A New Day for Bolivia: The Anatomy of a Crisis and the Options Ahead

This paper analyzes Bolivia’s twin fiscal and external crisis. It reviews how the crisis emerged, the stabilization agenda of the Paz government thus far, and what more is needed. It raises concerns that the government’s reform commitment has weakened. Conducting a Debt Sustainability Analysis, it demonstrates that Bolivia must enact a fiscal and external adjustment, alongside a five-year reprofiling its bilateral and private external debt, to stabilize debt and restore growth. The paper also calls attention to challenges facing the future of Bolivia’s growth — idiosyncratic headwinds for the hydrocarbon and lithium sectors — and encourages renewed multilateral investment in the strong but underappreciated agricultural sector. Lastly, it draws attention to the deterioration of the Bolivian Central Bank’s balance sheet, as a result of loans to non-performing SOEs and the opaque use of gold derivatives, and advocates a review of reserve management policies and a fiscal recapitalization.