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Andres Gonzalez, Mr. Etibar Jafarov, Diego Rodriguez Guzman, and Chris Walker
Bolivia has achieved noteworthy success over the past 15 years in raising incomes, reducing poverty, and maintaining macroeconomic stability by deploying commodity revenues to finance transfers, public investment, and state-led development, using an exchange rate peg as a policy anchor. However, with the end of the commodity boom in 2014, fiscal deficits have grown and reserves have fallen. One route to restoring long-run sustainability would be to combine fiscal consolidation with a switch to a floating exchange rate. However, a preference for maintaining the peg could be accommodated with adjustments elsewhere in the policy framework. Employing a detailed dynamic stochastic general equilibrium model of the Bolivian economy, this study assesses the long-run sustainability and relative benefits of alternative policy combinations, and calculates optimal adjustment paths for the transition from the present situation to the steady state. It concludes that continued adherence to a fixed-rate regime, while not optimal, is feasible, if supported by a larger fiscal effort.
International Monetary Fund. Western Hemisphere Dept.
Following the October 2020 election, the new administration moved to tackle the devastating human and economic effects of the COVID-19 pandemic. The economy shows signs of recovery from its 8.8 percent contraction in 2020. However, fiscal imbalances have increased and international reserves continue to fall. On February 12, Bolivia repurchased the 240.1 million SDR purchase under the Fund’s Rapid Financing Instrument (that was approved by the Fund’s Executive Board in April 2020).
International Monetary Fund. Western Hemisphere Dept.
This paper presents Bolivia’s Request for Purchase Under the Rapid Financing Instrument (RFI). Bolivia has requested a purchase under the RFI to cover the urgent balance of payments need arising from an ongoing shift in its terms of trade, slowdown in capital flows, and sudden increase in health care expenditure needs, precipitated by the coronavirus disease 2019 epidemic. The IMF staff assess that Bolivia meets the eligibility requirements for the RFI. Public debt is sustainable, and Bolivia has adequate capacity to repay the IMF. The epidemic will have a substantial impact on Bolivia’s economy, constraining domestic output, reducing export demand, lowering the price of its principal exports, curtailing external financing flows, squeezing fiscal revenues, and increasing expenditures for public health and social support. In IMF staff’s view, Bolivia’s debt remains sustainable over the medium term and, while the outlook remains highly uncertain, Bolivia maintains an adequate capacity to repay the IMF. The IMF staff therefore recommend Board approval of Bolivia’s request for a purchase under the RFI of 100 percent of quota.