Bolivia's IMF loan hinges on fiscal adjustment, economists say

Bolivia is pursuing a significant financing package from the International Monetary Fund (IMF), estimated between $2.5 and $2.8 billion, aiming to alleviate its current liquidity crisis and stabilize the foreign exchange market. However, economists caution that the loan's success hinges on the government's commitment to fiscal consolidation and structural reforms.

Economists like Ramiro Cavero stress that the IMF credit will only be effective if the government reduces its fiscal deficit, ceases financing through the Central Bank, and demonstrates a firm commitment to public finances. Without these measures, Cavero warns, the impact of the loan will be limited, especially if high spending levels persist.

The Bolivian government, led by the Minister of Economy, José Gabriel Espinoza, has confirmed its pursuit of an agreement with the IMF that would extend until 2029. The proposed economic program incorporates recommendations from the IMF, including the gradual elimination of fuel subsidies and greater flexibility in the exchange rate regime. These actions, the government asserts, have already helped reduce the projected fiscal deficit from 12.2% to 9% of GDP for the current year.

Despite these projected improvements, experts argue that the fiscal adjustments are insufficient given the scale of the country's fiscal and external imbalances. Cavero characterizes the government's announced deficit reduction as a moderate adjustment, noting that the deficit stood at approximately 12.2% of GDP last year. Economist Oscar Mario Tomianovic concurs, identifying the fiscal deficit as a primary macroeconomic challenge, with the country experiencing average deficits close to 8% of GDP since 2014, far exceeding sustainable levels.

Both specialists anticipate that the new IMF funding will face immediate pressure upon disbursement due to substantial foreign currency obligations, including external debt servicing and fuel import costs. They emphasize that sustained fiscal discipline and comprehensive reforms are crucial for long-term economic stability in Bolivia.

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If the Government reduces the fiscal deficit, stops financing itself with the Central Bank, and demonstrates a commitment to the order of public accounts, confidence will return. If it maintains a high level of spending, the effect of the credit will be limited.