Bolivia's Debt: Examining The Country's Financial Situation

Bolivia's public debt has been on an upward trajectory since 2012, reaching 80.01% of its GDP in 2022, or 35,455 million dollars. This figure is expected to increase by 50.02% between 2024 and 2029, with the national debt forecast to reach 63.58 billion dollars by 2029. Bolivia's economy is the 95th largest in the world, and the country is classified as lower-middle-income by the World Bank.

Bolivia's public debt in 2022

Bolivia's public debt has been on an upward trajectory for over a decade, with the country's debt as a percentage of GDP rising from 35.39% in 2012 to 80.01% in 2022. This trend has contributed to Bolivia's position as the 147th country in terms of debt-to-GDP ratio and the 91st in debt per capita globally.

The national debt in Bolivia is forecast to continue its upward trajectory in the coming years. Between 2024 and 2029, it is estimated that the national debt will increase by a total of $21.2 billion, representing a 50.02% increase. By 2029, the national debt is projected to reach a new peak of $63.58 billion.

The consistent rise in Bolivia's public debt has outpaced the Latin American average, which stood at 56% of GDP. This increase in debt has been a cause for concern and has drawn attention to the country's economic situation.

Predicted increase in national debt by 2029

Bolivia's national debt is expected to increase significantly by 2029. Between 2024 and 2029, the national debt is forecast to increase by a total of 21.2 billion US dollars (+50.02%). This would be the tenth (or twenty-second, according to another source) consecutive year of increasing national debt. As a result, the national debt is estimated to reach a new peak of 63.58 billion US dollars in 2029. The national debt in 2022 was 35,455 million dollars, which was an increase of 2,699 million dollars from 2021.

The general government gross debt includes all liabilities that require payment of interest and/or principal by the debtor to the creditor in the future. The ratio of national debt to gross domestic product (GDP) in Bolivia is also expected to increase. Between 2024 and 2029, the ratio is forecast to increase by a total of 9.4 percentage points, reaching 96.08% in 2029, which would be the seventh consecutive year of increase.

Bolivia's public debt has been rising since 2012 in global debt terms and as a percentage of GDP. In 2022, the public debt reached 80.01% of Bolivia's GDP, although this was a slight decrease from 2021 when it was 80.48%. In terms of GDP percentage, Bolivia's position in the world has worsened in 2022, ranking as the 147th country in debt-to-GDP.

The impact of foreign assistance

Bolivia has been receiving foreign assistance in the form of loans and grants from various multilateral and bilateral organisations. As the poorest country in South America, Bolivia has received generous amounts of multilateral and bilateral foreign assistance. The International Monetary Fund (IMF), the World Bank, and the IDB are the most significant multilateral lenders, providing mostly concessional loans. The IMF and the World Bank have given several hundred million dollars in loans to the Bolivian government for financial system restructuring, debt management, balance of payments support, the Emergency Social Fund, and other projects. In 1988, the World Bank provided US$187 million in funding under the Enhanced Structural Adjustment Facility, a loan programme for the bank's poorest members.

The IDB, another significant multilateral donor, has lent Bolivia over US$1 billion since the 1960s for infrastructure, mining, industry, agriculture, energy, health, education, and other projects. In the late 1980s, the IDB focused on projects such as the Cochabamba-Santa Cruz highway, export financing, small farming, tax reform, and the informal sector. Other multilateral organisations present in Bolivia include the Andean Development Corporation, the United Nations, and the Organization of American States.

Bilateral overseas development agencies, including those from the United States, Japan, Canada, and Western Europe, have also provided substantial assistance. The United States, in particular, has been the largest bilateral donor, providing US$1.18 billion between 1946 and 1986. In 1988, the United States Agency for International Development (USAID) transferred over US$61 million to Bolivia, with another US$77 million earmarked for 1989. More than half of this assistance supported Food for Peace programs, with another third allocated to specific development projects. The United States also provided assistance for balance of payments support, market-oriented policy reforms, narcotics control, coca eradication, and projects in health, education, and the informal sector.

In 1998, the World Bank and IMF awarded Bolivia a debt relief package worth US$760 million, and Bolivia has also received relief under the World Bank's Heavily Indebted Poor Countries program, which could total US$1.2 billion by 2011 if certain conditions are met. In 2004, the United States designated over US$150 million for assistance to Bolivia. Additionally, Spain agreed to forgive $120 million (99 million euros) in Bolivian debt under the condition that the funds are used for developing educational programs.

While foreign aid and debt relief have not directly increased growth rates or reduced poverty in Bolivia, they have had positive impacts on specific sectors. During a five-year period, Bolivia received over US$3 billion in foreign aid and over US$3.5 billion in Foreign Direct Investment (FDI), along with debt relief worth US$1.3 billion. However, the GDP growth rate decreased during this period, and relative and absolute poverty increased. The simulations suggest that while foreign aid does not directly increase growth rates, it can have a positive effect on average household incomes, especially for skilled workers.

To maximise the impact of foreign aid, donors and the government should focus on projects that create true public goods, improve the quality of unskilled workers, and benefit sectors such as modern agriculture, coca, and consumer goods, which have a more significant impact on poverty reduction.

Bolivia's external debt

Bolivia's public debt has also been increasing. In 2022, it reached 80.0% of the country's GDP, which was a slight increase from 80.48% in 2021. The public debt amounted to 35,455 million US dollars in 2022, a significant rise of 2,699 million US dollars from the previous year.

The nation's overall debt situation is expected to continue growing in the coming years. Forecasts indicate that Bolivia's national debt will continuously increase between 2024 and 2029, reaching a new peak of 63.58 billion US dollars in 2029. This represents a total increase of 21.2 billion US dollars (+50.02%) over this five-year period.

How Bolivia compares to other Latin American countries

Bolivia is facing Latin America's most severe debt crisis. The country's financial stability is under intense scrutiny due to recent political upheaval, economic downturns, and external pressures. Investor demands for higher interest rates on Bolivian bonds than on US Treasury bonds have soared, and the country now faces interest rates exceeding those of habitual defaulters like Ecuador and Argentina by over 553 basis points. Bolivia's large current account deficits and fixed exchange rate system have depleted its dollar reserves, forcing importers to turn to the black market, where the dollar trades at more than 50% above the official rate.

In comparison to other Latin American countries, Bolivia's debt situation appears even more dire. While Bolivia's public debt reached 80.01% of its GDP in 2022, other countries in the region have managed their debt more effectively. For example, Argentina, which has a history of economic crises, had a public debt of 85% of its GDP at the end of 2022. Similarly, the Dominican Republic's public debt stood at 45.5% of its GDP.

Bolivia's economic challenges are exacerbated by political divisions that hinder its ability to implement major reforms and secure loans from global institutions. The rift between President Luis Arce and former President Evo Morales has further destabilized the country, impacting its prospects for economic recovery.

The Bolivian government maintains optimism, attributing market jitters to global factors. However, analysts predict that debt restructuring may be inevitable for the country to meet its future debt obligations. Bolivia's trajectory underscores the delicate balance between political stability and economic health, offering important insights for investors and policymakers focused on Latin America.

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