:: ISCR; CR; microfinance institution; core inflation; Bolivia; development bank; supreme decree; year account; Public sector; Credit; Global; U.S. dollar; headline inflation; central bank of Bolivia; lending to public corporations; net credit; Inflation; Commodity prices

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1. Since the mid-2000s, good macroeconomic performance and active social policies have helped nearly triple income per capita and reduce extreme poverty in Bolivia. Prudent fiscal policies allowed saving a sizable portion of the hydrocarbon revenue windfall from the commodity price boom, improving the resilience of the economy to adverse shocks. Reflecting this, Bolivia was one of few countries in Latin America that sustained positive growth during the global crisis of 2008–09 and weathered well the recent regional slowdown. At the same time, deep political and social changes have been taking place. The 2009 Constitution dictates substantial revisions to the legal and policy frameworks. The authorities’ economic strategy is aligned with new constitutional requirements and envisages the expansion and industrialization of natural resource production. The authorities are also making inroads to tackle still high levels of poverty, inequality, child and maternal mortality rates, and improve access to public services in remote areas.

Abstract

Background

1. Since the mid-2000s, good macroeconomic performance and active social policies have helped nearly triple income per capita and reduce extreme poverty in Bolivia. Prudent fiscal policies allowed saving a sizable portion of the hydrocarbon revenue windfall from the commodity price boom, improving the resilience of the economy to adverse shocks. Reflecting this, Bolivia was one of few countries in Latin America that sustained positive growth during the global crisis of 2008–09 and weathered well the recent regional slowdown. At the same time, deep political and social changes have been taking place. The 2009 Constitution dictates substantial revisions to the legal and policy frameworks. The authorities’ economic strategy is aligned with new constitutional requirements and envisages the expansion and industrialization of natural resource production. The authorities are also making inroads to tackle still high levels of poverty, inequality, child and maternal mortality rates, and improve access to public services in remote areas.

Recent Developments

2. Real GDP growth and the external position continued to be strong. The latest data suggest that real GDP growth accelerated to 6.6 percent by September 2013, from 5.2 percent in 2012, supported by soaring hydrocarbon exports, resilient private consumption, and accommodative macro policies. Staff expects output growth of 6.7 percent for the year as a whole, the highest growth rate in thirty years. Notwithstanding elevated export volumes, the external current account surplus is projected to narrow to 4 percent of GDP in 2013, from the peak of 7.8 percent of GDP in 2012, due to softer terms of trade and a pickup in imports. Sizable gross international reserves (projected at 49 percent of GDP at end-2013) continue to provide ample buffer against external shocks.

3. Inflationary pressures resurfaced in the second half of 2013 triggered by food supply shocks. After hovering around 5 percent (y/y) in the first seven months of 2013, inflation increased in August and September driven by a spike in some food prices. By November, the food price shock reversed, with key staples posting deflation m/m aided by temporary measures to boost supply.^¹However, core inflation (excluding food, fuel, and administered prices) edged up to 4.9 percent (y/y), from 4 percent in January. Staff projects headline inflation to rise to 7.5 percent by end-2013, from 4.5 percent in 2012.

4. Monetary conditions were tightened in response to the inflation shock. Since end-2011, monetary policy has been anchored on a stable nominal exchange rate vis-à-vis the U.S. dollar, supplemented by liquidity management through open market operations.^² Amid sizable excess liquidity, the central bank started a gradual tightening of monetary conditions at the end of 2012 and accelerated the pace of open market operations in response to the food inflation shock. The central bank also placed papers directly with pension funds and immobilized banks’ excess reserves in domestic currency (at a remunerated rate of 1.8 percent). As a result, excess liquidity fell and the auction rate of the 91 day t-bill inched up to 1.9 percent in November, from 0.35 percent at end-2012.^³ The authorities also applied stricter prudential limits on consumption credit and offered a savings bond to the public to stem the end-of-year seasonal hike in consumption.

5. The overall fiscal balance is projected to stay in surplus in 2013, consistent with an expansionary fiscal stance. Fiscal outturns through October showed a strong overall performance, supported by robust hydrocarbon and tax revenues. Higher transfers and fuel subsidies partially offset the increase in revenue, while capital expenditure execution advanced at a faster pace than in previous years, as capacity at the subnational level continues to be enhanced with support from the ministry of planning. For 2013 as a whole, staff projects an overall fiscal surplus of 0.6 percent of GDP (1.8 percent of GDP in 2012), which would imply a pro-cyclical impulse of about 0.8 percent of GDP.^⁴ Gross public debt is projected to decline to 32.5 percent of GDP by end-2013 and continue its downward trajectory over the medium term, with low risk of debt distress.^⁵

6. The banking sector remains well capitalized. Growth in credit to the private sector moderated to 19 percent in nominal terms in November but remains high, led by commerce, real estate, and construction.^⁶ Banks’ capital adequacy ratio stood at 12.9 percent in November, above the regulatory minimum of 10 percent, and the NPL ratio declined to 1.7 percent (from 8.7 percent at end-2006). Reflecting a new tax on foreign currency transactions and a corporate income tax surcharge for financial intermediaries, bank profitability is declining, with return-on-equity at 12.9 percent in November, compared to the peak of 21.2 percent in 2007. The steady increase in reserve requirements on foreign currency deposits and the stable exchange rate have contributed to a significant fall in the dollarization ratio (23 percent of total deposits in September from 53 percent in 2008).^⁷

7. A 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. Although the law includes several good provisions, its general thrust is to subordinate financial sector activities to social objectives. Furthermore, by allocating broad powers to the Executive branch, the law may give rise to regulatory uncertainty.

Main features of the law include: (i) provisions to regulate lending rates and set lending targets 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. The law came into effect in November, but specific regulations will be defined by Supreme Decrees in coming months.

8. Bolivia’s strong economic performance allowed the country to borrow from international capital markets at favorable terms. In October 2012, Bolivia tapped international capital markets for the first time since the 1920s, issuing a 10 year bond for US$0.5 billion at a yield of 4.875 percent. In August 2013, a second issuance followed also for US$0.5 billion at a yield of 6.25 percent.^⁸ The issuances did not reflect a fiscal need but the authorities’ desire to establish a benchmark for corporate foreign borrowing and to pre-finance important public investment projects in anticipation of tighter external financial conditions. The authorities are advancing with the preparation of a medium term debt strategy.

Outlook and Risks

9. Staff projects real GDP growth of 5.4 percent in 2014, above potential, supported by the hydrocarbon sector and a moderate fiscal impulse.^⁹ Commodity prices are likely to continue softening, but multi-year natural gas export contracts with Brazil and Argentina will maintain comfortable export volumes. The external current account surplus is expected to continue narrowing (to 3.1 percent of GDP in 2014 and 1 percent of GDP by 2018). The overall fiscal balance is projected to turn to a deficit in 2014 that would remain over the medium term as hydrocarbon revenues decline. Staff expects the authorities will succeed in anchoring inflation expectations and inflation will stabilize around 5 percent over the medium term.

Medium-Term Outlook

(In percent of GDP, unless otherwise indicated)

Sources: Ministry of Economy and Public finances, Central Bank of Bolivia, National Institute of Statistics, and Fund staff calculations.

Medium-Term Outlook

(In percent of GDP, unless otherwise indicated)

		Prel.	Projections
		2013	2014	2015	2016	2017	2018
Real GDP growth (in percent)		6.7	5.4	5.0	5.0	5.0	5.0
Inflation (in percent, end of period)		7.5	5.5	5.2	5.0	5.0	5.0
Fiscal balance		0.6	-0.4	-0.1	-0.1	-0.4	-0.7
	Nonhydrocarbon balance	-10.2	-10.4	-10.1	-9.5	-9.3	-9.3
Public debt		32.5	29.7	27.8	25.9	24.1	22.3
	Net public debt	9.5	8.9	8.3	7.7	7.4	7.4
Current account		4.0	3.1	1.9	1.4	1.1	0.9
Reserves		48.8	48.3	48.1	47.3	46.5	45.5
Reserves (in months of imports)		16.3	16.1	16.3	16.6	17.1	17.9
External debt		20.2	19.1	18.4	17.7	17.0	16.3

Sources: Ministry of Economy and Public finances, Central Bank of Bolivia, National Institute of Statistics, and Fund staff calculations.

Medium-Term Outlook

(In percent of GDP, unless otherwise indicated)

		Prel.	Projections
		2013	2014	2015	2016	2017	2018
Real GDP growth (in percent)		6.7	5.4	5.0	5.0	5.0	5.0
Inflation (in percent, end of period)		7.5	5.5	5.2	5.0	5.0	5.0
Fiscal balance		0.6	-0.4	-0.1	-0.1	-0.4	-0.7
	Nonhydrocarbon balance	-10.2	-10.4	-10.1	-9.5	-9.3	-9.3
Public debt		32.5	29.7	27.8	25.9	24.1	22.3
	Net public debt	9.5	8.9	8.3	7.7	7.4	7.4
Current account		4.0	3.1	1.9	1.4	1.1	0.9
Reserves		48.8	48.3	48.1	47.3	46.5	45.5
Reserves (in months of imports)		16.3	16.1	16.3	16.6	17.1	17.9
External debt		20.2	19.1	18.4	17.7	17.0	16.3

Sources: Ministry of Economy and Public finances, Central Bank of Bolivia, National Institute of Statistics, and Fund staff calculations.

10. Near and medium term external risks are somewhat higher than at the time of the 2012 Article IV consultation, but external financial buffers continue to be abundant. Downside external risks include:

Weaker growth in Argentina and Brazil. The share of Argentina and Brazil in Bolivian exports has climbed to around 50 percent in 2013, from 25 percent in the early 2000’s. A slowdown in these countries would adversely affect Bolivia both through trade and non-trade (i.e. private sector confidence) channels. Empirical calculations by staff suggest that a one percentage point reduction in Brazil’s output growth would lower Bolivia’s output growth by 1/3 percentage point on impact and by close to 0.8 percent over a twelve month period (Annex III).
Lower world commodity prices, particularly for hydrocarbons. Close to 90 percent of Bolivia’s exports are commodity based—with natural gas representing roughly 50 percent of total exports. Bolivia’s fiscal accounts are also sensitive to commodity prices, as hydrocarbon related revenues account for nearly 35 percent of total revenue and grants. An adverse shock to hydrocarbon commodity prices would affect revenues, public investment, and activity. Export price formulas for gas exports based on a basket of petroleum products with a three month lag provide a temporary cushion to a drop in commodity prices.
Large buffers. Sizable international reserves and government deposits at the central bank—projected at 49 and 26 percent of GDP by end-2013, respectively—would allow the authorities to mitigate the effects of adverse external shocks, especially if these are transitory.

11. Domestic risks are broadly balanced. On the downside, absent significant progress in finalizing key laws and improving the business climate, private investment may remain subdued. At the same time, the new Financial Services Law may not provide a level playing field for public and private banks and may weaken credit conditions and banks’ balance sheets. On the upside, fiscal stimulus may turn out stronger than anticipated in staff’s baseline scenario, in the context of the general election scheduled to take place in late 2014. In addition, the implementation of the National Public Investment System may result in a faster-than-envisaged removal of bottlenecks in investment planning, execution, and monitoring, particularly at the local level.

12. The authorities were not too concerned about external risks. They stressed that Bolivia’s development strategy relies on domestic demand as the main engine of growth and noted that a slowdown in external demand would not have a major impact on economic activity, in particular since fiscal policy could have a more active role in a less benign external environment. The authorities also considered that staff estimates of spillovers overstated the effects that a slowdown in trading partners would have on Bolivia. The authorities emphasized that the large financial buffers would allow them to respond timely and effectively to any external shock.

Policy Discussions

A. Strengthening the Fiscal Framework

13. The authorities reiterated their commitment to prudent fiscal policy. They highlighted that the overall fiscal deficit target of 3.2 percent of GDP included in the 2014 draft budget was significantly smaller than the fiscal deficit target of 4.6 percent of GDP that had been presented in the 2013 budget, supported by the established practice of conservative forecasting of oil prices. Replacing these forecasts with the WEO baseline for oil prices results in a projected fiscal deficit of 0.4 percent of GDP for 2014, which would imply a moderately expansionary fiscal stance. In view of prospects for strong growth and the closed output gap, staff recommended aiming for a neutral fiscal stance in 2014, saving stimulus to respond to downside external shocks, and cautioned that fiscal tightening may be warranted if inflationary pressures persist. The authorities noted that an overall fiscal surplus could be within reach in 2014. They highlighted that any fiscal stimulus would be driven by public investment, rather than current spending, as investment was essential to deepen the diversification and industrialization of the economy, with important projects already in the pipeline. The authorities did not see any reasons to be concerned about the impact of the election cycle on fiscal sustainability.

Summary of Fiscal Balances

(In percent of GDP)

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

Summary of Fiscal Balances

(In percent of GDP)

						Proj.
	2008	2009	2010	2011	2012	2013	2014
Nominal balances
Overall balance	2.8	0.2	1.7	0.8	1.8	0.6	-0.4
Non-hydrocarbon primary balance	-5.6	-8.7	-6.7	-8.3	-8.7	-9.1	-9.5
Cyclically-adjusted balance
Non-hydrocarbon primary balance	-5.4	-8.0	-6.5	-8.2	-8.4	-9.3	-9.6
Fiscal impulse	2.1	2.6	-1.5	1.7	0.3	0.8	0.4

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

Summary of Fiscal Balances

(In percent of GDP)

						Proj.
	2008	2009	2010	2011	2012	2013	2014
Nominal balances
Overall balance	2.8	0.2	1.7	0.8	1.8	0.6	-0.4
Non-hydrocarbon primary balance	-5.6	-8.7	-6.7	-8.3	-8.7	-9.1	-9.5
Cyclically-adjusted balance
Non-hydrocarbon primary balance	-5.4	-8.0	-6.5	-8.2	-8.4	-9.3	-9.6
Fiscal impulse	2.1	2.6	-1.5	1.7	0.3	0.8	0.4

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

14. Staff underscored that improving the non-hydrocarbon fiscal balance is critical for medium term sustainability. The non-hydrocarbon primary deficit has widened from 3.2 percent of GDP in 2006 to 9.1 percent of GDP projected in 2013. On current proven gas reserves and resource horizon, staff estimates that the sustainable level of the non-hydrocarbon primary deficit is around 3¼ percent of GDP, requiring an improvement of 5¾ percent of GDP from the 2013 projected level (Annex I). The short resource horizon has a visible impact on the debt trajectory after the mid-2020s, underlying the urgency to invest in exploration with support from the private sector.^¹⁰ The authorities indicated that they were giving priority to investment in gas exploration, with 18 new contracts expected to be subscribed by 2025. At the same time, they disagreed with staff’s concern about the level of the non-hydrocarbon fiscal deficit, given good prospects for the sector. The authorities argued that Bolivia had been able to post fiscal surpluses for several years without having to focus on the non-hydrocarbon fiscal balance and were committed to continue doing so in the future.

15. Strengthening the non-hydrocarbon fiscal balance will require both expenditure and revenue measures. On the expenditure side, measures that would help fiscal consolidation include a gradual reform of fuel subsidies to target the most vulnerable groups and enhancements in the quality of capital expenditure. On the revenue side, staff recommended (i) introducing personal income taxes or reforming the existing VAT complementary system; (ii) strengthening compliance of the corporate income tax; (iii) reforming revenue agencies; and (iv) quantifying and reporting tax expenditures in the budget with potential to curtail those with high cost-benefit ratios. With quasi-fiscal risks of public corporations and financial institutions on the rise, staff noted that a comprehensive risk statement in the budget would help identify fiscal vulnerabilities and inform any additional reform needs. The authorities acknowledged that revenue measures undertaken in recent years, even if different in nature, pursued the same goals suggested by staff, but clarified that there was little scope for structural fiscal reforms during the election year.^¹¹

16. Staff recommended developing a fully-fledged MTFF to manage resource wealth. Staff welcomed the progress made by the authorities in preparing medium term fiscal projections, but noted that these projections should be part of the budget documentation, in line with best practices in fiscal transparency. Staff stressed that a fully fledged MTFF comprises, in addition to numerical projections, mechanisms to insulate the fiscal sector from commodity price volatility, improve the predictability of the budget, and promote countercyclical fiscal policies. Staff advised the authorities to consider the eventual adoption of a fiscal rule that would set a target for the structural primary balance, supported by a stabilization/savings fund with clear investment objectives and a strong governance structure. Recognizing that the effective implementation of such a complex rule requires meeting important pre-conditions, staff suggested as a first step the calculation, reporting, and discussion of structural fiscal indicators in the budget. In addition, hydrocarbon revenue sharing agreements may need to be revisited in the context of the fiscal rule. The Fiscal Pact called for by the decentralization law of 2010 provides an opportune time for such a revision.

17. The authorities noted that the preparation of a MTFF is an ongoing process that will evolve into multi-year budgeting in the future. They concurred with the need to continue strengthening fiscal reporting and analysis for budget formulation, but saw the preparation of a MTFF as a more gradual process with some essential elements already underway. With respect to a stabilization fund, while it is foreseen in the decentralization law, they noted that it would be difficult to build the necessary consensus for its implementation during an election year. Still, the sizable resources of subnational governments held at the central bank already provide an important source of fiscal savings. The authorities were not persuaded about the benefits of a fiscal rule.

B. Maintaining Low and Stable Inflation

18. Staff noted that the rapid response to the food price shock of 2013 was appropriate. Bolivia’s highly open and commodity dependent economy is vulnerable to inflationary pressures from both external and domestic supply shocks (Box 2). Past experience suggests that second round effects take 5–8 months to reach their peak and are more persistent amid lax monetary conditions, such as those present in the first half of 2013. In addition, incomes policy decisions recently taken by the government,^¹² coupled with the end year seasonal hike in demand entail upside risks. Given these risks, staff argued that further tightening may be necessary if second round effects prove persistent. The authorities stressed that measures taken had successfully decelerated inflation already in October. In addition, as the new instruments effectively withdrew liquidity in a short period of time, they noted that the food price shock could be less persistent.

19. Persistently high volatility of food prices and sizable pass-through suggest the need to strengthen the monetary policy framework. The gradual weakening of central bank independence and increased central bank lending to public corporations highlight the need to strengthen the framework and safeguard the hard won anti-inflation credentials of the central bank. To attain these objectives, staff recommended:

Discontinuing the practice of direct lending by the central bank to public corporations. Since 2009, the central bank is authorized to lend to the central government at concessional terms. In 2013, this lending limit was increased to US$5.3 billion, of which US$2.2 billion had been disbursed by November. Staff noted that this lending exposes the central bank to quasi-fiscal losses in an adverse scenario and creates a potential conflict with its price stability objective. Staff recommended that financing of public investment be implemented by the ministry of finance through a savings fund, which could absorb the credit portfolio of the central bank. Staff argued that the “Fondo para la Revolución Industrial Productiva” (FINPRO), established in 2012 using part of international reserves, could be the stepping stone of a savings fund, provided that it generates sufficient positive returns, makes investments based on sound financial considerations, and is supported by a strong institutional setup (Box 3). The authorities stressed that price stability was a constitutional mandate that was not imperiled by lending activities on strategic areas. Moreover, the lending to public corporations constituted an income source for the central bank. They also argued that coordination among public institutions was essential to pursue appropriate policies, rather than a detriment to central bank independence. The authorities expressed interest in further input from staff on the accounting treatment of the lending operations currently on the balance sheet of the central bank.
Continuing to rely primarily on market-based signals to allocate financial savings. Regulated interest rate margins and credit quotas contemplated by the new Financial Services Law may create costly distortions and complicate the conduct of monetary policy. In view of these risks, staff advised to establish a clear and transparent process for setting interest rates that minimizes distortions with market signals. It also stressed that any changes stemming from the new constitution conserve the supremacy of the Central Bank Law.^¹³ The authorities clarified that regulated interest rates and credit quotas would apply to a fraction of the loan portfolio, leaving room for market-based signals.
Creating the conditions for a gradual exit from the de-facto stabilized exchange rate arrangement in place since end-2011. This will enhance the capacity to absorb external shocks and to conduct independent monetary policy. Staff and the authorities concurred that there is no evidence of exchange rate misalignment (Annex IV). The authorities emphasized that their exchange rate policy allowed for sufficient flexibility to respond to changes in the international environment and had been appropriate for Bolivia, especially given volatility in external markets in recent years. Moreover, the steady fall in dollarization had won them increased independence in their monetary policy. Staff noted that several steps would help transition to greater exchange rate flexibility, including improving liquidity management, enhancing the role of the policy rate, continuing to develop inflation forecasting, collecting more high frequency indicators, and increasing central bank operational autonomy.

C. Safeguarding Financial Stability

20. The authorities have made progress in expanding access to financial services, amid improving financial soundness indicators. Preserving these gains will require monitoring the current credit expansion closely, maintaining banking sector buffers, and continuing to strengthen supervision. Staff encouraged the authorities to advance quickly with the creation of a real estate price index that would allow a better assessment of any potential misalignment in property prices. It also urged the authorities to expeditiously bring the large number of unlicensed financial institutions into the regulatory perimeter. The authorities noted that work on a real estate price index is underway.

21. Several FSAP recommendations have been implemented. In particular, progress has been made in adopting Basel II and III principles (such as adding market risk to capital requirements and completing the guidance on operational and interest rate risk), and introducing a deposit insurance scheme. Shortcomings remain in the areas of independence of the supervisory authority (ASFI), criteria for setting provisioning requirements, limits on total foreign investments as a share of capital, and regulations for the pensions and insurance sectors. Plans to strengthen ASFI’s resources will help to ensure that the quality of oversight does not deteriorate in light of new tasks mandated by the Financial Services Law. The authorities noted that the close working relationship between the ministry of finance, ASFI, and the central bank is important and will be further strengthened under the Financial Stability Council created by the new law.

22. Bolivia’s exit from the FATF monitoring process attests to the recent strengthening of the AML/CFT legal framework. Working towards effectively implementing the AML/CFT regime as the Financial Services Law comes into effect should be a key next step towards further enhancing the integrity of the financial system. In particular, it would be important to ensure a smooth transfer of the Financial Investigations Unit (FIU) and its resources from ASFI to the ministry of finance, to clarify the FIU’s organization, functions, and sanctioning procedures in forthcoming regulations, and guarantee the autonomy of the FIU.

23. Staff expressed concern about potentially significant risks to financial stability stemming from the new Financial Services Law. In particular:

The regulated interest rates and credit quotas may distort resource allocation and negatively affect the profitability of financial institutions. Controlled deposit rates may encourage circumvention and disintermediation more generally. Ceilings on lending rates and credit quotas may “crowd-in” sectors ill-equipped to efficiently absorb the funds and create concentration risks to the financial sector as a whole. Compressed interest margins are likely to hurt banks’ profitability and thereafter capitalization. Banks’ diverse credit portfolios and operational structures also pose challenges to set regulations consistent with financial stability and to ensure a level playing field among different types of institutions.
The legal framework regarding contracts could expose financial institutions to additional risks. The law would allow clients to terminate contracts with financial institutions without incurring any penalty. In addition, mortgage loans would be considered fully paid with the amount that is recovered from the collateral, thus creating incentives for strategic defaults.
Increased intervention in financial institutions and regulatory uncertainty may discourage investment in the financial sector. The law authorizes the Executive branch to impose “temporary preventive measures” (Art. 6) to safeguard the continuity of financial services and the stability of the financial system. In addition, the law does not elaborate on the functions, scope of powers, and accountability framework for the Financial Stability Council.

24. Staff argued that the authorities’ financial inclusion goals could be attained through other policies. Such policies could include transparent fiscal transfers to financial institutions to subsidize lending to target beneficiaries. Moreover, staff noted that innovative interventions (such as partial credit guarantees and productive development services) could be more effective instruments to leverage public funds for development and housing finance. The authorities did not see merit in staff’s concerns and stressed that regulations in Supreme Decrees would be set with due consideration for the stability and growth of the financial system and the economy.

D. Sustaining Inclusive Growth

25. Uncertainties in the legal framework continue to hamper the business climate. High commodity prices and accommodative policies have supported growth in Bolivia in recent years, but private investment as a share of GDP remains among the lowest in the region. Long delays in finalizing key legislation (e.g., on investment, hydrocarbon, mining, and labor) have weakened business confidence, as has the uncertainty regarding expropriation and nationalization processes. A vibrant private sector would help sustain strong growth over the medium term, including by partnering with the public sector in the exploration of natural resources and by enhancing the productivity and diversification of the economy. However, a business climate where private investment can thrive requires stable rules of the game, few, fair and swift processes of nationalization, and legislation that addresses the private sector’s concerns over property rights. At the same time, the governance framework for public corporations should be improved to minimize fiscal risks and delineate their role vis-à-vis private companies in the authorities’ development plan. The authorities continue to work towards building consensus for the approval of these laws. In their view, there is no legal uncertainty for investment in Bolivia, as the Investment Law of 1990 remains in effect and the 2009 constitution guarantees private property and fair rules for private investment.

26. The authorities’ economic strategy yielded a considerable increase in standards of living and aims to continue tackling deep rooted social challenges. Notwithstanding these achievements, Bolivia ranks low in the UN’s Human development index (108 out of 187 in 2012), child and maternal mortality rates are still high, and water and sanitation coverage is low, especially in the rural and poor marginal urban areas. Cash transfer programs in education, maternal health, energy, and pensions have been central to the authorities’ efforts to combat poverty, inequality and improve health indicators. Staff recommended conducting an impact evaluation of the existing social transfers before scaling up their coverage, to ensure a good design and focalization. Finally, improved capacity at the local level would enhance the impact of social infrastructure and deepen the social gains already achieved by the authorities.

Staff Appraisal

27. Bolivia’s strong macroeconomic performance, backed by high commodity prices and active social policies, has resulted in an exceptional rise in income per capita and a decline in poverty. In 2013, real GDP growth is expected to reach its highest rate in over thirty years, supported by buoyant natural gas exports, strong private consumption growth, and accommodative macro-policies. Prudent macroeconomic management has allowed saving part of the hydrocarbon revenue windfall, with continued twin surpluses in the fiscal and external accounts strengthening the resilience of the economy to adverse shocks. Social policies have pursued ambitious redistributive and poverty reduction goals, increasing living standards of vulnerable households. Impact evaluation of cash transfer programs and better targeting of fuel subsidies would help improve on the design and cost-effectiveness of social policies. In addition, expanding access to quality health care and water and sanitation remain long standing priorities.

28. The economy is expected to continue to grow above potential in 2014, albeit at a slower pace, and risks to the outlook seem manageable. Although external risks over the near and medium term have increased (including from a sharp drop in world commodity prices or weaker activity in main trading partners), sizable international reserves and government deposits at the central bank provide ample buffers. Domestic risks are broadly balanced, with upside risks from fiscal stimulus offset by downside risks from a weak climate for private investment.

29. An immediate policy challenge is ensuring that the spike in some food prices of mid-2013 does not result in permanently higher inflation. The authorities’ rapid tightening of monetary conditions has helped reduce this risk. If inflationary pressures persist, it would be necessary to continue to mop up liquidity. In addition, the effectiveness of monetary policy should be enhanced, including by allowing market-based signals to operate under the new Financial Services Law and gradually exiting from the de-facto stabilized exchange rate in place since late 2011. The recent practice of mandating the central bank to lend to public corporations should be discontinued, as it may weaken the solvency of the monetary authority and undermine macroeconomic stability in the long term. Staff recommended that those lending activities be undertaken by a sovereign fund administered by the ministry of finance, supported by a strong governance structure and clear investment criteria that ensure that benefits accrue to both current and future generations.

30. The favorable growth outlook points to the importance of ensuring that fiscal policy does not over-stimulate domestic demand. A neutral fiscal stance for 2014 would be consistent with a moderate overall fiscal surplus, rather than the deficit envisaged in the draft budget. The authorities should give priority to adopting a MTFF to manage resource wealth and help guide fiscal policy, balancing intergenerational equity against immediate needs. Priority should also be given to exploring new natural gas reserves to offset the impact of the depletion of hydrocarbon resources projected for mid-2020. The success of these efforts hinges on establishing a clear, stable legal framework and a favorable business climate for private investment. More generally, such efforts would help leverage the authorities’ development strategy to industrialize the resource sector, diversify the economy, and boost competitiveness and productivity.

31. The Bolivian financial system remains solid and well capitalized, but the new Financial Services Law may create risks to financial stability. The law is appropriately focused on financial inclusion and productive development and contains various elements that, if effectively implemented, will help strengthen the safety net and the integrity of the financial system. However, the instruments chosen (interest rate caps and minimum credit quotas) could reduce the profitability and lending funds of financial institutions, over-leverage target beneficiaries, and complicate the conduct of monetary policy. Staff recommended the authorities to choose different instruments to achieve their goals, for example transparent fiscal transfers to financial institutions to subsidize lending to target beneficiaries.

32. It is proposed that the next Article IV consultation with Bolivia be held on the standard 12 month cycle.

Bolivia: Risk Assessment Matrix

Sources of risk	Up/Downside	Risk	Impact	Policy Response
Argentina and Brazil: Sharply weaker growth and/or policy spillovers	↓	M/H	H	Exchange rate flexibility. Use existing buffers from large international reserves. Given ample fiscal space, mobilize countercyclical fiscal policy.
Sustained decline in commodity prices	↓	L	M/H	Exchange rate flexibility. Large international reserves and government deposits at the central bank provide some buffer. Finalizing key economic laws, provided they improve Bolivia’s business climate, will increase the productivity of key sectors, i.e. mining and hydrocarbon.
Increased uncertainty about the policy framework	↓	H	M	Promptly finalize pending reforms of the Investment, Hydrocarbon, and Mining Laws. Adopt a fair and swift process for nationalized companies. Allow market-based signals to operate.
Decline in natural gas production	↓	L/M	M/H	Finalize legal reforms to the hydrocarbon sector, setting stable pricing and tax policies that are attractive for private investment.
Persistent second round effects from food supply shocks	↓	H	M	Accelerate the withdrawal of excess liquidity through open market operations. Macroprudential measures.
Stronger fiscal stimulus due to upcoming election cycle	↑	L	M	With the output gap already closed, fiscal stimulus would be detrimental to inflation and the external current account balance.

Bolivia: Risk Assessment Matrix

Sources of risk	Up/Downside	Risk	Impact	Policy Response
Argentina and Brazil: Sharply weaker growth and/or policy spillovers	↓	M/H	H	Exchange rate flexibility. Use existing buffers from large international reserves. Given ample fiscal space, mobilize countercyclical fiscal policy.
Sustained decline in commodity prices	↓	L	M/H	Exchange rate flexibility. Large international reserves and government deposits at the central bank provide some buffer. Finalizing key economic laws, provided they improve Bolivia’s business climate, will increase the productivity of key sectors, i.e. mining and hydrocarbon.
Increased uncertainty about the policy framework	↓	H	M	Promptly finalize pending reforms of the Investment, Hydrocarbon, and Mining Laws. Adopt a fair and swift process for nationalized companies. Allow market-based signals to operate.
Decline in natural gas production	↓	L/M	M/H	Finalize legal reforms to the hydrocarbon sector, setting stable pricing and tax policies that are attractive for private investment.
Persistent second round effects from food supply shocks	↓	H	M	Accelerate the withdrawal of excess liquidity through open market operations. Macroprudential measures.
Stronger fiscal stimulus due to upcoming election cycle	↑	L	M	With the output gap already closed, fiscal stimulus would be detrimental to inflation and the external current account balance.

Box 1.

Past Fund Policy Recommendations and Implementation

The 2012 Article IV Consultation focused on the appropriate policy mix to mitigate risks of overheating and on medium term challenges to achieving strong, sustained, and inclusive growth.

Monetary and exchange rate policy. Directors recommended that the central bank absorb part of the large excess liquidity in the banking sector to slow credit growth and seek a gradual increase in interest rates. A gradual move toward greater exchange rate flexibility would be facilitated as lower dollarization becomes entrenched and financial markets develop.

Amid sizable excess liquidity, the central bank started a gradual tightening of monetary conditions at the end of 2012 and reacted promptly with further measures in response to the food inflation shock in mid-2013. The Boliviano has remained virtually unchanged vis-à-vis the US dollar since late 2011.

Fiscal policy. Directors recommended aiming for a higher fiscal balance to offset strong private demand growth and strengthening the non-hydrocarbon balance over the medium term. They stressed the advantage of setting up a MTFF to manage resource wealth. Directors encouraged the authorities to limit the role of the central bank in financing public investment and to enhance the governance and accountability framework for public enterprises.

The overall fiscal surplus in 2012 was about 1 percent of GDP higher than envisaged at the time of the Article IV Consultation, but the surplus narrowed in 2013. The authorities have advanced with the preparation of medium term fiscal projections and medium term forecasts for key public enterprises. The authorized limits for central bank lending to public corporations were raised in 2013. The Public Enterprises Law is under discussion.

Financial sector. Directors recommended avoiding direct controls on the price and allocation of credit, while noting that plans to enhance the financial system safety net should help consolidate the strength of the banking sector. Staff welcomed the progress in adopting FSAP recommendations.

The new Financial Services Law contemplates setting floors on deposit rates, as well as ceilings on lending rates and quantitative lending targets for the productive sector and social housing. The law includes several elements aligned with international practices, including the establishment of a macroprudential oversight body, a credit registry, and a deposit guarantee scheme.

Structural policies. Directors highlighted the importance of improving the business environment to sustain high and stable growth, through the adoption of a legal framework for natural resources and private investment that ensures clear and stable rules and delineates the scope of public sector operations.

Legal reforms of key legislation, including on investment, hydrocarbon, mining and labor, are still pending. Uncertainty regarding expropriation and nationalization process continues to affect business confidence.

^{Box 2.}

Inflation Dynamics

Bolivia’s highly open and commodity dependent economy is very sensitive to inflationary pressures stemming from both external and domestic supply shocks. Spikes in commodity prices have come hand in hand with spikes in domestic headline inflation. Developments in 2008 and early 2011 are particularly noteworthy, with headline prices in Bolivia growing by double digits on the back of a surge in global food and fuel prices.

The pass-through from global food prices to both domestic food prices and to headline inflation is very high. Staff estimates suggest that over a 12 month period, a 1 percent shock to global food prices increases domestic food prices by 0.81 percent. In turn, a 1 percent increase in domestic food prices has a cumulative twelve month pass-through of 0.85 percent to headline inflation. To put this in perspective, the October 2011 World Economic Outlook finds the median pass-though in a group of 50 emerging markets to be 0.35 (international food price inflation to domestic food price inflation) and 0.40 (domestic food price inflation to headline inflation). The very large value of the parameters estimated for Bolivia are partly explained by the larger share of food products in Bolivia’s consumer price index,^¹ and a lower effectiveness to contain second round effects.

The exchange rate pass-through is high from a regional perspective. Based on a VAR model estimated for Bolivia, Chile, Paraguay, Peru and Uruguay,^² a proxy for the exchange rate pass-through is computed from the impulse response functions for the price level and the nominal effective exchange rate (NEER), derived from a shock to the exchange rate. The proxy is calculated as the cumulative impulse response of prices relative to that of the NEER. Results indicate that Bolivia’s short-run pass-through is large by regional standards, although it remains well below one. Also, the pass-through in Bolivia is more important at longer horizons, probably reflecting the high degree of openness of the economy and the high degree of dollarization of the financial system of the past year.

Exchange Rate Pass-Through

(In percent)

Source: Fund staff calculations.

Exchange Rate Pass-Through

(In percent)

	Bolivia	Chile	Pa raguay	Peru	Uruguay
2-months	2.5	1.3	5	1.9	3.5
6-months	11.8	5.2	13.8	13.8	12.3
12-months	23.2	10.6	21.9	18.4	17.2

Source: Fund staff calculations.

Exchange Rate Pass-Through

(In percent)

	Bolivia	Chile	Pa raguay	Peru	Uruguay
2-months	2.5	1.3	5	1.9	3.5
6-months	11.8	5.2	13.8	13.8	12.3
12-months	23.2	10.6	21.9	18.4	17.2

Source: Fund staff calculations.

¹/ The average food expenditure share in national consumption baskets of emerging markets is 34 percent (Catao, L. and R. Chang, “World Food Prices and Monetary Policy,” IMF Working Paper 10/161, Washington: International monetary Fund). In Bolivia, it is 39 percent. ²/ VAR with 2 lags, estimated in log-levels with monthly frequency during 2003–2013, including a total production index, CPI, policy rate, and NEER. Commodity prices, the US federal funds rate, and US industrial production are also included as controls.

^{Box 3.}

International Reserves Management

After the nationalization of the hydrocarbon sector in 2006, Bolivia’s public sector became the sole recipient of large natural gas exports receipts, resulting in substantial fiscal savings. As a self-insurance mechanism, and absent an institutional arrangement to manage this wealth, the windfall from these resources has been continuously deposited at the central bank. A managed exchange rate regime and a process of financial de-dollarization have also been important factors behind the accumulation of international reserves.

Bolivia’s international reserves level is currently more than adequate, vastly exceeding various metrics. Since 2009, in line with the government’s development strategy, the authorities have started managing reserves on the central bank balance sheet with a long term perspective. Under this premise, in recent years the central bank has been asked to lend to public enterprises and other development projects. This financing includes FINPRO, an investment fund, for USD $1.2 billion.

The central bank and FINPRO’s assets, and the returns they generate, could have important economic implications. It is therefore critical that the government carefully specify the setup and operations of FINPRO and explain these fully to the public. International best practices for the management of Sovereign Wealth Funds (SWFs) call for clear articles of agreement, which detail the role and responsibilities of a board of directors, management, monitoring, and audit requirements. Some countries go even further, by requiring independent and internationally reputable auditors. If spending stemming from these resources is allowed to take place outside the budget, issues of fiscal accounting and transparency could also emerge, which would undermine budgetary control, imply unequal treatment of different types of spending, and possibly lead to mismanagement of funds.^¹

Central Bank Credit to Public Corporations, as of November 2013

Source: Central Bank of Bolivia

Central Bank Credit to Public Corporations, as of November 2013

	Approved		Disbursed
	USD $ Billion	Percent of GDP	USD $ Billion	Percent of GDP
YPFB	2.0	6.8	0.9	3.1
ENDE	1.0	3.4	0.4	1.4
COMIBOL	0.9	3.0	0.1	0.4
EASBA	0.3	0.9	0.2	0.5
FINPRO	0.6	2.0	0.6	2.0
MEFP	0.5	1.7	0.0	0.0
Total	5.3	17.8	2.2	7.5

Source: Central Bank of Bolivia

Central Bank Credit to Public Corporations, as of November 2013

	Approved		Disbursed
	USD $ Billion	Percent of GDP	USD $ Billion	Percent of GDP
YPFB	2.0	6.8	0.9	3.1
ENDE	1.0	3.4	0.4	1.4
COMIBOL	0.9	3.0	0.1	0.4
EASBA	0.3	0.9	0.2	0.5
FINPRO	0.6	2.0	0.6	2.0
MEFP	0.5	1.7	0.0	0.0
Total	5.3	17.8	2.2	7.5

Source: Central Bank of Bolivia

Going forward, Bolivia should develop a mechanism to transform the reserves from the nonrenewable sector into sustainable and more stable future income. Proper management of these resources could achieve the government’s objective of spreading Bolivia’s wealth across generations, help mitigate possible boom-bust cycles, and maintain the competitiveness of the non-commodity sector. An investment fund, with clear operational rules and functioning within an appropriate government-wide framework, could be an important tool for the government to manage its wealth from non-renewable resources and as an insurance mechanism from volatile commodity prices.

¹/ The International Working Group of SWFs published a set of 24 voluntary principles on best practices in governance of SWFs. For a detailed description of the Santiago Principles see (http://www.iwg-swf.org/pubs/gapplist.htm).

Table 1.

Bolivia: Selected Economic and Financial Indicators

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, National Institute of Statistics, UDAPE, the World Bank, and Fund staff calculations.

^{^1/}The discrepancy between the current account and the savings-investment balances reflects methodological differences. For the projection years, the discrepancy is assumed to remain constant in dollar value.

^{^2/}Includes nationalization costs and net lending.

^{^3/}Excludes reserves from the Latin American Reserve Fund (FLAR) and Offshore Liquidity Requirements (RAL).

^{^4/}All foreign assets valued at market prices.

^{^5/}Official (buy) exchange rate.

Table 1.

Bolivia: Selected Economic and Financial Indicators

I. Social and Demographic Indicators
GDP per capita (U.S. dollars, 2012)					2,514		Poverty headcount ratio (percent of population, 2009)							50.6
Polpulation (millions, 2012)					10.8		Gini index (2008)							56.3
life expectancy at birth (years, 2011)					67		Adult literacy rate (percent, 2010)							91.2
Infant mortality rate (per thousand, 2010)					54.2		Net primary education enrollment rate (2010)							88.0
II. Economic Indicators
									Projections
				2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Income and prices				(Annual percentage changes)
	Real GDP			6.1	3.4	4.1	5.2	5.2	6.7	5.4	5.0	5.0	5.0	5.0
	CPI inflation (end-of-period)			11.8	0.3	7.2	6.9	4.5	7.5	5.5	5.2	5.0	5.0	5.0
				(In percent of GDP, unless otherwise indicated)
Investment and savings
	Total investment			17.6	17.0	17.0	19.6	17.7	19.2	19.4	18.7	18.3	18.4	17.5
		Public sector		9.8	9.5	9.5	10.5	10.4	11.3	11.5	10.7	10.3	10.2	10.2
		Private sector (includes stockbuilding)		7.8	7.5	7.6	9.0	7.3	7.9	7.9	8.0	8.0	8.2	7.3
Gross domestic savings				24.5	19.8	23.9	25.3	27.1	25.7	24.5	22.6	21.5	21.3	21.1
	Gross national savings			29.0	22.9	25.0	25.3	25.7	23.5	22.7	20.8	19.9	19.6	19.4
		Public sector		15.7	9.9	11.1	11.4	12.2	12.0	11.0	10.6	10.1	9.8	9.5
		Private sector		13.3	13.0	13.9	14.0	13.6	11.5	11.7	10.2	9.7	9.8	10.0
	Saving/investment balances ¹/			11.4	5.9	8.0	5.8	8.1	4.3	3.3	2.1	1.5	1.2	2.0
		Public sector		5.1	0.4	1.7	0.8	1.8	0.6	-0.4	-0.1	-0.1	-0.4	-0.7
		Private sector		5.5	5.5	6.3	4.9	6.3	3.6	3.7	2.2	1.7	1.6	2.7
Combined public sector
	Revenues and grants			38.9	35.8	33.2	36.2	37.9	38.6	37.3	36.4	35.6	35.0	34.4
		Of which: Hydrocarbon related revenue		13.4	11.3	10.2	11.4	13.0	13.1	12.2	11.4	10.7	10.2	9.9
	Expenditure			35.3	35.8	31.5	35.4	36.1	38.0	37.7	36.5	35.8	35.4	35.1
		Current		26.2	25.5	22.8	24.2	25.1	26.0	25.6	25.2	24.9	24.6	24.4
		Capital ²/		9.2	10.3	8.7	11.2	11.0	12.0	12.1	11.4	10.9	10.8	10.7
	Overall balance after nationalization costs			2.8	0.2	1.7	0.8	1.8	0.6	-0.4	-0.1	-0.1	-0.4	-0.7
		Of which: Non-hydrocarbon balance, before nationalization costs		-7.5	-10.3	-8.1	-9.6	-9.7	-10.2	-10.4	-10.1	-9.5	-9.3	-9.3
	Total net NFPS debt			20.6	23.1	18.4	14.4	11.1	9.5	8.9	8.3	7.7	7.4	7.4
	Total gross NFPS debt			37.2	40.0	38.5	34.7	33.4	32.5	29.7	27.8	25.9	24.1	22.3
External sector
	Current account 1/			11.9	4.3	3.9	0.3	7.8	4.0	3.1	1.9	1.4	1.1	0.9
		Merchandise exports		38.9	28.4	32.4	34.7	41.3	39.1	38.2	36.6	35.0	33.2	31.2
			Of which: natural gas	18.8	11.3	14.1	16.1	20.1	18.4	16.7	14.9	13.8	12.2	11.5
		Merchandise imports		30.3	26.0	28.3	32.9	30.4	31.0	31.7	31.5	30.6	29.2	27.4
	Capital and financial account			2.3	-1.1	0.8	8.6	-1.5	-2.0	1.6	2.0	2.1	2.4	2.5
			Of which: direct investment net	3.0	2.4	3.4	3.6	3.9	3.5	3.0	3.0	3.0	3.0	3.0
	Overall balance of payments			14.1	3.1	4.6	9.0	6.3	2.0	4.7	3.9	3.5	3.5	3.4
	Terms of trade index (percent change)			4.4	-23.0	10.6	12.8	20.6	-1.6	-0.4	-1.0	-1.0	-0.5	-0.6
	Net Central Bank foreign reserves ³/ ⁴/
		In millions of U.S. dollars		7,722	8,580	9,730	12,019	13,927	14,534	16,089	17,502	18,896	20,432	22,074
		In percent of broad money		85.9	79.8	80.0	83.0	80.0	71.3	68.0	65.6	63.3	61.0	58.9
		Exchange rates ⁵/
		Bolivianos/U.S. dollar (end-of-period)		6.97	6.97	6.94	6.86	6.86	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
		REER, period average (percent change)		14.0	10.2	-4.2	3.0	6.3	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Money and credit				(Annual percentage changes, unless otherwise indicated)
	Credit to private sector (percent of GDP)			31.5	34.0	36.0	36.8	39.0	42.1	42.5	43.4	44.2	45.1	45.8
	Broad money (percent change)			19.9	19.7	12.5	17.7	20.2	17.2	15.9	12.8	12.0	12.1	12.0
	Interest rates (percent, end-of-period)
		Deposits (effective rate)		5.8	2.1	0.9	1.7	1.2	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
		Lending (effective rate)		13.9	9.1	10.4	10.8	10.6	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
U.S. dollar and dollar-indexed deposits (in percent of total deposits)				53.0	52.6	43.8	34.5	26.3	23.8	21.3	18.8	16.3	13.8	11.3
U.S. dollar and dollar indexed credit (in percent of total credit)				59.3	49.5	38.6	30.7	21.3	20.1	18.9	17.7	16.5	15.3	14.1
*Memorandum items:*
	Nominal GDP (in billions of U.S. dollars)			16.8	17.5	19.8	24.1	27.2	29.8	33.3	36.4	40.0	44.0	48.5
	Oil prices (in U.S. dollars per barrel)			97.0	61.8	79.0	104.0	105.0	104.5	101.3	95.3	91.2	88.5	88.5

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, National Institute of Statistics, UDAPE, the World Bank, and Fund staff calculations.

^{^2/}Includes nationalization costs and net lending.

^{^3/}Excludes reserves from the Latin American Reserve Fund (FLAR) and Offshore Liquidity Requirements (RAL).

^{^4/}All foreign assets valued at market prices.

^{^5/}Official (buy) exchange rate.

Table 1.

Bolivia: Selected Economic and Financial Indicators

I. Social and Demographic Indicators
GDP per capita (U.S. dollars, 2012)					2,514		Poverty headcount ratio (percent of population, 2009)							50.6
Polpulation (millions, 2012)					10.8		Gini index (2008)							56.3
life expectancy at birth (years, 2011)					67		Adult literacy rate (percent, 2010)							91.2
Infant mortality rate (per thousand, 2010)					54.2		Net primary education enrollment rate (2010)							88.0
II. Economic Indicators
									Projections
				2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Income and prices				(Annual percentage changes)
	Real GDP			6.1	3.4	4.1	5.2	5.2	6.7	5.4	5.0	5.0	5.0	5.0
	CPI inflation (end-of-period)			11.8	0.3	7.2	6.9	4.5	7.5	5.5	5.2	5.0	5.0	5.0
				(In percent of GDP, unless otherwise indicated)
Investment and savings
	Total investment			17.6	17.0	17.0	19.6	17.7	19.2	19.4	18.7	18.3	18.4	17.5
		Public sector		9.8	9.5	9.5	10.5	10.4	11.3	11.5	10.7	10.3	10.2	10.2
		Private sector (includes stockbuilding)		7.8	7.5	7.6	9.0	7.3	7.9	7.9	8.0	8.0	8.2	7.3
Gross domestic savings				24.5	19.8	23.9	25.3	27.1	25.7	24.5	22.6	21.5	21.3	21.1
	Gross national savings			29.0	22.9	25.0	25.3	25.7	23.5	22.7	20.8	19.9	19.6	19.4
		Public sector		15.7	9.9	11.1	11.4	12.2	12.0	11.0	10.6	10.1	9.8	9.5
		Private sector		13.3	13.0	13.9	14.0	13.6	11.5	11.7	10.2	9.7	9.8	10.0
	Saving/investment balances ¹/			11.4	5.9	8.0	5.8	8.1	4.3	3.3	2.1	1.5	1.2	2.0
		Public sector		5.1	0.4	1.7	0.8	1.8	0.6	-0.4	-0.1	-0.1	-0.4	-0.7
		Private sector		5.5	5.5	6.3	4.9	6.3	3.6	3.7	2.2	1.7	1.6	2.7
Combined public sector
	Revenues and grants			38.9	35.8	33.2	36.2	37.9	38.6	37.3	36.4	35.6	35.0	34.4
		Of which: Hydrocarbon related revenue		13.4	11.3	10.2	11.4	13.0	13.1	12.2	11.4	10.7	10.2	9.9
	Expenditure			35.3	35.8	31.5	35.4	36.1	38.0	37.7	36.5	35.8	35.4	35.1
		Current		26.2	25.5	22.8	24.2	25.1	26.0	25.6	25.2	24.9	24.6	24.4
		Capital ²/		9.2	10.3	8.7	11.2	11.0	12.0	12.1	11.4	10.9	10.8	10.7
	Overall balance after nationalization costs			2.8	0.2	1.7	0.8	1.8	0.6	-0.4	-0.1	-0.1	-0.4	-0.7
		Of which: Non-hydrocarbon balance, before nationalization costs		-7.5	-10.3	-8.1	-9.6	-9.7	-10.2	-10.4	-10.1	-9.5	-9.3	-9.3
	Total net NFPS debt			20.6	23.1	18.4	14.4	11.1	9.5	8.9	8.3	7.7	7.4	7.4
	Total gross NFPS debt			37.2	40.0	38.5	34.7	33.4	32.5	29.7	27.8	25.9	24.1	22.3
External sector
	Current account 1/			11.9	4.3	3.9	0.3	7.8	4.0	3.1	1.9	1.4	1.1	0.9
		Merchandise exports		38.9	28.4	32.4	34.7	41.3	39.1	38.2	36.6	35.0	33.2	31.2
			Of which: natural gas	18.8	11.3	14.1	16.1	20.1	18.4	16.7	14.9	13.8	12.2	11.5
		Merchandise imports		30.3	26.0	28.3	32.9	30.4	31.0	31.7	31.5	30.6	29.2	27.4
	Capital and financial account			2.3	-1.1	0.8	8.6	-1.5	-2.0	1.6	2.0	2.1	2.4	2.5
			Of which: direct investment net	3.0	2.4	3.4	3.6	3.9	3.5	3.0	3.0	3.0	3.0	3.0
	Overall balance of payments			14.1	3.1	4.6	9.0	6.3	2.0	4.7	3.9	3.5	3.5	3.4
	Terms of trade index (percent change)			4.4	-23.0	10.6	12.8	20.6	-1.6	-0.4	-1.0	-1.0	-0.5	-0.6
	Net Central Bank foreign reserves ³/ ⁴/
		In millions of U.S. dollars		7,722	8,580	9,730	12,019	13,927	14,534	16,089	17,502	18,896	20,432	22,074
		In percent of broad money		85.9	79.8	80.0	83.0	80.0	71.3	68.0	65.6	63.3	61.0	58.9
		Exchange rates ⁵/
		Bolivianos/U.S. dollar (end-of-period)		6.97	6.97	6.94	6.86	6.86	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
		REER, period average (percent change)		14.0	10.2	-4.2	3.0	6.3	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Money and credit				(Annual percentage changes, unless otherwise indicated)
	Credit to private sector (percent of GDP)			31.5	34.0	36.0	36.8	39.0	42.1	42.5	43.4	44.2	45.1	45.8
	Broad money (percent change)			19.9	19.7	12.5	17.7	20.2	17.2	15.9	12.8	12.0	12.1	12.0
	Interest rates (percent, end-of-period)
		Deposits (effective rate)		5.8	2.1	0.9	1.7	1.2	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
		Lending (effective rate)		13.9	9.1	10.4	10.8	10.6	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
U.S. dollar and dollar-indexed deposits (in percent of total deposits)				53.0	52.6	43.8	34.5	26.3	23.8	21.3	18.8	16.3	13.8	11.3
U.S. dollar and dollar indexed credit (in percent of total credit)				59.3	49.5	38.6	30.7	21.3	20.1	18.9	17.7	16.5	15.3	14.1
*Memorandum items:*
	Nominal GDP (in billions of U.S. dollars)			16.8	17.5	19.8	24.1	27.2	29.8	33.3	36.4	40.0	44.0	48.5
	Oil prices (in U.S. dollars per barrel)			97.0	61.8	79.0	104.0	105.0	104.5	101.3	95.3	91.2	88.5	88.5

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, National Institute of Statistics, UDAPE, the World Bank, and Fund staff calculations.

^{^2/}Includes nationalization costs and net lending.

^{^3/}Excludes reserves from the Latin American Reserve Fund (FLAR) and Offshore Liquidity Requirements (RAL).

^{^4/}All foreign assets valued at market prices.

^{^5/}Official (buy) exchange rate.

Table 2.

Bolivia: Operations of the Combined Public Sector ^{^1/}

(In percent of GDP, unless otherwise indicated)

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

^{^1/}The operation of mixed-ownership companies, primarily in the telecommunications, electricity and hydrocarbon sectors, are not included.

^{^2/}Includes pensions, cash transfers to households, and social investment programs (previously classified as capital expenditure).

^{^3/}The authorities’ programs of social investment, including school breakfast, recurrent costs on basic sanitation and social management, are reclassified to current spending.

^{^4/}Includes net lending.

^{^5/}Overall balance minus hydrocarbon related balance.

^{^6/}IMF staff’s definition: overall balance excluding subnational governments, public enterprises and the Central Bank.

^{^7/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of state oil/gas company (YPFB).

^{^8/}Hydrocarbon related revenues minus YPFB capital expenditures.

Table 2.

Bolivia: Operations of the Combined Public Sector ^{^1/}

(In percent of GDP, unless otherwise indicated)

										Projections
					2008	2009	2010	2011	2012	2013	2014	2015
Revenue					38.9	35.8	33.2	36.2	37.9	38.6	37.3	36.4
	Taxes				28.5	26.9	26.3	28.9	31.8	33.0	31.5	30.8
		IDH and royalties			8.5	8.3	7.7	8.3	10.4	10.8	9.7	9.2
		Direct taxes			4.5	4.7	4.6	5.5	5.7	6.2	6.1	6.1
			o/w: Corporate income tax		3.7	4.0	3.8	4.6	5.0	5.5	5.5	5.5
		Indirect taxes			15.5	13.9	14.0	15.2	15.8	16.1	15.7	15.6
			o/w: VAT		7.4	7.0	7.2	8.1	8.7	9.1	8.8	8.7
			o/w: Excise tax on fuel		2.1	1.5	1.6	1.5	1.3	1.3	1.3	1.2
	Grants				1.2	1.2	1.1	0.8	0.7	0.5	0.5	0.5
	Other revenue				9.1	7.7	5.8	6.5	5.4	5.1	5.2	5.1
		Nontax revenue			3.0	4.7	3.4	3.0	2.6	2.7	2.7	2.7
		Public enterprises operating balance			4.9	3.0	2.5	3.2	2.6	2.4	2.4	2.3
		Central bank operating balance			1.2	0.1	-0.1	0.2	0.1	0.0	0.1	0.2
Expenditure					35.3	35.8	31.5	35.4	36.1	38.0	37.7	36.5
	Expense				26.2	25.5	22.8	24.2	25.1	26.0	25.6	25.2
		Compensation of employees			8.7	10.2	9.5	9.3	9.0	9.3	9.3	9.3
		Purchases of goods and services			2.2	2.6	2.2	3.0	2.1	2.2	2.2	2.2
		Interest			2.0	1.6	1.4	1.2	1.0	1.1	0.9	0.8
			Domestic		1.4	1.3	1.1	1.0	0.8	0.7	0.7	0.6
			Foreign		0.6	0.4	0.3	0.2	0.2	0.3	0.2	0.2
		Subsidies			3.5	1.2	0.9	2.1	3.1	3.4	3.1	2.8
		Social benefits ²/			7.9	8.4	7.8	7.9	8.8	8.9	9.0	9.0
		Other expense			1.8	1.4	1.1	0.7	1.1	1.1	1.1	1.1
			Other		0.2	1.1	1.1	0.7	1.1	1.1	1.1	1.1
			Nationalization cost		1.5	0.3	0.0	0.0	0.0	0.0	0.0	0.0
	Net acquisition of nonfinancial assets ³/				9.2	10.3	8.7	11.2	11.0	12.0	12.1	11.4
		o/w: Public Enterprises			2.0	1.2	0.9	1.9	2.8	3.6	3.5	2.7
Gross operating balance					12.7	10.3	10.4	12.0	12.7	12.6	11.7	11.2
Net lending/borrowing (overall balance)					3.6	0.0	1.7	0.8	1.8	0.6	-0.4	-0.1
Net financial transactions					3.6	0.2	1.7	0.8	1.8	0.6	-0.4	-0.1
	Net acquisition of financial assets ⁴/				0.8	0.0	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
	Net incurrence of liabilities				-2.8	-0.2	-1.7	-0.8	-1.8	-0.6	0.4	0.1
		External			1.3	1.0	1.0	1.8	2.3	2.0	0.6	0.6
			Disbursements		3.5	3.1	4.1	4.7	5.6	4.1	2.3	2.1
			Amortizations		-2.1	-2.1	-3.0	-2.8	-3.2	-2.1	-1.6	-1.5
			Other external		0.0	0.0	0.0	-0.1	0.0	0.0	0.0	0.0
		Domestic			-4.1	-1.3	-2.7	-2.6	-4.1	-2.6	-0.2	-0.5
			Banking system		-5.5	-0.2	-5.3	-3.5	-3.4	-2.8	-0.3	-1.1
				Central Bank	-5.0	-0.4	-4.9	-2.7	-3.4	-3.3	-1.2	-1.9
				Commercial banks	-0.5	0.2	-0.4	-0.9	-0.1	0.5	0.9	0.8
			Pension funds		0.0	0.0	0.0	0.0	-0.7	0.0	0.0	0.0
			Other domestic		1.4	-1.1	2.6	0.9	-0.7	0.2	0.2	0.6
Memorandum items:
Primary balance					5.5	1.7	3.1	2.1	2.8	1.7	0.4	0.7
Overall balance before nationalization					5.1	0.4	1.7	0.8	1.8	0.6	-0.4	-0.1
	o/w Non-hydrocarbon balance ⁵/				-7.5	-10.3	-8.1	-9.6	-9.7	-10.2	-10.4	-10.1
Overall balance of the central government ⁶/					-2.2	-1.2	-1.8	-4.0	0.0	n.a.	n.a.	n.a.
Overall balance of the central administration					1.2	-0.8	0.0	-0.2	1.0	n.a.	n.a.	n.a.
Overall balance of subnational governments					0.5	-0.8	1.8	2.6	1.7	n.a.	n.a.	n.a.
	Prefectures				0.2	-0.4	0.6	1.1	0.8	n.a.	n.a.	n.a.
	Municipalities				0.3	-0.4	1.2	1.5	0.9	n.a.	n.a.	n.a.
Hydrocarbon related revenue ⁷/					13.4	11.3	10.2	11.4	13.0	13.1	12.2	11.4
Hydrocarbon balance ⁸/					13.4	10.1	9.8	10.4	11.5	10.8	10.0	10.0
Nonfinancial public sector gross public debt					37.2	40.0	38.5	34.7	33.4	32.5	29.7	27.8
	o/w gross foreign public debt				14.5	15.6	15.4	14.8	15.7	16.4	15.2	14.5
Nominal GDP in billions of Bolivianos					120.7	121.7	137.9	166.1	186.8	204.4	228.3	249.8

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

^{^1/}The operation of mixed-ownership companies, primarily in the telecommunications, electricity and hydrocarbon sectors, are not included.

^{^2/}Includes pensions, cash transfers to households, and social investment programs (previously classified as capital expenditure).

^{^3/}The authorities’ programs of social investment, including school breakfast, recurrent costs on basic sanitation and social management, are reclassified to current spending.

^{^4/}Includes net lending.

^{^5/}Overall balance minus hydrocarbon related balance.

^{^6/}IMF staff’s definition: overall balance excluding subnational governments, public enterprises and the Central Bank.

^{^7/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of state oil/gas company (YPFB).

^{^8/}Hydrocarbon related revenues minus YPFB capital expenditures.

Table 2.

Bolivia: Operations of the Combined Public Sector ^{^1/}

(In percent of GDP, unless otherwise indicated)

										Projections
					2008	2009	2010	2011	2012	2013	2014	2015
Revenue					38.9	35.8	33.2	36.2	37.9	38.6	37.3	36.4
	Taxes				28.5	26.9	26.3	28.9	31.8	33.0	31.5	30.8
		IDH and royalties			8.5	8.3	7.7	8.3	10.4	10.8	9.7	9.2
		Direct taxes			4.5	4.7	4.6	5.5	5.7	6.2	6.1	6.1
			o/w: Corporate income tax		3.7	4.0	3.8	4.6	5.0	5.5	5.5	5.5
		Indirect taxes			15.5	13.9	14.0	15.2	15.8	16.1	15.7	15.6
			o/w: VAT		7.4	7.0	7.2	8.1	8.7	9.1	8.8	8.7
			o/w: Excise tax on fuel		2.1	1.5	1.6	1.5	1.3	1.3	1.3	1.2
	Grants				1.2	1.2	1.1	0.8	0.7	0.5	0.5	0.5
	Other revenue				9.1	7.7	5.8	6.5	5.4	5.1	5.2	5.1
		Nontax revenue			3.0	4.7	3.4	3.0	2.6	2.7	2.7	2.7
		Public enterprises operating balance			4.9	3.0	2.5	3.2	2.6	2.4	2.4	2.3
		Central bank operating balance			1.2	0.1	-0.1	0.2	0.1	0.0	0.1	0.2
Expenditure					35.3	35.8	31.5	35.4	36.1	38.0	37.7	36.5
	Expense				26.2	25.5	22.8	24.2	25.1	26.0	25.6	25.2
		Compensation of employees			8.7	10.2	9.5	9.3	9.0	9.3	9.3	9.3
		Purchases of goods and services			2.2	2.6	2.2	3.0	2.1	2.2	2.2	2.2
		Interest			2.0	1.6	1.4	1.2	1.0	1.1	0.9	0.8
			Domestic		1.4	1.3	1.1	1.0	0.8	0.7	0.7	0.6
			Foreign		0.6	0.4	0.3	0.2	0.2	0.3	0.2	0.2
		Subsidies			3.5	1.2	0.9	2.1	3.1	3.4	3.1	2.8
		Social benefits ²/			7.9	8.4	7.8	7.9	8.8	8.9	9.0	9.0
		Other expense			1.8	1.4	1.1	0.7	1.1	1.1	1.1	1.1
			Other		0.2	1.1	1.1	0.7	1.1	1.1	1.1	1.1
			Nationalization cost		1.5	0.3	0.0	0.0	0.0	0.0	0.0	0.0
	Net acquisition of nonfinancial assets ³/				9.2	10.3	8.7	11.2	11.0	12.0	12.1	11.4
		o/w: Public Enterprises			2.0	1.2	0.9	1.9	2.8	3.6	3.5	2.7
Gross operating balance					12.7	10.3	10.4	12.0	12.7	12.6	11.7	11.2
Net lending/borrowing (overall balance)					3.6	0.0	1.7	0.8	1.8	0.6	-0.4	-0.1
Net financial transactions					3.6	0.2	1.7	0.8	1.8	0.6	-0.4	-0.1
	Net acquisition of financial assets ⁴/				0.8	0.0	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
	Net incurrence of liabilities				-2.8	-0.2	-1.7	-0.8	-1.8	-0.6	0.4	0.1
		External			1.3	1.0	1.0	1.8	2.3	2.0	0.6	0.6
			Disbursements		3.5	3.1	4.1	4.7	5.6	4.1	2.3	2.1
			Amortizations		-2.1	-2.1	-3.0	-2.8	-3.2	-2.1	-1.6	-1.5
			Other external		0.0	0.0	0.0	-0.1	0.0	0.0	0.0	0.0
		Domestic			-4.1	-1.3	-2.7	-2.6	-4.1	-2.6	-0.2	-0.5
			Banking system		-5.5	-0.2	-5.3	-3.5	-3.4	-2.8	-0.3	-1.1
				Central Bank	-5.0	-0.4	-4.9	-2.7	-3.4	-3.3	-1.2	-1.9
				Commercial banks	-0.5	0.2	-0.4	-0.9	-0.1	0.5	0.9	0.8
			Pension funds		0.0	0.0	0.0	0.0	-0.7	0.0	0.0	0.0
			Other domestic		1.4	-1.1	2.6	0.9	-0.7	0.2	0.2	0.6
Memorandum items:
Primary balance					5.5	1.7	3.1	2.1	2.8	1.7	0.4	0.7
Overall balance before nationalization					5.1	0.4	1.7	0.8	1.8	0.6	-0.4	-0.1
	o/w Non-hydrocarbon balance ⁵/				-7.5	-10.3	-8.1	-9.6	-9.7	-10.2	-10.4	-10.1
Overall balance of the central government ⁶/					-2.2	-1.2	-1.8	-4.0	0.0	n.a.	n.a.	n.a.
Overall balance of the central administration					1.2	-0.8	0.0	-0.2	1.0	n.a.	n.a.	n.a.
Overall balance of subnational governments					0.5	-0.8	1.8	2.6	1.7	n.a.	n.a.	n.a.
	Prefectures				0.2	-0.4	0.6	1.1	0.8	n.a.	n.a.	n.a.
	Municipalities				0.3	-0.4	1.2	1.5	0.9	n.a.	n.a.	n.a.
Hydrocarbon related revenue ⁷/					13.4	11.3	10.2	11.4	13.0	13.1	12.2	11.4
Hydrocarbon balance ⁸/					13.4	10.1	9.8	10.4	11.5	10.8	10.0	10.0
Nonfinancial public sector gross public debt					37.2	40.0	38.5	34.7	33.4	32.5	29.7	27.8
	o/w gross foreign public debt				14.5	15.6	15.4	14.8	15.7	16.4	15.2	14.5
Nominal GDP in billions of Bolivianos					120.7	121.7	137.9	166.1	186.8	204.4	228.3	249.8

Sources: Ministry of Economy and Public Finances and Fund staff calculations.

^{^1/}The operation of mixed-ownership companies, primarily in the telecommunications, electricity and hydrocarbon sectors, are not included.

^{^2/}Includes pensions, cash transfers to households, and social investment programs (previously classified as capital expenditure).

^{^3/}The authorities’ programs of social investment, including school breakfast, recurrent costs on basic sanitation and social management, are reclassified to current spending.

^{^4/}Includes net lending.

^{^5/}Overall balance minus hydrocarbon related balance.

^{^6/}IMF staff’s definition: overall balance excluding subnational governments, public enterprises and the Central Bank.

^{^7/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of state oil/gas company (YPFB).

^{^8/}Hydrocarbon related revenues minus YPFB capital expenditures.

Table 3.

Bolivia: Summary Balance of Payments

(In millions of U.S. dollars, unless otherwise indicated)

Sources: Central Bank of Bolivia, National Institute of Statistics and Fund staff calculations.

Table 3.

Bolivia: Summary Balance of Payments

(In millions of U.S. dollars, unless otherwise indicated)

										Projections
						2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Current account						746	766	77	2,127	1,205	1,026	690	549	467	436
	Trade balance					415	812	431	2,964	2,394	2,175	1,872	1,760	1,785	1,835
		Exports, f.o.b.				4,960	6,402	8,358	11,233	11,644	12,714	13,334	13,982	14,620	15,077
		Exports, c.i.f.				5,462	7,006	9,213	11,968	12,331	13,369	13,969	14,598	15,262	15,720
			Natural gas			1,968	2,798	3,885	5,479	5,483	5,573	5,437	5,506	5,387	5,555
				Of which: To Brazil		1,587	2,353	2,899	3,541	3,482	3,322	3,125	2,990	2,901	2,992
					volume (mmm3 p/day)	22.2	26.9	26.9	29.5	30.5	30.0	30.0	30.0	30.0	31.0
					price ($/mmbtu)	5.5	6.8	8.4	9.3	8.9	8.6	8.1	7.7	7.5	7.3
				To Argentina		380	445	986	1,887	2,001	2,251	2,312	2,515	2,486	2,566
					volume (mmm3 p/day)	4.6	4.8	7.5	13.5	15.0	17.4	19.0	21.6	22.0	23.2
					price ($/mmbtu)	6.3	7.1	10.2	10.8	10.3	10.0	9.4	9.0	8.8	8.6
			Mining			1,847	2,398	3,429	3,681	3,626	3,686	3,766	3,833	4,201	4,689
			Soy - related			484	496	628	968	960	902	872	894	910	939
			Other			1,163	1,315	1,271	1,840	2,263	3,207	3,894	4,364	4,765	3,894
		Imports, c.i.f.				-4,545	-5,590	-7,927	-8,269	-9,250	-10,539	-11,462	-12,222	-12,834	-13,243
	Services (net)					-209	-263	-369	-473	-532	-537	-542	-548	-568	-611
	Income (net)					-674	-864	-1,161	-1,629	-1,909	-1,916	-2,001	-2,117	-2,242	-2,327
	Transfers (net)					1,213	1,081	1,175	1,266	1,252	1,304	1,362	1,453	1,491	1,541
Capital and financial account						-199	149	2,083	-416	-598	529	723	845	1,070	1,205
	Capital transfers					111	-7	6	6	0	0	0	0	0	0
	Direct investment (net)					426	672	859	1,060	1,043	999	1,092	1,200	1,320	1,451
		Gross investment				687	915	954	1,274	1,272	1,249	1,342	1,450	1,570	1,727
		Disinvestment and investment abroad				-264	-293	-180	-229	-229	-250	-250	-250	-250	-275
	Portfolio investment (net)					-154	90	186	-360	-510	-510	-510	-510	0	0
	Public sector					382	255	537	651	603	211	229	249	254	258
		Disbursements				546	818	777	1,515	1,236	756	776	796	816	831
		Amortization				-385	-549	-181	-826	-633	-545	-547	-546	-562	-573
	Fin system net foreign assets, excl. liquid asset requirement					-285	125	-243	-578	-1,700	-136	-53	-60	-470	-300
	Nonbank private sector loans					-88	-213	-60	0	0	0	0	0	0	0
	Other, including errors and omissions					-591	-569	1,381	-930	-34	-34	-34	-34	-34	-34
		Other				-200	190	275	20	-34	-34	-34	-34	-34	-34
		Errors and omissions				-392	-759	1,107	-950	0	0	0	0	0	0
Overall balance						547	914	2,160	1,712	607	1,555	1,414	1,393	1,537	1,642
Financing						-547	-923	-2,160	-1,712	-607	-1,555	-1,414	-1,393	-1,537	-1,642
Memorandum items:
	Current account (in percent of GDP)					4.3	3.9	0.3	7.8	4.0	3.1	1.9	1.4	1.1	0.9
	Merchandise exports (in percent of GDP)					28.4	32.4	34.7	41.3	39.1	38.2	36.6	35.0	33.2	31.2
	Merchandise imports (in percent of GDP)					-26.0	-28.3	-32.9	-30.4	-31.0	-31.7	-31.5	-30.6	-29.2	-27.4
	Net official reserves (end-of-period)					8,580	9,730	12,019	13,927	14,534	16,089	17,502	18,896	20,432	22,074
		(in months of imports of goods and services)				19.5	17.6	15.7	17.3	16.3	16.1	16.3	16.6	17.1	17.9
	Foreign direct investment (in percent of GDP)					2.4	3.4	3.6	3.9	3.5	3.0	3.0	3.0	3.0	3.0
	GDP (in millions of U.S. dollars)					17,464	19,786	24,121	27,232	29,792	33,285	36,409	39,984	43,984	48,497
	Capital account (in percent of GDP)					-1.1	0.8	8.6	-1.5	-2.0	1.6	2.0	2.1	2.4	2.5
	Errors and omissions (in percent of GDP)					-2.2	-3.8	4.6	-3.5	0.0	0.0	0.0	0.0	0.0	0.0
	Export value growth (in percent)					-24.0	29.1	30.6	34.4	3.7	9.2	4.9	4.9	4.6	3.1
	Export volume growth (in percent)					4.2	3.3	3.7	11.8	2.8	8.5	5.2	5.1	4.5	3.2
	Export prices growth (in percent)					-27.1	25.0	25.9	20.2	0.8	0.7	-0.3	-0.2	0.1	0.0
	Import value growth (in percent)					-12.7	26.1	41.8	4.3	8.8	13.8	11.3	7.1	4.7	4.4
	Import volume growth (in percent)					-7.8	11.5	27.0	4.6	6.2	12.7	10.5	6.2	4.1	3.8
	Import prices growth (in percent)					-5.3	13.0	11.6	-0.3	2.4	1.0	0.7	0.8	0.6	0.6

Sources: Central Bank of Bolivia, National Institute of Statistics and Fund staff calculations.

Table 3.

Bolivia: Summary Balance of Payments

(In millions of U.S. dollars, unless otherwise indicated)

										Projections
						2009	2010	2011	2012	2013	2014	2015	2016	2017	2018
Current account						746	766	77	2,127	1,205	1,026	690	549	467	436
	Trade balance					415	812	431	2,964	2,394	2,175	1,872	1,760	1,785	1,835
		Exports, f.o.b.				4,960	6,402	8,358	11,233	11,644	12,714	13,334	13,982	14,620	15,077
		Exports, c.i.f.				5,462	7,006	9,213	11,968	12,331	13,369	13,969	14,598	15,262	15,720
			Natural gas			1,968	2,798	3,885	5,479	5,483	5,573	5,437	5,506	5,387	5,555
				Of which: To Brazil		1,587	2,353	2,899	3,541	3,482	3,322	3,125	2,990	2,901	2,992
					volume (mmm3 p/day)	22.2	26.9	26.9	29.5	30.5	30.0	30.0	30.0	30.0	31.0
					price ($/mmbtu)	5.5	6.8	8.4	9.3	8.9	8.6	8.1	7.7	7.5	7.3
				To Argentina		380	445	986	1,887	2,001	2,251	2,312	2,515	2,486	2,566
					volume (mmm3 p/day)	4.6	4.8	7.5	13.5	15.0	17.4	19.0	21.6	22.0	23.2
					price ($/mmbtu)	6.3	7.1	10.2	10.8	10.3	10.0	9.4	9.0	8.8	8.6
			Mining			1,847	2,398	3,429	3,681	3,626	3,686	3,766	3,833	4,201	4,689
			Soy - related			484	496	628	968	960	902	872	894	910	939
			Other			1,163	1,315	1,271	1,840	2,263	3,207	3,894	4,364	4,765	3,894
		Imports, c.i.f.				-4,545	-5,590	-7,927	-8,269	-9,250	-10,539	-11,462	-12,222	-12,834	-13,243
	Services (net)					-209	-263	-369	-473	-532	-537	-542	-548	-568	-611
	Income (net)					-674	-864	-1,161	-1,629	-1,909	-1,916	-2,001	-2,117	-2,242	-2,327
	Transfers (net)					1,213	1,081	1,175	1,266	1,252	1,304	1,362	1,453	1,491	1,541
Capital and financial account						-199	149	2,083	-416	-598	529	723	845	1,070	1,205
	Capital transfers					111	-7	6	6	0	0	0	0	0	0
	Direct investment (net)					426	672	859	1,060	1,043	999	1,092	1,200	1,320	1,451
		Gross investment				687	915	954	1,274	1,272	1,249	1,342	1,450	1,570	1,727
		Disinvestment and investment abroad				-264	-293	-180	-229	-229	-250	-250	-250	-250	-275
	Portfolio investment (net)					-154	90	186	-360	-510	-510	-510	-510	0	0
	Public sector					382	255	537	651	603	211	229	249	254	258
		Disbursements				546	818	777	1,515	1,236	756	776	796	816	831
		Amortization				-385	-549	-181	-826	-633	-545	-547	-546	-562	-573
	Fin system net foreign assets, excl. liquid asset requirement					-285	125	-243	-578	-1,700	-136	-53	-60	-470	-300
	Nonbank private sector loans					-88	-213	-60	0	0	0	0	0	0	0
	Other, including errors and omissions					-591	-569	1,381	-930	-34	-34	-34	-34	-34	-34
		Other				-200	190	275	20	-34	-34	-34	-34	-34	-34
		Errors and omissions				-392	-759	1,107	-950	0	0	0	0	0	0
Overall balance						547	914	2,160	1,712	607	1,555	1,414	1,393	1,537	1,642
Financing						-547	-923	-2,160	-1,712	-607	-1,555	-1,414	-1,393	-1,537	-1,642
Memorandum items:
	Current account (in percent of GDP)					4.3	3.9	0.3	7.8	4.0	3.1	1.9	1.4	1.1	0.9
	Merchandise exports (in percent of GDP)					28.4	32.4	34.7	41.3	39.1	38.2	36.6	35.0	33.2	31.2
	Merchandise imports (in percent of GDP)					-26.0	-28.3	-32.9	-30.4	-31.0	-31.7	-31.5	-30.6	-29.2	-27.4
	Net official reserves (end-of-period)					8,580	9,730	12,019	13,927	14,534	16,089	17,502	18,896	20,432	22,074
		(in months of imports of goods and services)				19.5	17.6	15.7	17.3	16.3	16.1	16.3	16.6	17.1	17.9
	Foreign direct investment (in percent of GDP)					2.4	3.4	3.6	3.9	3.5	3.0	3.0	3.0	3.0	3.0
	GDP (in millions of U.S. dollars)					17,464	19,786	24,121	27,232	29,792	33,285	36,409	39,984	43,984	48,497
	Capital account (in percent of GDP)					-1.1	0.8	8.6	-1.5	-2.0	1.6	2.0	2.1	2.4	2.5
	Errors and omissions (in percent of GDP)					-2.2	-3.8	4.6	-3.5	0.0	0.0	0.0	0.0	0.0	0.0
	Export value growth (in percent)					-24.0	29.1	30.6	34.4	3.7	9.2	4.9	4.9	4.6	3.1
	Export volume growth (in percent)					4.2	3.3	3.7	11.8	2.8	8.5	5.2	5.1	4.5	3.2
	Export prices growth (in percent)					-27.1	25.0	25.9	20.2	0.8	0.7	-0.3	-0.2	0.1	0.0
	Import value growth (in percent)					-12.7	26.1	41.8	4.3	8.8	13.8	11.3	7.1	4.7	4.4
	Import volume growth (in percent)					-7.8	11.5	27.0	4.6	6.2	12.7	10.5	6.2	4.1	3.8
	Import prices growth (in percent)					-5.3	13.0	11.6	-0.3	2.4	1.0	0.7	0.8	0.6	0.6

Sources: Central Bank of Bolivia, National Institute of Statistics and Fund staff calculations.

Table 4.

Bolivia: Central Bank Monetary Survey

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 4.

Bolivia: Central Bank Monetary Survey

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Net international reserves			13,556	5,981	7,720	14,923	13,090	4,164	10,667
		(Flows in millions of U.S. dollars)	2,403	858	1,150	2,289	1,908	607	1,555
Net domestic assets			-8,669	2,746	-4,918	-5,629	-7,141	-178	-3,360
	Net credit to the nonfinancial public sector		-3,829	-221	-6,923	-4,199	-5,989	-6,700	-2,800
	Net credit to financial intermediaries		-8,105	4,140	2,758	-1,788	757	2,470	-328
		Of which: Open market operations (increase -)	-7,703	4,385	2,869	-1,590	747	-4,156	-1,000
	Other items (net)		3,264	-1,173	-753	357	-1,909	4,052	-232
Net medium and long-term foreign assets			-73	-1,452	228	-104	953	-10	-10
Base money			4,814	7,275	3,031	9,190	6,902	3,977	7,297
	Currency in circulation		2,940	1,849	5,693	3,999	4,080	5,176	4,672
	Bank reserves		1,874	5,426	-2,662	5,191	2,822	-1,199	2,625
		Legal Reserves	934	5,916	-2,749	4,669	2,533	190	2,437
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Net international reserves			53,823	59,803	67,524	82,447	95,537	99,702	110,369
		(Stocks in millions of U.S. dollars)	7,722	8,580	9,730	12,019	13,927	14,534	16,089
Net domestic assets			-33,257	-30,511	-35,429	-41,058	-48,199	-48,377	-51,738
	Net credit to the nonfinancial public sector		-12,213	-12,434	-19,357	-23,556	-29,545	-36,245	-39,045
	Net credit to financial intermediaries		-13,252	-9,112	-6,354	-8,142	-7,384	-4,914	-5,242
		Of which: Open market operations	-15,254	-10,869	-8,000	-9,591	-8,844	-13,000	-14,000
	Other items (net)		-7,792	-8,965	-9,718	-9,361	-11,270	-7,218	-7,450
Net medium and long-term foreign assets			1,705	254	482	378	1,331	1,321	1,312
Base money			22,271	29,546	32,577	41,767	48,669	52,646	59,943
	Currency in circulation		17,043	18,892	24,586	28,585	32,665	37,841	42,513
	Bank reserves		5,228	10,653	7,991	13,182	16,004	14,805	17,430
		Legal reserves	3,189	9,105	6,356	11,025	13,558	13,748	16,185
			(Annual percentage changes)
Net international reserves			33.7	11.1	12.9	22.1	15.9	4.4	10.7
		(Stocks in millions of U.S. dollars)	45.2	11.1	13.4	23.5	15.9	4.4	10.7
Net domestic assets			…	…	…	…	…	…	…
		Net credit to the nonfinancial public sector	…	…	…	…	…	…	…
	Net credit to financial intermediaries		…	…	…	…	…	…	…
		Of which: Open market operations	…	…	…	…	…	…	…
	Other items (net)		…	…	…	…	…	…	…
Net medium and long-term foreign assets			-4.1	-85.1	89.9	-21.5	252.0	-0.7	-0.7
Base money			27.6	32.7	10.3	28.2	16.5	8.2	13.9
	Currency in circulation		20.9	10.8	30.1	16.3	14.3	15.8	12.3
	Bank reserves		55.9	103.8	-25.0	65.0	21.4	-7.5	17.7
		Legal reserves	41.4	185.5	-30.2	73.5	23.0	1.4	17.7

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 4.

Bolivia: Central Bank Monetary Survey

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Net international reserves			13,556	5,981	7,720	14,923	13,090	4,164	10,667
		(Flows in millions of U.S. dollars)	2,403	858	1,150	2,289	1,908	607	1,555
Net domestic assets			-8,669	2,746	-4,918	-5,629	-7,141	-178	-3,360
	Net credit to the nonfinancial public sector		-3,829	-221	-6,923	-4,199	-5,989	-6,700	-2,800
	Net credit to financial intermediaries		-8,105	4,140	2,758	-1,788	757	2,470	-328
		Of which: Open market operations (increase -)	-7,703	4,385	2,869	-1,590	747	-4,156	-1,000
	Other items (net)		3,264	-1,173	-753	357	-1,909	4,052	-232
Net medium and long-term foreign assets			-73	-1,452	228	-104	953	-10	-10
Base money			4,814	7,275	3,031	9,190	6,902	3,977	7,297
	Currency in circulation		2,940	1,849	5,693	3,999	4,080	5,176	4,672
	Bank reserves		1,874	5,426	-2,662	5,191	2,822	-1,199	2,625
		Legal Reserves	934	5,916	-2,749	4,669	2,533	190	2,437
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Net international reserves			53,823	59,803	67,524	82,447	95,537	99,702	110,369
		(Stocks in millions of U.S. dollars)	7,722	8,580	9,730	12,019	13,927	14,534	16,089
Net domestic assets			-33,257	-30,511	-35,429	-41,058	-48,199	-48,377	-51,738
	Net credit to the nonfinancial public sector		-12,213	-12,434	-19,357	-23,556	-29,545	-36,245	-39,045
	Net credit to financial intermediaries		-13,252	-9,112	-6,354	-8,142	-7,384	-4,914	-5,242
		Of which: Open market operations	-15,254	-10,869	-8,000	-9,591	-8,844	-13,000	-14,000
	Other items (net)		-7,792	-8,965	-9,718	-9,361	-11,270	-7,218	-7,450
Net medium and long-term foreign assets			1,705	254	482	378	1,331	1,321	1,312
Base money			22,271	29,546	32,577	41,767	48,669	52,646	59,943
	Currency in circulation		17,043	18,892	24,586	28,585	32,665	37,841	42,513
	Bank reserves		5,228	10,653	7,991	13,182	16,004	14,805	17,430
		Legal reserves	3,189	9,105	6,356	11,025	13,558	13,748	16,185
			(Annual percentage changes)
Net international reserves			33.7	11.1	12.9	22.1	15.9	4.4	10.7
		(Stocks in millions of U.S. dollars)	45.2	11.1	13.4	23.5	15.9	4.4	10.7
Net domestic assets			…	…	…	…	…	…	…
		Net credit to the nonfinancial public sector	…	…	…	…	…	…	…
	Net credit to financial intermediaries		…	…	…	…	…	…	…
		Of which: Open market operations	…	…	…	…	…	…	…
	Other items (net)		…	…	…	…	…	…	…
Net medium and long-term foreign assets			-4.1	-85.1	89.9	-21.5	252.0	-0.7	-0.7
Base money			27.6	32.7	10.3	28.2	16.5	8.2	13.9
	Currency in circulation		20.9	10.8	30.1	16.3	14.3	15.8	12.3
	Bank reserves		55.9	103.8	-25.0	65.0	21.4	-7.5	17.7
		Legal reserves	41.4	185.5	-30.2	73.5	23.0	1.4	17.7

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 5.

Bolivia: Commercial Bank and Non-Bank Depository Institutions

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 5.

Bolivia: Commercial Bank and Non-Bank Depository Institutions

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Foreign assets			602	3,994	-476	-1,923	1,477	15,163	4,432
		(Stock in millions of U.S. dollars)	154	573	-62	-263	215	2,210	646
Net domestic assets			7,848	6,846	3,852	13,764	13,821	892	14,315
	Net credit to the public sector		-636	1,250	-564	-1,455	-143	1,029	2,058
	Credit to the private sector		2,632	3,400	8,258	11,423	11,832	13,076	11,046
	Net position with the central bank		6,881	2,438	-3,211	6,899	4,642	-1,159	3,625
	Other items (net)		-1,029	-241	-632	-3,103	-2,511	-12,055	-2,414
Foreign liabilities			937	339	-896	-723	-193	0	0
Deposits			7,513	10,502	4,272	12,564	15,491	16,054	18,747
	Local currency deposits		7,759	5,188	7,436	13,984	17,476	14,474	17,395
	Foreign currency deposits		-246	5,314	-3,164	-1,421	-1,985	1,581	1,352
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Foreign assets			6,589	10,583	10,107	8,184	9,660	24,823	29,255
		(Stock in millions of U.S. dollars)	945	1,518	1,456	1,193	1,408	3,619	4,265
Net domestic assets			43,025	49,871	53,723	67,487	81,308	82,199	96,514
	Net credit to the public sector		1,180	2,429	1,866	411	268	1,297	3,355
	Credit to the private sector		38,010	41,409	49,668	61,090	72,922	85,999	97,045
	Net position with the central bank		13,681	16,119	12,909	19,808	24,450	23,291	26,916
	Other items (net)		-9,846	-10,087	-10,719	-13,822	-16,333	-28,387	-30,801
Foreign liabilities			2,745	3,084	2,188	1,465	1,272	1,272	1,272
Deposits			46,869	57,371	61,642	74,206	89,697	105,751	124,498
	Local currency deposits		22,011	27,199	34,635	48,619	66,095	80,568	97,964
	Foreign currency deposits		24,858	30,172	27,007	25,587	23,602	25,182	26,534
			(Annual percentage changes)
Foreign assets			10.1	60.6	-4.5	-19.0	18.0	157.0	17.9
		(Stock in millions of U.S. dollars)	19.5	60.6	-4.1	-18.1	18.0	157.0	17.9
Net domestic assets			22.3	15.9	7.7	25.6	20.5	1.1	17.4
	Net credit to the public sector		-35.0	105.9	-23.2	-78.0	-34.7	383.8	158.7
	Credit to the private sector		7.4	8.9	19.9	23.0	19.4	17.9	12.8
	Net position with the central bank		101.2	17.8	-19.9	53.4	23.4	-4.7	15.6
	Other items (net)		…	…	…	…	…	…	…
Foreign liabilities			51.8	12.4	-29.1	-33.0	-13.2	0.0	0.0
Deposits			19.1	22.4	7.4	20.4	20.9	17.9	17.7
	Local currency deposits		54.4	23.6	27.3	40.4	35.9	21.9	21.6
	Foreign currency deposits		-1.0	21.4	-10.5	-5.3	-7.8	6.7	5.4
Memorandum items:
Credit to private sector (in percent of GDP)			31.5	34.0	36.0	36.8	39.0	42.1	42.5
Deposits (in percent of GDP)			38.8	47.1	44.7	44.7	48.0	51.7	54.5
Broad money (in percent of GDP)			51.9	61.6	61.2	59.8	63.9	68.5	71.0
U.S. dollar and dollar-indexed deposits (in percent of total deposits)			53.0	52.6	43.8	34.5	26.3	23.8	21.3
U.S. dollar and dollar indexed credit (in percent of total credit)			59.3	49.5	38.6	30.7	21.3	20.1	18.9

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 5.

Bolivia: Commercial Bank and Non-Bank Depository Institutions

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Foreign assets			602	3,994	-476	-1,923	1,477	15,163	4,432
		(Stock in millions of U.S. dollars)	154	573	-62	-263	215	2,210	646
Net domestic assets			7,848	6,846	3,852	13,764	13,821	892	14,315
	Net credit to the public sector		-636	1,250	-564	-1,455	-143	1,029	2,058
	Credit to the private sector		2,632	3,400	8,258	11,423	11,832	13,076	11,046
	Net position with the central bank		6,881	2,438	-3,211	6,899	4,642	-1,159	3,625
	Other items (net)		-1,029	-241	-632	-3,103	-2,511	-12,055	-2,414
Foreign liabilities			937	339	-896	-723	-193	0	0
Deposits			7,513	10,502	4,272	12,564	15,491	16,054	18,747
	Local currency deposits		7,759	5,188	7,436	13,984	17,476	14,474	17,395
	Foreign currency deposits		-246	5,314	-3,164	-1,421	-1,985	1,581	1,352
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Foreign assets			6,589	10,583	10,107	8,184	9,660	24,823	29,255
		(Stock in millions of U.S. dollars)	945	1,518	1,456	1,193	1,408	3,619	4,265
Net domestic assets			43,025	49,871	53,723	67,487	81,308	82,199	96,514
	Net credit to the public sector		1,180	2,429	1,866	411	268	1,297	3,355
	Credit to the private sector		38,010	41,409	49,668	61,090	72,922	85,999	97,045
	Net position with the central bank		13,681	16,119	12,909	19,808	24,450	23,291	26,916
	Other items (net)		-9,846	-10,087	-10,719	-13,822	-16,333	-28,387	-30,801
Foreign liabilities			2,745	3,084	2,188	1,465	1,272	1,272	1,272
Deposits			46,869	57,371	61,642	74,206	89,697	105,751	124,498
	Local currency deposits		22,011	27,199	34,635	48,619	66,095	80,568	97,964
	Foreign currency deposits		24,858	30,172	27,007	25,587	23,602	25,182	26,534
			(Annual percentage changes)
Foreign assets			10.1	60.6	-4.5	-19.0	18.0	157.0	17.9
		(Stock in millions of U.S. dollars)	19.5	60.6	-4.1	-18.1	18.0	157.0	17.9
Net domestic assets			22.3	15.9	7.7	25.6	20.5	1.1	17.4
	Net credit to the public sector		-35.0	105.9	-23.2	-78.0	-34.7	383.8	158.7
	Credit to the private sector		7.4	8.9	19.9	23.0	19.4	17.9	12.8
	Net position with the central bank		101.2	17.8	-19.9	53.4	23.4	-4.7	15.6
	Other items (net)		…	…	…	…	…	…	…
Foreign liabilities			51.8	12.4	-29.1	-33.0	-13.2	0.0	0.0
Deposits			19.1	22.4	7.4	20.4	20.9	17.9	17.7
	Local currency deposits		54.4	23.6	27.3	40.4	35.9	21.9	21.6
	Foreign currency deposits		-1.0	21.4	-10.5	-5.3	-7.8	6.7	5.4
Memorandum items:
Credit to private sector (in percent of GDP)			31.5	34.0	36.0	36.8	39.0	42.1	42.5
Deposits (in percent of GDP)			38.8	47.1	44.7	44.7	48.0	51.7	54.5
Broad money (in percent of GDP)			51.9	61.6	61.2	59.8	63.9	68.5	71.0
U.S. dollar and dollar-indexed deposits (in percent of total deposits)			53.0	52.6	43.8	34.5	26.3	23.8	21.3
U.S. dollar and dollar indexed credit (in percent of total credit)			59.3	49.5	38.6	30.7	21.3	20.1	18.9

Sources: Central Bank of Bolivia and Fund staff calculations.

Table 6.

Bolivia: Financial System Survey ^{^1/}

Sources: Central Bank of Bolivia, and Fund staff calculations.

^{^1/}The financial system comprises the central bank, commercial banks and nonbanks, and the Banco de Desarrollo Productivo (BDP), which is a state-owned second-tier bank.

Table 6.

Bolivia: Financial System Survey ^{^1/}

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Net short-term foreign assets			14,158	9,975	7,244	13,000	14,567	19,327	15,099
		(Flows in millions of U.S. dollars)	2,557	1,431	1,088	2,025	2,123	2,817	2,201
Net domestic assets			-2,756	4,167	1,029	1,313	4,339	1,230	7,205
	Net credit to the public sector		-4,465	1,028	-7,487	-5,654	-6,132	-5,671	-742
	Credit to the private sector		2,632	3,400	8,258	11,423	11,832	13,076	11,046
	Other items (net)		-923	-261	258	-4,456	-1,362	-6,175	-3,100
Net medium and long-term foreign liabilities (increase -)			1,010	1,791	-1,124	-619	-1,146	10	10
Broad money			10,393	12,352	9,398	14,933	20,052	20,548	22,294
	Liabilities in domestic currency		10,639	7,038	12,562	16,354	22,036	18,967	20,942
	Foreign currency deposits		-246	5,314	-3,164	-1,421	-1,985	1,581	1,352
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Net short-term foreign assets			60,411	70,387	77,631	90,631	105,198	124,525	139,624
		(Stocks in millions of U.S. dollars)	8,667	10,099	11,186	13,212	15,335	18,152	20,353
Net domestic assets			3,261	7,428	8,458	9,771	14,110	15,340	22,545
	Net credit to the public sector		-11,033	-10,005	-17,492	-23,145	-29,277	-34,948	-35,690
	Credit to the private sector		38,010	41,409	49,668	61,090	72,922	85,999	97,045
	Other items (net)		-23,716	-23,977	-23,718	-28,174	-29,536	-35,711	-38,810
Net medium and long-term foreign liabilities (increase -)			1,040	2,830	1,706	1,087	-59	-49	-40
Broad money			62,633	74,985	84,382	99,315	119,367	139,914	162,208
	Liabilities in domestic currency		37,775	44,813	57,375	73,728	95,765	114,732	135,674
	Foreign currency deposits		24,858	30,172	27,007	25,587	23,602	25,182	26,534
			(Changes in percent of broad money at the beginning of the period)
Net short-term foreign assets			27.1	15.9	9.7	15.4	14.7	16.2	10.8
Net domestic assets			-5.3	6.7	1.4	1.6	4.4	1.0	5.1
	Net credit to the public sector		-8.5	1.6	-10.0	-6.7	-6.2	-4.8	-0.5
	Credit to the private sector		5.0	5.4	11.0	13.5	11.9	11.0	7.9
	Other items (net)		-1.8	-0.4	0.3	-5.3	-1.4	-5.2	-2.2
Net medium and long-term foreign liabilities			1.9	2.9	-1.5	-0.7	-1.2	0.0	0.0
Broad money			19.9	19.7	12.5	17.7	20.2	17.2	15.9
	Liabilities in domestic currency		20.4	11.2	16.8	19.4	22.2	15.9	15.0
	Foreign currency deposits		-0.5	8.5	-4.2	-1.7	-2.0	1.3	1.0

Sources: Central Bank of Bolivia, and Fund staff calculations.

^{^1/}The financial system comprises the central bank, commercial banks and nonbanks, and the Banco de Desarrollo Productivo (BDP), which is a state-owned second-tier bank.

Table 6.

Bolivia: Financial System Survey ^{^1/}

								Projections
			2008	2009	2010	2011	2012	2013	2014
			(Flows in millions of Bolivianos, unless otherwise indicated)
Net short-term foreign assets			14,158	9,975	7,244	13,000	14,567	19,327	15,099
		(Flows in millions of U.S. dollars)	2,557	1,431	1,088	2,025	2,123	2,817	2,201
Net domestic assets			-2,756	4,167	1,029	1,313	4,339	1,230	7,205
	Net credit to the public sector		-4,465	1,028	-7,487	-5,654	-6,132	-5,671	-742
	Credit to the private sector		2,632	3,400	8,258	11,423	11,832	13,076	11,046
	Other items (net)		-923	-261	258	-4,456	-1,362	-6,175	-3,100
Net medium and long-term foreign liabilities (increase -)			1,010	1,791	-1,124	-619	-1,146	10	10
Broad money			10,393	12,352	9,398	14,933	20,052	20,548	22,294
	Liabilities in domestic currency		10,639	7,038	12,562	16,354	22,036	18,967	20,942
	Foreign currency deposits		-246	5,314	-3,164	-1,421	-1,985	1,581	1,352
			(Stocks in millions of Bolivianos, unless otherwise indicated)
Net short-term foreign assets			60,411	70,387	77,631	90,631	105,198	124,525	139,624
		(Stocks in millions of U.S. dollars)	8,667	10,099	11,186	13,212	15,335	18,152	20,353
Net domestic assets			3,261	7,428	8,458	9,771	14,110	15,340	22,545
	Net credit to the public sector		-11,033	-10,005	-17,492	-23,145	-29,277	-34,948	-35,690
	Credit to the private sector		38,010	41,409	49,668	61,090	72,922	85,999	97,045
	Other items (net)		-23,716	-23,977	-23,718	-28,174	-29,536	-35,711	-38,810
Net medium and long-term foreign liabilities (increase -)			1,040	2,830	1,706	1,087	-59	-49	-40
Broad money			62,633	74,985	84,382	99,315	119,367	139,914	162,208
	Liabilities in domestic currency		37,775	44,813	57,375	73,728	95,765	114,732	135,674
	Foreign currency deposits		24,858	30,172	27,007	25,587	23,602	25,182	26,534
			(Changes in percent of broad money at the beginning of the period)
Net short-term foreign assets			27.1	15.9	9.7	15.4	14.7	16.2	10.8
Net domestic assets			-5.3	6.7	1.4	1.6	4.4	1.0	5.1
	Net credit to the public sector		-8.5	1.6	-10.0	-6.7	-6.2	-4.8	-0.5
	Credit to the private sector		5.0	5.4	11.0	13.5	11.9	11.0	7.9
	Other items (net)		-1.8	-0.4	0.3	-5.3	-1.4	-5.2	-2.2
Net medium and long-term foreign liabilities			1.9	2.9	-1.5	-0.7	-1.2	0.0	0.0
Broad money			19.9	19.7	12.5	17.7	20.2	17.2	15.9
	Liabilities in domestic currency		20.4	11.2	16.8	19.4	22.2	15.9	15.0
	Foreign currency deposits		-0.5	8.5	-4.2	-1.7	-2.0	1.3	1.0

Sources: Central Bank of Bolivia, and Fund staff calculations.

^{^1/}The financial system comprises the central bank, commercial banks and nonbanks, and the Banco de Desarrollo Productivo (BDP), which is a state-owned second-tier bank.

Table 7.

Bolivia: Selected Vulnerability Indicators

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, ASFI, and Fund staff calculations.

^{^1/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of YPFB.

^{^2/}Excludes hydrocarbon related revenues and YPFB capital expenditures.

^{^3/}Latest available data.

Table 7.

Bolivia: Selected Vulnerability Indicators

			2008	2009	2010	2011	2012
Reserve adequacy			(In millions of U.S. dollars, unless otherwise indicated)
	Net international reserves		7,722	8,580	9,730	12,019	13,927
	NIR coverage, in percent of:
		Dollar deposits	216.5	198.2	250.0	322.2	404.8
		Total deposits	114.8	104.2	109.5	111.1	106.5
		Broad money	85.9	79.8	80.0	83.0	80.0
		In months of imports of goods and services	16.0	19.5	17.6	15.7	17.3
	Net foreign assets of the financial system		1,339	1,961	1,772	1,407	1,594
	NFA coverage, in percent of:
		Dollar deposits	37.5	45.3	45.5	37.7	46.3
		Total deposits	19.9	23.8	19.9	13.0	12.2
		Broad money	14.9	18.2	14.6	9.7	9.2
Debt ratios			(In percent of GDP)
	Total gross NFPS debt		37.2	40.0	38.5	34.7	33.4
		Domestic	22.7	24.4	23.1	19.9	17.7
		External	14.5	15.6	15.4	14.8	15.7
	Total net NFPS debt		20.6	23.1	18.4	14.4	11.1
	Private external debt		7.7	5.3	4.7	4.2
	Net International Investment Position		9.3	18.1	16.8	17.8
Commodity dependency
	Hydrocarbon revenue (in percent of total revenues) ¹/		34.5	31.6	30.7	31.6	35.4
	Non-hydrocarbon fiscal balance ²/		-7.5	-10.3	-8.1	-9.6	-9.7
	Gas exports (in percent of total exports)		49.0	39.7	43.7	46.5	48.8
	Mining exports (in percent of total exports)		30.1	37.2	37.5	41.0	32.8
Banking sector indicators ³/
	Nonperforming loans (in percent of total loans)		4.3	3.5	2.2	1.7	1.5
	Restructured loans (in percent of total loans)		8.8	6.4	3.6	2.2	1.5
	Nonperforming and restructured loans (in percent of total loans)		13.1	9.9	5.8	3.9	3.0
	Capital adequacy ratio (in percent)		13.7	13.3	11.9	12.3	12.6
	Profits after tax (in percent of equity)		20.3	20.6	17.3	19.5	17.6
	Cash and short-term investments (in percent of total assets)		43.4	48.0	39.0	37.6	37.4
Composition of bank deposits
	Dollar deposits (in percent of total deposit)		53.0	52.6	43.8	34.5	26.3
	Local currency deposits (in percent of total deposit)		47.0	47.4	56.2	65.5	73.7
**Memorandum items:**
	Fiscal balance (in percent of GDP)		2.8	0.2	1.7	0.8	1.8
	Total financial system deposits (US$ million)		5,646	6,724	8,267	8,986	10,817

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, ASFI, and Fund staff calculations.

^{^1/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of YPFB.

^{^2/}Excludes hydrocarbon related revenues and YPFB capital expenditures.

^{^3/}Latest available data.

Table 7.

Bolivia: Selected Vulnerability Indicators

			2008	2009	2010	2011	2012
Reserve adequacy			(In millions of U.S. dollars, unless otherwise indicated)
	Net international reserves		7,722	8,580	9,730	12,019	13,927
	NIR coverage, in percent of:
		Dollar deposits	216.5	198.2	250.0	322.2	404.8
		Total deposits	114.8	104.2	109.5	111.1	106.5
		Broad money	85.9	79.8	80.0	83.0	80.0
		In months of imports of goods and services	16.0	19.5	17.6	15.7	17.3
	Net foreign assets of the financial system		1,339	1,961	1,772	1,407	1,594
	NFA coverage, in percent of:
		Dollar deposits	37.5	45.3	45.5	37.7	46.3
		Total deposits	19.9	23.8	19.9	13.0	12.2
		Broad money	14.9	18.2	14.6	9.7	9.2
Debt ratios			(In percent of GDP)
	Total gross NFPS debt		37.2	40.0	38.5	34.7	33.4
		Domestic	22.7	24.4	23.1	19.9	17.7
		External	14.5	15.6	15.4	14.8	15.7
	Total net NFPS debt		20.6	23.1	18.4	14.4	11.1
	Private external debt		7.7	5.3	4.7	4.2
	Net International Investment Position		9.3	18.1	16.8	17.8
Commodity dependency
	Hydrocarbon revenue (in percent of total revenues) ¹/		34.5	31.6	30.7	31.6	35.4
	Non-hydrocarbon fiscal balance ²/		-7.5	-10.3	-8.1	-9.6	-9.7
	Gas exports (in percent of total exports)		49.0	39.7	43.7	46.5	48.8
	Mining exports (in percent of total exports)		30.1	37.2	37.5	41.0	32.8
Banking sector indicators ³/
	Nonperforming loans (in percent of total loans)		4.3	3.5	2.2	1.7	1.5
	Restructured loans (in percent of total loans)		8.8	6.4	3.6	2.2	1.5
	Nonperforming and restructured loans (in percent of total loans)		13.1	9.9	5.8	3.9	3.0
	Capital adequacy ratio (in percent)		13.7	13.3	11.9	12.3	12.6
	Profits after tax (in percent of equity)		20.3	20.6	17.3	19.5	17.6
	Cash and short-term investments (in percent of total assets)		43.4	48.0	39.0	37.6	37.4
Composition of bank deposits
	Dollar deposits (in percent of total deposit)		53.0	52.6	43.8	34.5	26.3
	Local currency deposits (in percent of total deposit)		47.0	47.4	56.2	65.5	73.7
**Memorandum items:**
	Fiscal balance (in percent of GDP)		2.8	0.2	1.7	0.8	1.8
	Total financial system deposits (US$ million)		5,646	6,724	8,267	8,986	10,817

Sources: Ministry of Economy and Public Finances, Central Bank of Bolivia, ASFI, and Fund staff calculations.

^{^1/}Hydrocarbon related revenues are defined as direct hydrocarbon tax (IDH), royalties, and the operating balance of YPFB.

^{^2/}Excludes hydrocarbon related revenues and YPFB capital expenditures.

^{^3/}Latest available data.

Table 8.

Bolivia: Millennium Development Goals

Sources: UDAPE and World Bank Development Indicators.

Table 8.

Bolivia: Millennium Development Goals

		First										Target
		Observation	2004	2005	2006	2007	2008	2009	2010	2011	2012	2015
Goal 1. Eradicate Extreme Poverty and Hunger
Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day.
	Population below US$1 a day (in percent)	41.2 (1990)	34.5	38.2	37.7	37.7	29.9	26.1	…	…	…	24.1
Target 2: Halve, between 1990 and 2015, the proportion of people suffering hunger
	Prevalence of child malnutrition (percent of children under 5)	41.7 (1989)	32.5	…	…	…	27.2	…	…	…	…	20.9
Goal 2. Achieve Universal Primary Education
Target 3. Ensure that, by 2015, children will be able to complete a full course of primary schooling.
	Net primary enrollment ratio (percent of relevant age group)	94.6 (1998)	94.4	…	95.2	94.2	…	90.7	88.0	…	…	100.0
	Percentage of cohort reaching grade 8	55.4 (1992)	79.5	77.8	75.6	74.7	77.3	…	…	…	…	100.0
Goal 3. Promote Gender Equality and Empower Women
Target 4. Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015.
	Gender disparities at completion of primary education (in percent)	-14 (1990)	-3.5	…	-2.0	-0.5	-1.2	-0.5	0.5	…	…	0.0
	Gender disparities at completion of secondary education (in percent)	3.4 (1992)	0.8	-0.4	-1.5	-1.9	-1.4	…	…	…	…	0.0
Goal 4. Reduce Child Mortality
Target 5. Reduce by two-thirds, between 1990 and 2015, the under five mortality rate
	Infant mortality rate (per 1,000 live births)	122.1 (1990)	69.8	66.7	63.9	61.5	59.0	56.7	54.2	…	…	40.0
	Immunization against measles (percent of children 12-23 months)	53 (1990)	90.0	89.0	88.0	83.0	87.0	86.0	79.0	84.0	…	95.0
Goal 5. Improve Maternal Health
Target 6. Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.
	Maternal mortality ratio (modeled estimate, per 100,000 live births)	450 (1990)	…	240	…	…	…	…	190	…	…	128
	Proportion of births attended by skilled health personnel (in percent)	43.2 (1989)	…	…	…	…	71.1	…	…	…	…	70.0
Goal 6. Combat HIV/AIDS, Malaria, and Other Diseases
Target 7. Halt by 2015, and begin to reverse, the spread of HIV/AIDS
	HIV prevalence, total (percent ages 15-24)	1.8 (1990)	13.4	19.3	19.2	…	…	…	…	…	…	13.0
Target 8. Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
	Incidence of malaria (per 1,000 people)	7.5 (1990)	4.1	5.5	5.2	…	…	2.8	3.9	…	…	2.0
	Incidence of tuberculosis cases cured (in percent of diagnosed)	66 (1994)	80.0	78.0	83.0	85.0	84.0	86.0	88.0	…	…	95.0
Target 10. Halve by 2015 proportion of people without access to safe drinking water
	Access to potable water (in percent of population)	57.5 (1992)	72.3	71.7	74.1	74.4	74.6	…	…	…	…	78.5
	Access to improved sanitation facilities (in percent of population)	28 (1992)	41.6	43.5	47.5	47.7	48.4	…	…	…	…	64.0
Goal 8. Develop a global Partnership for Development
Target 18. Make available new technologies, especially information and communications
	Mobile and fixed-line telephone subscribers (per 100 people)	2.9 (1991)	27.0	33.5	38.1	41.6	60.6	74.4	80.8	…	…	…
	Internet users (per 100 people)	0.1 (1995)	4.4	5.2	6.2	10.5	12.5	16.8	22.4	30.0	34.2	…

Sources: UDAPE and World Bank Development Indicators.

Table 8.

Bolivia: Millennium Development Goals

		First										Target
		Observation	2004	2005	2006	2007	2008	2009	2010	2011	2012	2015
Goal 1. Eradicate Extreme Poverty and Hunger
Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than one dollar a day.
	Population below US$1 a day (in percent)	41.2 (1990)	34.5	38.2	37.7	37.7	29.9	26.1	…	…	…	24.1
Target 2: Halve, between 1990 and 2015, the proportion of people suffering hunger
	Prevalence of child malnutrition (percent of children under 5)	41.7 (1989)	32.5	…	…	…	27.2	…	…	…	…	20.9
Goal 2. Achieve Universal Primary Education
Target 3. Ensure that, by 2015, children will be able to complete a full course of primary schooling.
	Net primary enrollment ratio (percent of relevant age group)	94.6 (1998)	94.4	…	95.2	94.2	…	90.7	88.0	…	…	100.0
	Percentage of cohort reaching grade 8	55.4 (1992)	79.5	77.8	75.6	74.7	77.3	…	…	…	…	100.0
Goal 3. Promote Gender Equality and Empower Women
Target 4. Eliminate gender disparity in primary and secondary education preferably by 2005 and to all levels of education by 2015.
	Gender disparities at completion of primary education (in percent)	-14 (1990)	-3.5	…	-2.0	-0.5	-1.2	-0.5	0.5	…	…	0.0
	Gender disparities at completion of secondary education (in percent)	3.4 (1992)	0.8	-0.4	-1.5	-1.9	-1.4	…	…	…	…	0.0
Goal 4. Reduce Child Mortality
Target 5. Reduce by two-thirds, between 1990 and 2015, the under five mortality rate
	Infant mortality rate (per 1,000 live births)	122.1 (1990)	69.8	66.7	63.9	61.5	59.0	56.7	54.2	…	…	40.0
	Immunization against measles (percent of children 12-23 months)	53 (1990)	90.0	89.0	88.0	83.0	87.0	86.0	79.0	84.0	…	95.0
Goal 5. Improve Maternal Health
Target 6. Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio.
	Maternal mortality ratio (modeled estimate, per 100,000 live births)	450 (1990)	…	240	…	…	…	…	190	…	…	128
	Proportion of births attended by skilled health personnel (in percent)	43.2 (1989)	…	…	…	…	71.1	…	…	…	…	70.0
Goal 6. Combat HIV/AIDS, Malaria, and Other Diseases
Target 7. Halt by 2015, and begin to reverse, the spread of HIV/AIDS
	HIV prevalence, total (percent ages 15-24)	1.8 (1990)	13.4	19.3	19.2	…	…	…	…	…	…	13.0
Target 8. Halt by 2015, and begin to reverse, the incidence of malaria and other major diseases
	Incidence of malaria (per 1,000 people)	7.5 (1990)	4.1	5.5	5.2	…	…	2.8	3.9	…	…	2.0
	Incidence of tuberculosis cases cured (in percent of diagnosed)	66 (1994)	80.0	78.0	83.0	85.0	84.0	86.0	88.0	…	…	95.0
Target 10. Halve by 2015 proportion of people without access to safe drinking water
	Access to potable water (in percent of population)	57.5 (1992)	72.3	71.7	74.1	74.4	74.6	…	…	…	…	78.5
	Access to improved sanitation facilities (in percent of population)	28 (1992)	41.6	43.5	47.5	47.7	48.4	…	…	…	…	64.0
Goal 8. Develop a global Partnership for Development
Target 18. Make available new technologies, especially information and communications
	Mobile and fixed-line telephone subscribers (per 100 people)	2.9 (1991)	27.0	33.5	38.1	41.6	60.6	74.4	80.8	…	…	…
	Internet users (per 100 people)	0.1 (1995)	4.4	5.2	6.2	10.5	12.5	16.8	22.4	30.0	34.2	…

Sources: UDAPE and World Bank Development Indicators.

Annex I. A Medium Term Fiscal Framework for Managing Resource Wealth

Given the importance of the hydrocarbon sector for fiscal revenues in Bolivia, assessing the sustainable level of non-hydrocarbon fiscal balances is critical to anchor medium term fiscal policies. Based on resource horizon and production scenarios, the following approaches could inform the levels of non-resource balances that can be sustained by the resource wealth: 1) the bird-in-hand rule; 2) the permanent income hypothesis (PIH); 3) the modified PIH; and 4) the fiscal sustainability framework (FSF).

The bird-in-hand rule, followed by Norway, sets aside resource revenue in a separate fund and targets the non-resource primary balance (NRPB) equal to the return on the fund. This approach limits the non-resource spending in earlier periods by accumulating savings for future generations.
The PIH combines both physical (natural resources in the ground, in net present value) and financial (savings realized from resource revenues) assets, and targets the NRPB based on the return on this combined resource wealth.
The modified PIH takes into account the infrastructure investment needs of the country, and assumes a scaled up investment schedule in the near term. The resource wealth is subsequently replenished to sustain the same level of NRPB as in the PIH framework.
The FSF assumes that the front-loaded investment under the modified PIH has a growth enhancing effect on the non-resource sector. Higher revenue generated from a more developed non-resource sector would help narrow the non-resource primary deficit, which, in turn, would imply a smaller pool of resource wealth required for its financing.

These frameworks could inform fiscal consolidation paths under different resource horizons, investment plans, and external environment assumptions. For example, based on current proven reserves of natural gas, equivalent to about 17 years of average annual production, an analysis based on PIH suggests a sustainable non-resource primary fiscal deficit of 3¼ percent of GDP (which would imply a fiscal adjustment of about 5¾ percent of GDP from projected 2013 levels). A more optimistic scenario with a longer resource horizon and a moderate decline in the resource balance indicates a sustainable deficit of 4½ percent of GDP. The figures below show an illustrative scenario with a gradual decline of current levels of spending, followed by an MPIH adjustment period to accumulate the resource wealth to the level needed to achieve long term sustainability.

Insulating budget expenditure from commodity price fluctuations is also important for resource rich countries. Bolivia has managed the price risks through the practice of conservative forecasting of oil prices in the budget and the prudent use of hydrocarbon revenues. While this helped the authorities to successfully set aside windfalls from the commodity price boom, expenditure has been on occasion unpredictable, calling for the reformulation of the budget during the fiscal year. Calculating the structural fiscal balance (SB) and using it as a policy tool could be a first step towards a more systematic and predictable management of resource revenues.

The SB helps assess the fiscal stance by adjusting fiscal indicators by the output cycle and the impact of commodity price shocks, asset price cycles, and any one-off factors. The measure is highly relevant for Bolivia, as the increasing importance of hydrocarbon revenues backed by higher prices and greater demand for its natural gas exports has made it difficult to assess the underlying fiscal stance in recent years. Two measures of SB are of relevance for Bolivia: (i) the cyclically-adjusted non-hydrocarbon primary balance, and (ii) the structural primary balance with the hydrocarbon-balance based on structural commodity prices.

(i) Cyclically-adjusted non-hydrocarbon primary balances adjust non-hydrocarbon primary balances by the output cycle, ideally measured against non-hydrocarbon GDP. The adjustment for the output cycle requires calculating potential output, the output gap, and budget elasticities, and identifying one-off items.

Potential GDP and the output gap can be calculated by various statistical and economic methods, including extracting the trend that smoothes business cycle fluctuations, the production function approach based on the trend subcomponents of GDP, and econometric models. Staff estimates suggest that Bolivia’s potential growth is around 5 percent (Annex II).
Elasticities estimate how budget revenues or expenditures respond to changes in the economic cycle. A bottom-up approach is taken to apply estimated elasticities for major revenue categories (e.g. income taxes, indirect taxes, and social security contributions) to adjust non-hydrocarbon tax revenues for the output cycle. The elasticities of income taxes are estimated in the range of 2½–3½ percent and indirect taxes at 1½ percent. Historical averages of the last 20 years show similar trends, with elasticities of 1–2½ percent for income taxes and around 1 percent for indirect taxes. Expenditures are typically assumed as structural, with zero elasticity to output.
One-off items consist of non-recurrent revenue and/or expenditure items that have limited impact on domestic activities. For Bolivia, the nationalization costs incurred in 2007–09 are adjusted as a one-off item.

(ii) The structural primary balance is calculated by adding structural hydrocarbon balances to the cyclically-adjusted non-hydrocarbon primary balance. The structural hydrocarbon balance aims to remove the effect of commodity price volatility by applying rule based prices. Commodity exporting countries apply various price rules. For example, benchmark prices set by an independent committee (Chile); moving averages of historical prices (Ghana); moving averages of historical, current and projected future prices (Trinidad and Tobago); and average forecasts by private sector analysts (Alberta, Canada). For illustration purposes, the figure shows structural balances based on three price rules: five year historical average (5/0/0); average of the past five years, current, and forecast for the next five years (5/1/5); and average of the past twelve years, current, and forecast for the next three years (12/1/3).

Structural primary balance targets can be set to determine the level of expenditure, irrespective of the realized level of commodity prices and revenues. The primary balance target may be complemented by rules applied specifically to expenditures, such as ceilings on real expenditure growth, to further reduce volatility and limit pro-cyclicality. The figures below shows the actual primary balance and the primary balance that would have been realized under a structural primary balance target of 0 percent of GDP. Additional cumulative savings under those price rules and structural balance target, compared to the actual level of expenditure, are also shown below.

The use of the structural balance as a policy tool could be augmented by improvements in the quality of data and the institutional framework. Enhancing the quality and timeliness of fiscal data would help measure the fiscal policy stance more accurately, and its publication would strengthen transparency. Once monitoring of the structural balance is well established and integrated as a policy tool, the authorities could consider establishing formal fiscal rules to cope with price volatility and the exhaustibility of natural resource revenues. For fiscal rules to be effective, they should be measurable and evaluable. The rules should also be clear about the objectives, institutions, and reporting arrangements to avoid undermining their credibility.

Annex II. Potential Output

Estimating potential output is useful for the conduct of macroeconomic policy in Bolivia. Assessing the position of the economic cycle is critical given the increasing need to assess the monetary policy stance that would maintain low and stable inflation, evaluate the fiscal stance that could help bring the non-hydrocarbon fiscal balance to a sustainable path, and ultimately support long term growth.

However, the estimation of potential output is challenging. The Bolivian economy seems to have exhibited a structural break in 2001, with a sharp fall in output followed by a long period of strong growth. In addition, important structural transformations in recent years implied a noticeable acceleration in real GDP growth, with implications for trend or potential GDP.

A battery of methodologies is used to estimate a range of values for potential output in Bolivia. Univariate methods include the Hodrick-Prescott (HP) filter and band-pass filters (Baxter and King; Christiano and Fitzgerald). Multivariate methods include the Kalman filter with variants of the unobserved components model incorporating a Phillips curve (PC) and Okun’s law (OL), and the production function (PF) approach based on a Cobb-Douglas production function with labor, physical and human capital, and technology inputs filtered by HP and band-pass filters.

Trend Growth and Output Gap Estimates

(In percent)

Sources: National Institute of Statistics and Fund staff calculations.

Trend Growth and Output Gap Estimates

(In percent)

		Trend growth		Output gap
Method		1990-2006	2007-2013	2012	2013
Univariate	Range	3.56 – 3.61	4.68 – 4.92	-0.64 – -0.27	0.48 – 0.87
Filters	Average	3.58	4.79	-0.52	0.65
Kalman Filter	PC+OL	3.75	4.55	-1.22	0.1
Production	Range	3.65 – 3.76	4.88 – 5.01	-0.83 – -0.01	0.34 – 0.95
Function	Average	3.66	4.94	-0.6	0.53
All	Range	3.56 – 3.76	4.55 – 5.01	-1.22 – -0.01	0.1 – 0.95
	Average	3.66	4.76	-0.78	0.42

Sources: National Institute of Statistics and Fund staff calculations.

Trend Growth and Output Gap Estimates

(In percent)

		Trend growth		Output gap
Method		1990-2006	2007-2013	2012	2013
Univariate	Range	3.56 – 3.61	4.68 – 4.92	-0.64 – -0.27	0.48 – 0.87
Filters	Average	3.58	4.79	-0.52	0.65
Kalman Filter	PC+OL	3.75	4.55	-1.22	0.1
Production	Range	3.65 – 3.76	4.88 – 5.01	-0.83 – -0.01	0.34 – 0.95
Function	Average	3.66	4.94	-0.6	0.53
All	Range	3.56 – 3.76	4.55 – 5.01	-1.22 – -0.01	0.1 – 0.95
	Average	3.66	4.76	-0.78	0.42

Sources: National Institute of Statistics and Fund staff calculations.

The main results suggest:

Following a trough in 2001, trend growth (Y) accelerated, especially after mid-2000 on the back of a sizable increase in the contribution from TFP and some improvement in the contribution from the capital stock (K). The increase in TFP could be capturing some of the impact of the commodity price boom not adequately reflected in the stocks of physical and human capital (H).
Potential output growth has been in the range of 4.5 to 5 percent in the last five years.
Trend growth peaked recently and is expected to average 5.2 percent in the near future, although there is high uncertainty given ongoing structural changes in the economy.
Following a decade long negative output gap, the output gap closed in 2013, averaging 0.4 percent, and is expected to converge to nil in the near future.

Keeping in mind the caveats on the estimates, policy suggestions include:

Maintaining a neutral monetary and fiscal policy stance given the consistency of the estimates across methodologies in pointing to a closed output gap.
Speeding up reforms tailored to enhance TFP to sustain higher long term growth.
Improving physical and human capital accumulation though increased investment in infrastructure, education and healthcare and addressing the challenge of high labor informality that constitutes a drag on productivity.

Annex III. Assessing External Spillovers

Bolivia’s economic linkages with Brazil and Argentina have strengthened in recent years with its exports to these countries increasing by more than fivefold since early 2000. As a result, Bolivia has become more vulnerable to shocks affecting its two largest neighbors. In view of their size and interconnectedness, the Brazilian and Argentinean economies can therefore act as transmitters and/or amplifiers of global demand shocks onto the Bolivian economy.

The spillover effects of regional and global shocks on Bolivia were identified using a structural VAR (SVAR) model. The model contains three block exogeneity restrictions: one containing only global variables (global demand and oil prices), a second block containing regional variables (Argentinean and Brazilian variables), and a third (domestic) block, with Bolivian variables. Following the methodology presented in Sims and Zha (2006),^¹⁴ counterfactual scenarios are constructed to quantify the empirical relevance of different channels of transmission of spillovers.

The key findings are:

Spillovers from Brazil. A one percentage point reduction in Brazil’s output growth rate lowers Bolivia’s output growth by 1/3 percentage point on impact. The cumulative effect is a contraction of 0.8 percent over a twelve month period. An unanticipated growth shock in Brazil is transmitted mainly through the trade channel.
Spillovers from Argentina. A one percentage point negative shock to Argentina’s output growth rate also lowers Bolivia’s output growth by close to 1/3 percentage point on impact. Over a twelve month period the cumulative effect on Bolivia of a growth shock in Argentina is larger than for the shock on Brazil, with Bolivian output decreasing by 1 percent. The main channels of transmission for the spillovers stemming from Argentina are third- country effects (Argentina’s growth shock is transmitted to Bolivia through a scaling down in exports to Brazil).
Global demand and oil prices. A one percentage point cutback in global demand brings down Bolivian output growth by 1.8 percent. At its trough, growth in Bolivia is principally affected by lower trade flows to Brazil. Oil prices have a large and significant effect on Bolivia’s output. A ten percent drop in oil prices (relative to the U.S. consumer price index) would reduce Bolivia’s output by 1.6 percent after one year. The impact of oil prices on trade flows with Brazil is the main factor behind the contraction of Bolivia’s output.

Regional and global growth shocks appear to have a strong impact on Bolivia. Albeit it comes as no surprise, the empirical exercise suggests that trade flows with Brazil are the main channel of transmission of spillovers from external growth shocks or shocks to international oil prices. While domestic non-trade effects are particularly important for explaining the initial impact on Bolivia’s output of foreign shocks, the volume of exports to Brazil is the main driver of Bolivia’s output several months after impact.

Understanding the transmission mechanism of external disturbances is important for macroeconomic management. Prudent fiscal policies and current account surpluses over the past several years have allowed Bolivia to accumulate significant buffers, but the economy is still vulnerable to external shocks which are transmitted and amplified primarily through the trade channel with Brazil. To ensure sustainable economic growth over the medium term, it would be important for the authorities to continue their efforts to diversify the export base, increase competitiveness, and manage natural resource wealth in an effective manner.

Annex IV Exchange Rate and Competitiveness Assessment

Against a backdrop of substantial reserves accumulation, Bolivia’s real effective exchange rate (REER) has risen by about 21 percent over the last decade. Bolivia’s strong terms of trade, large public investment, and relatively high inflation rate account for most of the appreciation. Although there has been a nominal strengthening against regional currencies, the Boliviano has been kept virtually fixed vis-à-vis the U.S. dollar since late 2011.

CGER methodologies tailored for resource rich countries suggest no significant misalignment:^¹⁵

The benchmark Macroeconomic Balance (MB) approach was modified to separate the effects of hydrocarbon revenues and fiscal policy in the current account and to capture the elasticity of non-hydrocarbon exports and imports relative to the REER.^¹⁶ Following the large increase in the current account surplus in 2012, the MB approach suggests that a strengthening of Bolivia’s REER would be needed for the underlying current account balance (CAB) to be close to its estimated medium term norm

(-1.4 percent of GDP).^¹⁷ The estimated deviation from equilibrium is not statistically significant.
The Equilibrium Real Exchange Rate (ERER) assessment points to an overvaluation of the exchange rate of about 12 percent as of September 2013. The ERER is estimated as a function of medium term fundamentals (terms of trade, net foreign assets, public expenditure, FDI, and productivity). The estimates are less robust than other approaches, given significant structural changes in the Bolivian economy in recent years that are not well captured in the model. The estimated deviation from equilibrium is not statistically significant.
The external sustainability (ES) method suggests the boliviano is line with fundamentals, which would suggest that Bolivia’s net foreign assets positions would stabilize at around 19 percent of GDP over the medium term.

Bolivia has increased its share in global export markets. The exports-to-GDP ratio has increased from 20 percent to around 40 percent over the last decade. On the structure of exports, hydrocarbon exports (primarily natural gas) have increased significantly to 46 percent of total exports (from 24 percent a decade earlier), concentrated in two main markets: Argentina and Brazil. The share of mining-related products has increased markedly as well, despite a sharp reduction in 2012. Policies aimed at strengthening food security have restricted non-traditional exports, mainly sugar, soybeans, corn, and meats (with a current share of 15 percent of total exports compared to 55 percent in 2002).

Addressing longstanding weaknesses in the business environment would help boost competitiveness further. Bolivia’s ranking in the 2013–14 World Economic Forum’s Global Competitiveness Index improved to the 98^th position (out of 148 countries), from 104^th in the 2012–13 survey. Most of this improvement was driven by a better ranking in the macroeconomic environment (from 49^th to 28^th). Infrastructure bottlenecks, low labor market efficiency, and poor quality of higher education continue to adversely weigh on the country’s competitiveness. Bolivia also stands low in the World Bank’s Doing Business Index,^¹⁸ ranking 162^nd out of 185 countries. Tax evasion, extensive procedures and days to start a business, and burdensome building permits are the main components behind Bolivia’s relatively poor performance in this survey. Structural reforms, which would include addressing widespread labor informality, are needed to enhance competitiveness and productivity.

Measures included increasing imports of those products and reaching agreement with domestic suppliers on their wholesale price.

Bolivia has accepted the obligations under Article VIII, sections 2, 3, and 4. The exchange system is free of restrictions on the making of payments and transfers for current international transactions.

The yield of the 1-year t-bill increased to 4.08 percent in November 2013 from 0.75 percent at end-2012.

The fiscal impulse is calculated as the change in the cyclically-adjusted non-hydrocarbon fiscal balance (Annex I).

See accompanying Debt Sustainability Analysis.

Banking sector credit accounts for about ¾ of total credit to the private sector; the remaining ¼ is provided by cooperatives and other non-bank financial institutions.

Reserve requirements on foreign currency deposits are scheduled to steadily rise to 66.5 percent by 2016, from 21.5 percent in 2008.

The issuances included collective action clauses.

Staff estimates that potential growth in Bolivia is in the range of 4.5 to 5 percent (Annex II).

See accompanying Debt Sustainability Analysis.

In addition to the new taxes on the financial sector, the authorities have strengthened tax administration and significantly broadened the base of contributors.

The 13-month wage was doubled and the solidarity pension increased in 2013.

The Financial Services Law explicitly states the supremacy of its provisions over contradictory laws, but recognizes that the Central Bank of Bolivia is regulated by its own legal framework (Art. 5).

Sims, C. and Zha, T. “Does Monetary Policy Generate Recessions?” Macroeconomic Dynamics, 10(02):231–272, 2006.

Based on “Macroeconomic Policy Frameworks for Resource-Rich Countries.” 2012 IMF Policy Paper.

The modified MB approach uses the non-hydrocarbon fiscal balance instead of the standard fiscal balance and a hydrocarbon export balance instead of the oil export balance.

The CAB norm under the benchmark MB approach is -1.8 percent of GDP.

These indicators should be interpreted with caution due to a limited number of respondents, a limited geographical coverage, and standardized assumptions on business constraints and information availability.

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Bolivia: Staff Report for the 2013 Article IV Consultation

Author:

International Monetary Fund. Western Hemisphere Dept.

Volume/Issue:: Volume 2014: Issue 036

Publisher:: International Monetary Fund

ISBN:: 9781475550528

ISSN:: 1934-7685

Pages:: 78

DOI:: https://doi.org/10.5089/9781475550528.002

Keywords
Background
Recent Developments
Outlook and Risks
Policy Discussions
Staff Appraisal
Annex I. A Medium Term Fiscal Framework for Managing Resource Wealth
Annex II. Potential Output
- The main results suggest:
- Keeping in mind the caveats on the estimates, policy suggestions include:
Annex III. Assessing External Spillovers
Annex IV Exchange Rate and Competitiveness Assessment

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Figure 1.

Bolivia: Recent Economic Developments

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Headline Inflation and Commodity Prices, 2008-2013

(In percent, y/y)

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NIR Coverage in 2013

(In percent of GDP)

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Figure 2.

Bolivia: Real Sector Developments

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Figure 3.

Bolivia: External Sector Developments

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Figure 4.

Bolivia: Monetary Developments

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Figure 5.

Bolivia: Fiscal Developments

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Figure 6.

Bolivia: Financial Sector Developments

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Non-resource Primary Balance, 2013-2033

(In percent of GDP)

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Financial Wealth, 2013-2031

(In percent of GDP)

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Non-hydrocarbon Primary Balances ^1/

(In percent of GDP)

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Structurally Adjusted Primary Balances

(In percent of GDP)

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Realized Overall Primary Balance

(In percent of GDP)

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Cumulative Financial Savings

(In percent of GDP)

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Real GDP Growth in Bolivia, 1980-2013

(In percent)

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Contribution to Potential GDP Growth

(In percent)

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Potential GDP Growth

(In percent)

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Output Gap

(In percent)

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Natural Gas Exports by Destination

(In percent of total natural gas exports)

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Natural Gas Prices to Brazil and Argentina, and Crude Oil

(Dollars per MMBTU)

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Decomposition of Response to Brazil’s Output Shock

(In percent, y/y)

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Decomposition of Response to Argentina’s Output Shock

(In percent, y/y)

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Decomposition of Response to Global Demand Shock

(In percent, y/y)

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Decomposition of Response to Oil Price Shock

(In percent, y/y)

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Real and Nominal Efefctive Exchange Rate

(Index 2005=100; + means appreciation)

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Real Effective Exchange Rate ^¹

(Average 1993–2013 = 100)

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Real Exchange Rate Assessments

(In percent, deviation from equilibrium)

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Export Market Shares

(In percent)

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World Economic Forum and Doing Business Indicators

(WEF, out of 148; Doing Business, out of 185)

Foresee

Trend Growth and Output Gap Estimates

(In percent)

		Trend growth		Output gap
Method		1990-2006	2007-2013	2012	2013
Univariate	Range	3.56 – 3.61	4.68 – 4.92	-0.64 – -0.27	0.48 – 0.87
Filters	Average	3.58	4.79	-0.52	0.65
Kalman Filter	PC+OL	3.75	4.55	-1.22	0.1
Production	Range	3.65 – 3.76	4.88 – 5.01	-0.83 – -0.01	0.34 – 0.95
Function	Average	3.66	4.94	-0.6	0.53
All	Range	3.56 – 3.76	4.55 – 5.01	-1.22 – -0.01	0.1 – 0.95
	Average	3.66	4.76	-0.78	0.42

Sources: National Institute of Statistics and Fund staff calculations.

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Abstract

Background

Recent Developments

Outlook and Risks

Policy Discussions

A. Strengthening the Fiscal Framework

B. Maintaining Low and Stable Inflation

C. Safeguarding Financial Stability

D. Sustaining Inclusive Growth

Staff Appraisal

Annex I. A Medium Term Fiscal Framework for Managing Resource Wealth

Annex II. Potential Output

The main results suggest:

Keeping in mind the caveats on the estimates, policy suggestions include:

Annex III. Assessing External Spillovers

Annex IV Exchange Rate and Competitiveness Assessment

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International Labour Organization

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