Bolivian economic growth to slow but remain healthy

Subject

Economic update.

Significance

Bolivia's economy is on track for another year of relatively fast growth, outpacing most other Latin American economies. Bolivia’s growth model in recent years has been based on using balance of payments and fiscal surpluses to fund an expansive public sector investment programme that has helped generate demand through increased employment and its multiplier effects. However, with such surpluses turning into substantial deficits, this strategy may not prove sustainable for much longer.

Impacts

• The economy’s perilous dependence on a few commodities and limited foreign markets raise future risks.
• Recent gas deals with Peru will help diversify trade but the full extent of any benefits will not be felt for some time.
• The boliviano has been appreciating in real terms, making an eventual devaluation more likely.
• Public sector retrenchment would exacerbate unemployment.