When Rodrigo Paz assumed office in November 2025, he declared an “Economic, Financial, Energy, and Social Emergency.” Bolivia’s total debt stood alarmingly high at 95%, liquid reserves stood below one month of imports, and the country had run persistent current account deficits since the commodity collapse of 2014. It lacked the foreign exchange, and the path to generating foreign exchange, needed to meet its $1.6 billion (2.8% of GDP) in external debt payments through 2026 and its $12 billion in debt payments through 2030.
This paper analyzes Bolivia’s twin fiscal and external crisis. It reviews how the crisis emerged, the stabilization agenda of the Paz government thus far, and what more is needed. It raises concerns that the government’s reform commitment has weakened. Conducting a Debt Sustainability Analysis, it demonstrates that Bolivia must enact a fiscal and external adjustment, alongside a five-year reprofiling its bilateral and private external debt, to stabilize debt and restore growth. The paper also calls attention to challenges facing the future of Bolivia’s growth — idiosyncratic headwinds for the hydrocarbon and lithium sectors — and encourages renewed multilateral investment in the strong but underappreciated agricultural sector. Lastly, it draws attention to the deterioration of the Bolivian Central Bank’s balance sheet, as a result of loans to non-performing SOEs and the opaque use of gold derivatives, and advocates a review of reserve management policies and a fiscal recapitalization.
The core reform focuses are as follows:
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30% reduction in public spending
Thus far only a 10% cut has been delivered, through the elimination of fuel subsidies. The remaining reduction should come through targeting public sector payrolls and purchases of goods and services, with a focus on SOEs. Reducing public spending is not arithmetically necessary and should be avoided to preserve poverty reduction goals, but improvements in the design and targeting of cash transfer programs would be helpful. Capital expenditure is on par with peer averages and thus should not be cut, but should be reviewed and redirected towards higher growth initiatives.
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Growth Model
The hydrocarbon sector faces large depleted gas reserves, large funding needs, and difficult regional competition from Brazil and Argentina. The lithium sector faces extraction difficulties due to a high presence of magnesium, which investors can avoid in Argentina and Chile. Conventional attention to hydrocarbon- or lithium-led growth are likely overstated. Multilaterals should focus on Bolivia’s strong agricultural sector, namely with well-placed investments in modernizing irrigation systems and building domestic processing capacity to boost crop yields and move up the value chain.
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Exchange-rate flexibility
The government began publishing the parallel rate for the Boliviano as an initial step towards exchange-rate flexibility, however no devaluation has occurred. This appears to be due to fears of inflationary pressures and financial stability risks. However, rebuilding central bank reserves and a current account surplus will require a 32.5% devaluation. We use a sensitivity analysis to establish optimal depth and timing.
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Monetary control
The Bolivian Central Bank has made extensive use of gold derivatives to pad reserves, which in turn creates a short-term liability for the bank. It also has a longer-running practice of extending loans to the public sector, including state-owned enterprises. While data are opaque, our analysis indicates that the central bank is likely insolvent. A fiscal recapitalization as part of an IMF program is necessary.
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Reprofiling
Our Debt Sustainability Analysis demonstrates that a five-year reprofiling of bilateral and private external debt is necessary to restore debt sustainability and support growth. This would represent $4 billion in hard currency savings, and lead public debt to peak in 2026 before declining steadily to 93% of GDP by 2030. Debt service relative to revenues would increase to 67% by 2030, compared to 83% in a scenario with reforms but not reprofiling. Similarly, interest payments would rise to 13.9% of revenues, compared to 16.4% without reprofiling.