Bolivia: Staff Report for the 2016 Article IV Consultation—Informational Annex
Author:
International Monetary Fund. Western Hemisphere Dept.
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Publication Date:
22 Dec 2016
eISBN:
9781475561982
Language:
English
Keywords:
ISCR; CR; free-on-board imports valuation; U.S. dollar; deficit; IFC portfolio; IMF-WB MDRI initiative; SDR equivalent; market exchange rate volatility; regime of the pension and insurance supervisor; Anti-money laundering and combating the financing of terrorism (AML/CFT); External sector statistics; Development strategy; Customs administration core functions; exchange regime
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This 2016 Article IV Consultation highlights Bolivia's substantial economic and social progress, boosted by the commodity boom. Growth has been strong, averaging about 5 percent since 2006, and poverty has fallen by a third. During this time, the authorities built up sizable buffers and largely dedollarized the financial system. Real GDP growth is projected at 3.7 percent in 2016, which is still relatively strong by regional standards. In the medium term, growth is expected to converge toward 3.5 percent, consistent with the new commodity price normal, amid persistent twin deficits.

Abstract

This 2016 Article IV Consultation highlights Bolivia's substantial economic and social progress, boosted by the commodity boom. Growth has been strong, averaging about 5 percent since 2006, and poverty has fallen by a third. During this time, the authorities built up sizable buffers and largely dedollarized the financial system. Real GDP growth is projected at 3.7 percent in 2016, which is still relatively strong by regional standards. In the medium term, growth is expected to converge toward 3.5 percent, consistent with the new commodity price normal, amid persistent twin deficits.

Fund Relations

(As of September 30, 2016)

Membership Status: Joined December 27, 1945; accepted its obligations under Article VIII, sections 2, 3, and 4 on June 5, 1967. The exchange system is free of restrictions on current international payments and transfers.

General Resources Account

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SDR Department

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Outstanding Purchases and Loans: None

Latest Financial Arrangements: (In SDR Millions)

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Projected Payments to the Fund 2

(SDR Million; Based on existing use of resources and present holdings of SDRs)

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Safeguards Assessment. Under the Fund’s safeguards assessment policy, the Central Bank of Bolivia (CBB) was subject to an assessment with respect to the April 2, 2003 Stand-By Arrangement (SBA). A safeguards assessment was completed on June 27, 2003, and while no systemic risks with the CBB’s safeguards were identified, uncertainties were expressed about the de facto lack of operational independence and program monetary data. An update assessment was completed on September 27, 2004 in conjunction with an augmentation of the SBA. This assessment confirmed that measures had been implemented to address all previously identified vulnerabilities, except for those requiring a change in the central bank law. Currently, CBB is not subject to the policy.

Exchange Arrangement: The Bolivian currency is the Boliviano and the de jure exchange rate regime is crawling peg to the U.S. dollar. Within the scope of the official crawling peg exchange rate regime, in an external environment characterized by market exchange rate volatility and decreasing external inflation, the sliding rate was set to zero to anchor the public’s expectations. Consequently, the boliviano stabilized against the U.S. dollar since November 2011. Accordingly, the de facto exchange rate arrangement has been retroactively reclassified to a stabilized arrangement from a crawling peg, effective November 2, 2011. The exchange regime is free of restrictions and multiple currency practices.

Article IV Consultation: The last Article IV consultation was completed by the Executive Board on November 20, 2015 (Country Report No. 15/334). Bolivia is on a standard 12-month consultation cycle.

Implementation of HIPC Initiative

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Implementation of Post-Catastrophe Debt Relief (PCDR): Not Applicable

Technical Assistance, 2010–15

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Relations with the World Bank and Bank-Fund Collaboration Under the JMAP

A. Relations with the World Bank Group

The ongoing Country Partnership Framework (CPF) for the fiscal period 2016–20 constitutes the umbrella for World Bank Group (WBG) support to Bolivia. The CPF was discussed by the Board of Executive Directors in December 2015. The program under the CPF aims at maximizing the impact of WBG interventions on poverty reduction and the promotion of shared prosperity, the WBG Twin Goals. Three selectivity filters were used to frame the program: (a) broad consistency with the priority constraints identified in the WBG Systematic Country Diagnostic (SCD); (b) alignment with the Government’s development plans and demands; and (c) the WBG comparative advantage in sustaining Bolivia’s progress in moving toward the Twin Goals. Despite the filters, the WBG engagement in Bolivia will remain flexible with respect to the evolution of the country’s growth trajectory and new demands that may arise from the authorities.

The WBG program under the CPF is comprised of two pillars and five objectives that will provide general direction to the WBG’s engagement. The CPF has the following two pillars: (1) promote broad-based and inclusive growth; and (2) support environmental and fiscal sustainability, and resilience to climate change and economic shocks. Within each pillar, the following inter-linked objectives guide the WBG’s engagement: (i) reduce transport costs and increase connectivity of isolated and vulnerable communities to the national road network; (ii) increase access to selected quality basic services for the poorest rural and urban communities; (iii) improve opportunities for income generation, market access and sustainable intensification (Pillar 1); (iv) strengthen capacity to manage climate change and reduce vulnerability to natural disasters; and (v) strengthen institutional capacity to improve public resource management and the business environment (Pillar 2). The formulation of the pillars and objectives reflect the current portfolio and allow space for nascent government demands.

Bolivia will continue receiving financing from both the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) during the CPF period. The Bolivia CPF reflects an indicative lending volume of up to US$2 billion during the 2016–20 period. The Special Drawing Rights (SDR) 146 million (approx. US$208 million) of the IDA17 allocation for FY2015–17 was front-loaded and is already fully committed. The IDA Scale-up Facility allocated US$30 million to Bolivia that will be committed in late 2016. The CPF envisioned the transition of Bolivia to an IBRD-only status by the end of the IDA17 cycle at the end of FY2017. However, under ongoing discussions with regard to IDA financing, it is proposed that Bolivia, together with other three IDA graduate countries, will receive transitional support from IDA equivalent to ⅔ of the IDA17 allocation during the IDA18 cycle (FY2018–20).

The CPF takes into account the existing portfolio as much of the impact on the CPF objectives will be derived from the legacy portfolio. The World Bank active portfolio in Bolivia comprises 10 investment project financing worth US$766 million, of which US$486 million remain undisbursed (Table 1). The existing trend of a steady state number of projects (about 11–13) is expected to continue. The portfolio supports projects in the following areas: transport, rural development and agriculture, statistical capacity building, energy, urban development, climate change and employment. The first Development Policy Financing (DPF) in a decade, approved in FY2015 underpinned by a solid policy program in Disaster Risk Management, closed in mid-July. There are currently no plans to follow up with additional DFP financing.

The WBG’s engagement is defined for fiscal years 2017–19. The pipeline comprises five investment project financing and two additional financing for US$965 million. The authorities are prioritizing investments in the water sector, including drinking water, irrigation, basic sanitation and wastewater treatment plants, in line with the Government’s Economic and Social Development Plan for 2016–20. Transport, energy, rural and urban development areas continue to be priorities for Bank engagement. The tentative lending program for part of FY2019 and FY2020 is open and flexible to respond to emerging demands and reflects the findings of a Performance and Learning Review (PLR) that is planned for FY2018. The PLR will offer a critical stocktaking exercise and allow the WBG to adjust course as necessary.

Table 1.

World Bank Investment Portfolio in Bolivia (as of October 2016)

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Undisbursed balances differ from the difference between committed and disbursed amounts due to variations in the exchange rates between SDRs and U.S. dollars.

The International Finance Corporation (IFC) will continue supporting opportunities for private sector development under the CPF. The IFC portfolio comprises nine projects worth US$31.8 million in commitments. Last year, the IFC approved two long-term financing operations in Bolivia’s banking sector, the first ones in over a decade. These credit facilities aim to help banks strengthen their position to finance local Small and Medium Enterprises (SMEs). In addition, the IFC has lent to a firm in the wood manufacturing sector. In the next five years, IFC will work to strengthen its relations with clients in the private sector, focusing on finance, agribusiness, and services. As for Advisory Services (AS), the IFC is implementing projects in strategic sectors to maximize employment, simplify business creation and income generation by low-income people, and protect the environment. In addition, dialogue with partners in new sectors is underway. As for the Multilateral Investment Guarantee Agency (MIGA), it remains open to supporting foreign direct investments via its political risk insurance products.

In addition, the World Bank will continue providing Advisory Services and Analytics (ASA). In the next years ASAs will focus on those areas where the World Bank can provide value added, respond to Government needs and in alignment with the knowledge gaps identified in the Systematic Country Diagnostic. Table 2 presents the list of ongoing ASA. The program is kept open to respond to emerging requirements.

Table 2.

Ongoing ASA FY2017

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Trust funds (TF) continue to be used to support policy dialogue and to pilot innovative ideas. The current TF portfolio (Table 3) includes three grants in areas such as community-driven development in remote areas, institutional capacity in the public investment cycle, and the capacity to develop and implement a system of statistical indicators to measure well-being in a multidimensional sense.

Table 3.

World Bank Trust Fund Portfolio in Bolivia (as of October 2015)

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B. IMF Relations with the World Bank Under JMAP

The following priorities were identified for the coordinated work-plan on Bolivia:

  • Reducing poverty and inequality: Significant challenges remain in poverty reduction and inequality. The share of the population living in poverty has stagnated at around 38 percent between 2013 and 2015. Similarly, the reduction in income inequality has stopped since 2011, with a Gini of 0.47 in both 2011 and 2015.

  • Expanding access to basic services: Access to basic services, particularly in rural areas, remains a challenge. Access to water and sanitation, health, education, and social protection are in the agenda.

  • Promoting private investment: Private investment, both domestic and foreign direct investment, is below regional levels and has decreased after commodity prices plummeted.

  • Enhancing macroeconomic and fiscal framework: Strengthening Bolivia’s macroeconomic and fiscal management may help in dealing with the challenges brought by low commodity prices.

It was agreed that the teams continue with the following division of labor:

  • Poverty and social protection: The Bank has been providing technical assistance on poverty measurement, including monetary poverty and multidimensional well-being indicators. This complements the support provided to generate high quality statistical information through a STATCAP project. These tools would support both diagnosis and targeting of population that fails to reach minimum standards of multidimensional welfare. In addition, the Bank continues supporting improvements in the access to sustainable basic productive infrastructure for the most disadvantaged rural communities, the employability of vulnerable youth in urban and peri-urban areas, and will support the dialogue on key health issues.

  • Basic and social services: The Bank provides support to expand access to energy in unserved rural areas. It will also support the access to water, both for drinking and irrigation purposes in rural areas, as well as water and basic sanitation in peri-urban unserved areas. Support in the transport sector aims to increase connectivity not only for economic purposes but to facilitate access to services.

  • Private sector development: The IFC is providing credit lines to financial institutions in an on-lending program to SMEs. Additionally, the IFC provides short-term credit lines to guarantee trade operations. The corporation is also aiming to expand its activities to other sectors such as food, agro-industry, and education. Similarly, the IFC is providing technical assistance to promote more efficient processes to improve the business climate at both national and sub-national levels.

  • Macroeconomic and fiscal management: The Bank continues to be open to a government requirement to support activities based on previous technical assistance in debt management, multi-year budgeting and planning, public finance management, and public investment, including at the sub-national level.

Relations with the Inter-American Development Bank

As of September 30, 2016, the Inter-American Development Bank (IDB) had approved loans to Bolivia amounting to US$6.64 billion, with disbursements totaling US$4.91 billion. Bolivia’s outstanding debt to the IDB was US$2,165 million with undisbursed approved funds of US$1,325 million. During the year, net cash flows to the country were positive for an eight year in a row, a trend expected to continue in the baseline scenario to 2017. At the end of 2007, the IDB unilaterally joined the IMF-WB MDRI initiative, by writing off a total of US$741.1 million in principal payments and US$307.3 million of future interest payments, generating an estimated annual fiscal space of more than US$18.0 million on average.

In order to make the IDB’s concessional assistance to its poorest and most vulnerable member countries (Bolivia, Guyana, Honduras, and Nicaragua) sustainable, the Board of Executive Directors and Management have resolved the transfer of the resources of the Fund of Special Operations (FSO) into the Ordinary Capital (OC). Modifications to the eligibility criteria and financial structure for providing concessional lending to eligible borrowing members have also been approved. This transfer and modifications will be effective and implemented on January 1, 2017 and will allow Bolivia to keep having access to concessional borrowing.

The IDB and Bolivia approved at end-2015 a new country strategy for the period 2016–20. Under the country strategy, the IDB has decided to increase financial flows to Bolivia. While in 2011 the approval of new loans was US$252 million; it reached US$475.1 million in 2015 and will reach US$680.73 million in 2016 (US$633.4 million of blend financing and US$47.33 million from a one-time Grant Leverage Mechanism). The country strategy also contemplates a scenario where after 2016 the approval of new loans could go back to 2015´s levels given a new FSO performance-based allocation exercise.

The actions provided in the new Bank´s country strategy are consistent with Bolivia´s National Development Plan 2016–20. The strategy will help in the medium and long term development of Bolivia supporting three priority areas: (i) increasing productivity and diversifying the economy, (ii) closing social gaps, and (iii) improving of public management.

As of September 30, 2016, the portfolio of sovereign guaranteed operations in Bolivia consisted of 34 operations, totaling US$2.17 billion, of which 38.8 percent had been disbursed. The current executing portfolio supports mostly transport, water and sanitation and energy infrastructure interventions. The non-sovereign guaranteed executing portfolio consists of 15 loans equaling to US$81.7 million.

Statistical Issues

(As of November 22, 2016)

A. Assessment of Data Adequacy for Surveillance

General. Data provision has some shortcomings, but is broadly adequate for surveillance. Progress has been made to strengthen the quality of statistics, including working towards full subscription of the Special Data Dissemination Standard (SDDS). Timely publication of macroeconomic data according to a pre-announced schedule, improving data on quasi-fiscal activities of subsidiaries of SOEs outside of the fiscal accounts, and publishing a real estate price index would be further important steps to improve transparency.

National Accounts. The National Institute of Statistics (INE) is working on updating of the base year of the national accounts (from 1990 to 2010, with mobile base) which includes the implementation of the System of National Accounts 1993 (SNA 1993) and some of the most relevant recommendations of the SNA 2008. The INE plans to release series for years 2010–15 in mid-2017, and then gradually release historic quarterly and regional national accounts from 1990,

Labor market. The quality of household and employment surveys has declined in the last few years, due mainly to financial constraints. The quarterly employment survey was discontinued in 2010, leading to a lack of quarterly information on unemployment, employment and wages. Yearly information on wages is still compiled by the INE. Currently, the INE is working on new household and employment surveys to be published next year with information since 2015.

Prices statistics. Industrial producer price indices (PPI) and external trade unit values are compiled by the INE, but are in need of revision as regards concepts and definitions consistent with SNA 1993, as well as treatment of seasonal products, missing items, quality changes, and introduction of new products. Two PPI TA visited Bolivia in 2015 and 2016. The INE is updating the CPI base year to be released during the first quarter of 2017; and preparing a new producer price index and a wholesale price index, both planned to be published in 2017.

Government finance statistics. Annual data on the operations of the consolidated central government do not cover all operations of decentralized agencies and operations channeled through special funds. The ongoing implementation of a comprehensive financial management system, with funding from the IADB/WB, will help ensure proper monitoring of public sector financial operations including subnational fiscal operations, debt and social spending. It will also be important to improve on the reporting of the operations and debt of public enterprises.

Balance of payments. In November 2016, the BCB began publishing balance of payments and international investment position data according to the Balance of Payments Manual, sixth edition (BPM6). The transition to BPM6 accounting principles took place along with a technical assistance program provided by the Fund and financed by the sub-account of the Government of Belgium. These revised external sector statistics (ESS) contain a number of methodological enhancements including improved coverage in the financial account and IIP, better classifications of institutional sectors and financial instruments, and a more comprehensive method to account for processing services performed on certain types of Bolivia’s exports, among others. SDDS requirements for ESS are almost met, except for the publication of a calendar with data release dates.

B. Data Standards and Quality

Bolivia has participated in the General Data Dissemination System (GDDS) since November 2002. Data ROSC published on August 13, 2007.

Bolivia: Indicators Required for Surveillance

(As of November 22, 2016)

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Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); Not Available (NA).

Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Bolivia does not compile central government fiscal data.

Guaranteed non-financial public sector debt. Including currency and maturity composition.

Monthly frequencies for goods only.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Reflects the assessment provided in the data ROSC (published on August 13, 2007, and based on the findings of the mission that took place during January 24–February 7, 2007) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 10, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

1

Formerly PRGF.

2

When a member has overdue financial obligations outstanding for more than three months, the amount such arrears will be shown in this section.

3

Assistance committed under the original framework is expressed in net present value (NPV) terms at the completion point, and assistance committed under the enhanced framework is expressed in NPV terms at the decision point. Hence these two amounts cannot be added.

4

Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.

5

The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for the assistance. Grant assistance from the MDRI Trust and HIPC resources provide debt relief to cover the full stock of debt owed to the Fund as of end-2004 that remains outstanding at the time the member qualifies for such debt relief.

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Cover IMF Staff Country Reports
Bolivia: 2016 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Bolivia
Author:
International Monetary Fund. Western Hemisphere Dept.
Volume/Issue:
Volume 2016: Issue 387
Publisher:
International Monetary Fund
ISBN:
9781475561982
ISSN:
1934-7685
Pages:
91
DOI:
https://doi.org/10.5089/9781475561982.002