Bolivia

Slowing growth amid domestic and external headwinds

Economic activity slowed in 2024, reflecting the intensification of macroeconomic imbalances and the sharp deterioration of external accounts. Household consumption (68% of GDP) continued to support growth, but rising food and transportation inflation due to goods and fuel shortages fuelled by bad weather conditions and tighter foreign exchange controls, eroded purchasing power. The chronic scarcity of foreign currency (USD) and the associated widening gap between official and parallel exchange rates exacerbated inflationary pressures, while the risk of abandoning the dollar peg threatened monetary stability. Although some households engaged in artisanal gold extraction benefited from high international prices, overall private investment remained subdued due to elevated borrowing costs, political uncertainty, and restrictions on available credit – most of which was redirected toward financing the public deficit. Public spending also faced increasing limitations as foreign exchange reserves dwindled and external financing remained largely blocked. On the external front, net exports continued to decline due to falling natural gas output, El Niño–related agricultural disruptions, strategic stockpiling of commodities such as soybeans and fuel shortages that increasingly hamper both mining and farming activities.

In 2025, the pace of economic activity is expected to decelerate further as the temporary buffers that sustained growth in the previous year lose traction. Weaker household consumption prompted by the negative factors already observed in 2024 and compounded by fading subsidies and rising unemployment, will weigh more heavily on domestic demand. At the same time, political uncertainty surrounding the general elections is expected to further delay investment decisions, both public and private. While the government is likely to maintain expansionary policies through the first half of the year to shore up electoral support, rapidly tightening fiscal space, as liquidity constraints intensify, will inevitably lead to a decline in real terms. Additionally, the possibility of currency devaluation post-election could trigger a sharp adjustment in relative prices, adding volatility to domestic demand. The contribution from net exports is set to deteriorate further, especially for gas sales, as Argentina and Brazil continue to diversify their energy supply. Additionally, beef exports have been curtailed to limit domestic food inflation, which weighs further on external revenues. The anticipated operationalisation of lithium investments may provide symbolic progress but is unlikely to yield meaningful macroeconomic support in the short term.

High twin deficits and low foreign exchange reserves

The current account deficit widened in 2024, mainly due to falling export revenues from natural gas, agriculture, and minerals – the production of the latter two were affected by climate-related disruptions, and mounting fuel shortages. Although imports continued to be restricted by persistent FX shortages and administrative controls, it was not enough to offset the export shortfall. Expatriate remittances and tourism offered some support, but foreign investment remained minimal. In 2025, the current account deficit is expected to deteriorate further. Gas exports are set to decline again, while non-traditional exports face the same logistical and climatic risks. Import demand may rise slightly in the second half of the year amid pre-election spending and increased fuel needs. On the capital and financial account, persistent political uncertainty and institutional fragility continue to deter both FDI and portfolio inflows, leaving the current account gap largely uncovered. While Chinese-backed lithium investments could offer some relief, their implementation remains uncertain amid legislative blockades and bureaucratic delays. Outflows disguised as errors and omissions – partly reflecting gold smuggling, informal capital flight and cross-border leakage of subsidised food and fuel – remain elevated. As a result, reserve drawdowns continue. By December 2024, international reserves had fallen to USD 1.98 billion, of which USD 1.89 billion were in gold (at the legal minimum), and only USD 47 million were in liquid currency, which severely has limited Bolivia’s external liquidity and its ability to manage balance of payments pressures in 2025.

On the budgetary front, Bolivia’s public deficit remained substantial in 2024, driven by high pre-election spending – particularly on fuel and food subsidies which account for around 4.0% of GDP – and continued declines in gas revenues. In 2025, the budget deficit is expected to increase further given weak revenue performance and high public spending ahead of August general elections. With limited access to external markets and bond yields above 20%, the government is increasingly reliant on domestic financing, particularly from the central bank and pension funds. By the end of 2024, just 35% of public debt was held externally – mostly long-term, concessional debt owed to multilaterals. Moreover, around 92% of the total debt stock is dollar-denominated, leaving public finances highly vulnerable to exchange rate depreciation, especially given critically low usable reserves and mounting pressure on the boliviano.

Intense political instability ahead of the 2025 general elections

The stability of President Luis Arce’s government remains fragile as Bolivia approaches its general elections scheduled for 17 August 2025. The ruling Movimiento al Socialismo (MAS) is deeply divided between Arce’s moderate arcista faction and the evistas, loyal to former president Evo Morales, who was declared ineligible to run for a fourth term by the Constitutional Court in late 2023. Morales has since launched a new political party, Evo Pueblo, and continues to challenge Arce’s leadership from outside the MAS, despite facing serious legal accusations and an arrest warrant, the execution of which is unlikely owing to concerns over potential unrest. The internal division, combined with worsening economic conditions – including acute dollar shortages, rising inflation, and collapsing public confidence – drove Arce’s disapproval rating to almost 80% in early 2025. In this context, the upcoming election is expected to be highly contested. The centrist opposition, known as the Tercera vía bloc, currently appears best positioned to defeat Arce in a runoff, as it benefits from growing public dissatisfaction and the fragmentation of the MAS vote between Arce and Morales. Until the elections, the Arce administration is likely to continue to uphold high public expenditure levels and defend the exchange rate peg, relying on dwindling external financing to contain unrest and preserve political support. However, persistent legislative gridlock – built on a tactical alliance between the evista faction and the right-leaning opposition aimed at obstructing Arce’s agenda – and deepening polarisation suggest that Bolivia’s institutional and economic instability will remain entrenched through the electoral period.

On the international front, Bolivia has been actively enhancing its international partnerships, particularly with China and Brazil, to bolster economic development. In November 2024, the Bolivian government signed a landmark agreement with China's CBC consortium, a subsidiary of CATL, the world's leading lithium battery producer. The USD 1 billion investment aims to build two lithium carbonate plants in the Uyuni salt flats, with a combined annual production capacity of 35,000 metric tons. The Bolivian government will hold a 51% stake in the venture, reflecting its commitment to becoming a key player in the global lithium market. Simultaneously, Bolivia has been strengthening ties with Brazil. In July 2024, Brazilian President Luiz Inácio Lula da Silva met with Bolivian President Luis Arce in Santa Cruz de la Sierra to discuss expanding the duo’s bilateral relations. The leaders signed agreements to enhance cooperation in agriculture, infrastructure and environmental protection. Focus was notably placed on industrial policy cooperation for lithium exploration and production, with the aim of integrating both countries into new trade flows and improving access to the Pacific Ocean.

Last updated: April 2025