Bolivia: Creating Conditions for Greater Prosperity in a Changing External Environment

UK-Bolivia

By Moin Siddiqi, Economist

BOLIVIA has successfully pursued a comprehensive growth-enhancing and social justice agenda aimed at tackling poverty and inequality since 2006, when HE President Evo Morales and his party Movimiento al Socialismo (MAS) came into power. President Morales was re-elected for a third term in January 2015, with a two-thirds majority in both houses of Congress. The country’s ‘home-grown’ reform measures and policies in recent years have helped improve macroeconomic stability, advance infrastructure development and enhance prospects for broad-based and inclusive growth. Nonetheless, Bolivia like any other emerging economy faces important challenges; including attracting much higher levels of private investments (both domestic and foreign) and achieving greater economic diversification over the medium term. The extractives sector in particular is a major contributor to gross domestic product (GDP), exports and government revenues.

Despite lacklustre global prospects, recession in key trading partners, notably Brazil (which accounts for about one-third of Bolivian exports) and weak natural gas prices, Bolivia has proven remarkably resilient to exogenous shocks. It has recorded the highest growth rate in South America (see Table1), driven mainly by domestic demand and public investment programme and accumulation of large fiscal and external buffers thanks to prudent macro-policies during the commodity boom period (see Charts 1&2). In the past five years alone, high capital expenditure has contributed about 2% to annual growth, compared to 1% in the region. This, in turn, has spurred growth in other sectors including construction, manufacturing, banking & finance, transport and communications.

The population – mainly lower-income groups – has also gained better access to basic social services, which has helped reduce the poverty ratio by 16 percentage points since the mid-2000s – the largest drop in Latin America. Electricity coverage expanded from 64.4% of the population in 2001 to 85.7% in 2014, whilst water and sanitation coverage rose from 72.8% to 82.4% and 41.4% to 56.8%, respectively, between 2001 and 2014, according to the World Bank. Well-developed and maintained infrastructure services – power, transportation, and telecommunications – lower barriers and costs for the private sector, increase the connectivity of remote communities to the national road network and, at the same time, contribute to improving national competitiveness. As a landlocked country with diverse topography and a geographically dispersed population, Bolivia depends on the transportation sector to promote sustainable development.

The International Monetary Fund (IMF) praised the Bolivian authorities for sound economic governance which has facilitated robust non-inflationary real GDP growth, while tangibly improving social conditions over the past decade. It noted “the sizeable policy buffers built during the commodity upcycle allow for a gradual approach in adjusting to a less favourable external environment and provide a strong base for further structural and institutional reforms. Increasing private investment is essential to support growth.” 

 

Excerpt taken from The Bolivia Investment Report 2016 published by DMA and available here, which was presented at the UK-Bolivia Trade & Investment Forum, London, on 9th June 2016.