Economic studies
Bolivia

Bolivia

Population 11.1 million
GDP per capita 3,413 US$
C
Country risk assessment
B
Business Climate
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) 4.3 4.2 4.3 4.0
Inflation (yearly average, %) 3.6 2.8 3.2 4.1
Budget balance (% GDP) -7.2 -7.8 -7.5 -7.0
Current account balance (% GDP) -5.7 -6.3 -5.3 -5.1
Public debt (% GDP) 44.9 49.0 50.6 52.6

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • Substantial mineral resources (gas, oil, zinc, silver, gold, lithium, tin, manganese) and agricultural resources (quinoa)
  • World’s 15th largest exporter of natural gas
  • Member of the Andean Community and associate member of Mercosur
  • Tourist potential
  • Currency pegged to the US dollar

WEAKNESSES

  • Economy is under-diversified and dependent on hydrocarbons
  • Private sector is underdeveloped; high dependence on public sector
  • Landlocked country
  • Large informal sector
  • Insecurity, drug trafficking, corruption
  • Risk of social unrest

Risk assessment

Stable, demand-driven growth

Domestic demand will drive growth again in 2019, thanks in particular to maintained high public spending. Public investment should continue growing under the nation’s broad investment plan, the Plan Nacional de Desarrollo Económico y Social. Worth USD 48.6 billion over 2016-2020 (116% of GDP in 2018), the plan was introduced in 2015 as part of a counter-cyclical recovery strategy in response to weaker commodity prices. Focused on developing infrastructure and state-owned companies in the energy sector, the programme targets the gas sector, which accounted for 35% of Bolivia’s exports in 2017, and refining. Meanwhile, to reverse the downturn in hydrocarbon production due to insufficient private investment in recent years, since late 2017 the government has signed several memoranda of understanding with foreign oil companies for hydrocarbon exploration and exploitation, including Repsol, Shell and Pan American Energy (USD 900 million), Petrobras (USD 700 million), Kampac Oil (USD 500 million), Milner Capital (USD 2 billion) and Gazprom (USD 1.2 billion). However, these investments will not translate into an effective increase in production until 2020 or even 2021. Although President Evo Morales has stressed that these private investments point to an improving environment, the business climate remains problematic (Bolivia placed 152nd in the Doing Business 2018 ranking, with a high risk of nationalisation and discrimination of private investors in favour of state-owned companies) and continues to influence investment decisions in the country. Agriculture, which accounts for 27% of jobs, is expected to remain strong, barring adverse weather conditions. Private consumption is set to slow as inflation rebounds. At the same time, inflation should remain measured thanks to the boliviano's peg to the dollar US. The failure to pay end-of-year bonuses in the public and private sectors (conditional on GDP growth of 4.5%) will limit the increase in purchasing power. Moreover, despite the strong increase in imports due to investment projects, external trade should make a positive contribution to growth, with exports expected to pick up on continued high hydrocarbon prices. Brazil and Argentina, which receive 98% of Bolivia's gas exports, will remain the main markets for hydrocarbon sales.

Twin deficits still substantial despite slight improvement

The government deficit should continue to shrink gradually in 2019 on strong energy-related revenues, but it will remain substantial as the government pursues its accommodative fiscal policy under its five-year investment plan. President Morales has also announced the introduction of universal social security in 2019 (0.7% of GDP). Generally speaking, in an election year, spending on civil servants' salaries and social programmes (29% and 21% of public spending respectively in 2017) is unlikely to go down. Public debt will thus continue to grow, while remaining sustainable (external share equivalent to 24% of GDP in August 2018).

The current account deficit will remain substantial despite a slight improvement. The balance of goods and, above all, services is in deficit because of the intermediate goods needed for investment projects. However, strong exports – chiefly of gas, gold and minerals such as zinc – should help to narrow the trade deficit, which will be partially offset by remittances from expatriate workers (4% GDP in 2017). Unless FDI accelerates sharply (2% of GDP in 2017), the government will finance the deficit by continuing to draw on foreign exchange reserves (nine months of imports in September 2018, compared with 12 in 2016 and 14 in 2015).

2019 general elections: President vs former President

President Evo Morales of the Movimiento al Socialismo (MAS) party, who has been in power since 2005, will stand for a fourth term in the October 2019 elections. Despite being rejected in the February 2016 referendum – 51.3% of people said they were against unlimited re-election – the two-term limit enshrined in the constitution was abolished by Bolivia’s constitutional court in November 2017. Mandatory primary elections for political parties, initially planned for 2024, will now take place in January 2019. The incumbent’s main opponent may be Carlos Mesa, President between 2003 and 2005. Because the new law prevents candidates from running without a party, Mesa is representing Comunidad Ciudadana, a centre-left coalition. Mr Mesa, who had been accused of unduly expelling a Chilean company during his term of office, was pardoned by President Morales in exchange for support in the case brought by Bolivia against Chile over access to the sea, which was rejected by the International Court of Justice in October 2018. While the election result is uncertain, polls conducted a year before Bolivians place their votes show Mr Morales and Mr Mesa, at 29% and 27% respectively, far ahead of the rest of the opposition, which includes Óscar Ortiz, of the centrist coalition Bolivia dice No.

 

Last update: February 2019

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