IMF Survey, Volume 35, Issue 17

Article

Country Briefs: Bolivia Needs to Cement Macroeconomic Gains and Boost Growth

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 2006
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Over the past year, Bolivia experienced major political changes, culminating in the election in December 2005 of its first indigenous head of state. The government of Evo Morales inherited a favorable macroeconomic situation. In 2005, according to the IMF’s latest economic review, GDP growth exceeded 4 percent, the fiscal deficit was 2.3 percent of GDP, and inflation was below 5 percent. Financial sector stability improved, the balance of payments was strong, and official foreign exchange reserves rose. The Multilateral Debt Relief Initiative reduced Bolivia’s public debt. But key social indicators continued to lag.

Executive Directors agreed that, partly because of strong prices of hydrocarbons exports, Bolivia’s short-term prospects are favorable, but they noted that medium-term challenges remain. They encouraged the government to cement recent macroeconomic gains, enhance the business climate, and promote growth. Directors stressed the importance of fiscal prudence and strengthened public expenditure management, and recommended that attention be given to enhancing domestic taxation.

Bolivia
Prel.Proj.
20032004200520061
(percent change)
Real GDP2.93.94.14.1
Consumer prices (end-period)3.94.64.94.0
(percent of GDP)
Total public debt74.077.270.150.8
Overall balance-7.9-5.6-2.3-0.1
Gross international reserves 11,2661,4742,0192,564

In dollars. Excludes reserves from Latin American Reserve Fund and includes offshore liquidity requirements.

Data: Bolivian authorities and IMF staff estimates and projections.

In dollars. Excludes reserves from Latin American Reserve Fund and includes offshore liquidity requirements.

Data: Bolivian authorities and IMF staff estimates and projections.

Expressing concern about large explicit and implicit subsidies, Directors urged that domestic petroleum product prices be moved gradually to international levels and that a part of the resulting fiscal savings be used to protect vulnerable groups.

Directors observed that, in the hydrocarbons sector, considerable uncertainty surrounds the modalities for implementing the recent nationalization decree. They urged the authorities to work toward achieving mutually acceptable arrangements with the oil companies concerned.

Directors welcomed the government’s emphasis on greater equity, transparency, and accountability. However, they saw the parallel emphasis on an increased role for the state as risking the environment for private investment. Directors recommended that the authorities maintain a careful balance between government interventions in the economy and the preservation of appropriate incentives for private investment to support growth and raise employment and living standards.

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