- IMF Approves US$1.9bn Bolivia Programme as Government Confronts Debt and Currency Crisis
The International Monetary Fund has approved a US$1.9bn financing programme for Bolivia, backing a broad economic restructuring that will phase out fuel subsidies, reduce central-bank financing of the budget and move the country towards a more market-determined exchange rate.
The 36-month arrangement under the IMF’s Extended Fund Facility provides Bolivia with access to SDR1.369bn, equivalent to 570 per cent of its quota.
The approval unlocks an immediate disbursement of about US$214mn, with the remaining funds to be released in stages, subject to the government meeting agreed policy conditions and successfully completing programme reviews.
The IMF expects its support to catalyse a further US$4bn from other international financial institutions, potentially giving Bolivia access to almost US$6bn in multilateral financing.
That external support offers the country a route out of its immediate liquidity crisis. But the accompanying economic projections suggest the adjustment will be both politically difficult and socially costly.
Bolivia’s economy is forecast to contract by 3 per cent in 2026 after shrinking 1.6 per cent in 2025. A further decline of 1.5 per cent is projected for 2027, implying three consecutive years of economic contraction.
Public debt is expected to rise from 83.3 per cent of gross domestic product in 2025 to 100.2 per cent in 2026 before easing to 95.1 per cent in 2027.
Inflation is projected to remain elevated. Average consumer-price growth is forecast at 12.7 per cent in 2026, while end-of-period inflation is expected to decline from 20.4 per cent in 2025 to 14.2 per cent this year and 10.7 per cent in 2027.
The programme therefore begins from a difficult position: Bolivia must reduce an exceptionally large fiscal deficit and restore foreign-exchange stability while its economy is contracting and households are already facing a steep increase in living costs.
Fiscal consolidation is the principal anchor of the IMF-supported programme.
Bolivia’s overall public-sector deficit reached an estimated 11.4 per cent of GDP in 2025. The Fund expects it to narrow to 9.2 per cent in 2026 and 6.7 per cent in 2027.
The primary deficit, which excludes interest payments, is projected to decline from 8.8 per cent of GDP in 2025 to 3 per cent by 2027.
Achieving that adjustment will require the government to phase out remaining fuel subsidies and introduce an automatic pricing mechanism that links domestic prices more closely to market conditions.
“Fiscal sustainability is the programme’s central anchor, while strengthening support to vulnerable households,” said Nigel Clarke, IMF Deputy Managing Director and acting chair of the Executive Board meeting.
“The frontloaded fiscal effort includes phasing out remaining fuel subsidies through an automatic pricing mechanism alongside stronger and better-targeted social protection.”
The economic logic is clear. Fuel subsidies impose a large burden on public finances, encourage excessive consumption and can disproportionately benefit households with higher incomes and greater vehicle ownership.
Their removal, however, will transmit higher energy costs throughout the economy. Transport fares, agricultural production, manufacturing expenses and the price of moving food and other goods could all rise.
Bolivia’s challenge is therefore not only to compensate vulnerable households but to ensure that social protection reaches them before higher prices substantially weaken their purchasing power.
The programme also calls for expenditure reforms, the settlement of government arrears, restructuring of public enterprises and the introduction of a medium-term fiscal framework anchored in debt reduction.
These reforms attempt to address the deeper source of Bolivia’s imbalance rather than merely reduce spending temporarily. Their effectiveness will depend on whether the government can impose discipline on state-owned enterprises and prevent new arrears from accumulating.
The second major element is Bolivia’s exchange-rate regime.
The IMF has called for a market-determined exchange rate, limited foreign-exchange intervention and a monetary framework capable of restoring external balance.
The reforms include ending new central-bank financing of the budget and moving towards reserve-money targeting.
“A market-determined exchange rate and preserving a credible monetary framework are essential to promote external balance and sustain price stability,” Mr Clarke said.
“The elimination of new central bank budget financing and the transition to reserve money targeting are important steps in this regard.”
For years, Bolivia’s tightly managed exchange rate helped contain imported inflation and created an appearance of currency stability. But maintaining that arrangement became increasingly difficult as export earnings weakened, fiscal deficits widened and foreign-exchange reserves declined.
Greater flexibility could narrow the difference between official and parallel-market exchange rates and improve the availability of foreign currency. It could also result in an immediate depreciation, raising the local-currency cost of imported fuel, medicine, machinery and food.
This creates a delicate sequencing problem. Fuel-price reform, exchange-rate adjustment and fiscal tightening could reinforce one another, producing a sharper short-term price shock than each measure would create separately.
The Fund’s projections indicate that the adjustment should eventually strengthen Bolivia’s external position. The current account is expected to move from a deficit of 1.9 per cent of GDP in 2025 to surpluses of 1.6 per cent in 2026 and 1 per cent in 2027.
Gross international reserves are projected to rise from US$3.71bn in 2025 to US$5.73bn in 2026 and US$7.30bn in 2027.
But part of that reserve accumulation will reflect external financing, valuation changes and gold purchases. The stronger test will be whether Bolivia can generate foreign exchange sustainably through exports, private investment and improved confidence once exceptional multilateral inflows diminish.
The programme also targets financial-sector supervision, crisis preparedness, anti-money laundering controls, central-bank autonomy and improvements in governance and the business environment.
Its long-term objective is to shift Bolivia towards sustainable, inclusive and private sector-led growth.
“The Bolivian authorities have taken significant actions over the past year to address long-standing macroeconomic imbalances,” Mr Clarke said.
“Sustained implementation, robust contingency planning, and multilateral support will be critical for the programme’s success.”
The emphasis on implementation is important. Bolivia’s economic problems did not arise solely from a lack of financing. They reflect a development model built around subsidised energy, extensive state participation, a controlled currency and central-bank support for government spending.
External financing can create time for reform, but it cannot substitute for political agreement on how adjustment costs will be distributed.
The Fund is calling for stronger social safety nets and better-targeted support. Yet the removal of universal subsidies often produces visible losses immediately, while the benefits of lower deficits, stronger reserves and renewed investment take longer to emerge.
That timing gap is where IMF programmes frequently face their greatest political risk.
Bolivia must convince the public that fuel-price increases and exchange-rate flexibility are part of a credible transition rather than an open-ended reduction in living standards. Clear communication will be essential, as will transparency over the use of IMF resources and the additional US$4bn expected from development partners.
The US$1.9bn arrangement gives Bolivia an important financial bridge. The prospect of an additional US$4bn could ease foreign-exchange shortages, rebuild reserves and reduce the likelihood of a disorderly adjustment.
But the programme’s own forecasts offer little basis for complacency.
An economy contracting for three years, inflation remaining in double digits and public debt approaching 100 per cent of GDP constitute a deeply fragile starting point. Even if reserves nearly double by 2027, the recovery will remain vulnerable unless private investment, exports and formal employment improve.
The decisive question is therefore not whether Bolivia can obtain the money. The IMF has answered that question.
It is whether the government can use the financing to replace an exhausted economic model without pushing vulnerable households into a deeper crisis.
The programme succeeds only if fiscal discipline restores confidence, exchange-rate flexibility rebuilds external stability and social protection prevents economic reform from becoming social rupture. Otherwise, the US$1.9bn arrangement may postpone Bolivia’s adjustment rather than resolve it.
