Bolivia

What it is

Bolivia is a landlocked Andean nation of roughly 12 million people bordered by Brazil, Peru, Chile, Argentina and Paraguay. Its economy was built on natural gas exports nationalised by President Evo Morales in 2006, which funded a major expansion of social programs and state enterprise. Hydrocarbon revenues allowed the Morales government to cut the poverty rate from over 60% to below 35% between 2006 and 2014. When commodity prices fell after 2014 and mature gas fields declined, the government financed continued spending by drawing down foreign reserves and running fiscal deficits, producing a classic twin fiscal and external crisis. Bolivia also holds some of the world's largest lithium deposits in the Salar de Uyuni salt flat, but stalled foreign investment agreements left most commercially undeveloped as of mid-2026.

History

Bolivia's gross international reserves peaked at US$15 billion in 2014, when it ranked as South America's second-largest natural gas exporter. As global commodity prices fell and fields matured, the Morales and then Luis Arce (2020-2025) governments maintained spending with central bank financing, averaging fiscal deficits of roughly 7% of GDP from 2016 to 2023. Bolivia maintained a fixed exchange rate of Bs 6.96 per US dollar from late 2011, which became progressively overvalued, generating a parallel market that by 2025 placed the dollar near Bs 20. Morales resigned in November 2019 amid disputed election results; Arce won the October 2020 election and continued the expansionary model through 2025. Bolivia had previously run orthodox stabilisation programs under IMF oversight in the 1980s after a devastating hyperinflation episode that reached an annualised rate of approximately 24,000% in 1985.

Current state

The IMF's 2025 Article IV consultation, concluded May 2025, rated Bolivia's near-term sovereign distress risk as high. Bolivia's fiscal deficit exceeded 10% of GDP in 2024 and was projected at 13% in 2025. Public debt rose toward 95% of GDP. Net international reserves fell from the 2014 peak of US$15 billion to roughly US$3.1 billion by mid-2026, with usable reserves estimated below US$500 million.

Centre-right President Rodrigo Paz, inaugurated November 8, 2025 after winning a runoff election with 55% of the vote, cut fuel subsidies in December 2025 and began IMF negotiations on a roughly US$3.3 billion programme. On June 26, 2026, Bolivia ended its 15-year fixed exchange rate, floating the boliviano at an opening rate of Bs 9.73 per US dollar, approximately 40% below the old peg, as a precondition for that financing (see Bolivia ends a 15-year dollar peg as Ministerial Resolution 245 sets a floating boliviano at Bs 9.73 per US dollar). The adjustments triggered mass protests and three cabinet resignations in ten days in late May and early June 2026, with Bolivians setting up roughly 100 roadblocks nationwide and demanding Paz resign.

Relationships

Bolivia's primary trade relationships are with Brazil and Argentina, both major buyers of Bolivian natural gas under long-term contracts that generated most of Bolivia's export revenue. Those revenues have declined as mature gas fields lost output and no major new reserves came on line. The Paz government restored US diplomatic ties severed under Morales in 2008 and invited the US Drug Enforcement Administration to return. The IMF and World Bank are now Bolivia's main multilateral financial partners after being kept at arm's length during the Morales-Arce era. Former President Evo Morales, under a Tarija court arrest warrant issued in May 2026 on aggravated human trafficking charges (see محكمة تاريخا في بوليفيا تصدر مذكرة اعتقال بحق إيفو موراليس بعد غيابه عن المحاكمة للمرة الثالثة), retains a political base in the Chapare coca-growing region and leads the MAS faction that holds a legislative majority, complicating the Paz government's reform agenda.

What to watch

Whether Bolivia and the IMF formally conclude the US$3.3 billion programme and on what conditionality, including the pace of fiscal consolidation and social spending floors. Whether the floating boliviano stabilises near Bs 9.73 or drifts toward the old parallel rate near Bs 20 per US dollar. Whether Paz survives politically, given a thin coalition, a hostile MAS-majority legislature and a protest movement that has already claimed three cabinet ministers. Whether Bolivia can attract enough private investment in lithium and gas exploration to rebuild reserves before external debt service obligations, estimated at US$1.6 billion through 2026 and US$12 billion through 2030, require restructuring.