IMF approves Bolivia fund facility to back stability reforms

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IMF backs Bolivia reforms

Highlights

IMF Executive Board approved a 36-month Extended Fund Facility for Bolivia with access to SDR 1.369 billion (approximately U.S.$1.9 billion), including an immediate SDR 156 million disbursement.
The program targets restoring macroeconomic stability, enhancing social safety nets, rebuilding reserves, reducing vulnerabilities, and enabling more flexible exchange rates and improved monetary frameworks.
Reforms encompass fuel subsidy phase-out, frontloaded fiscal consolidation, strengthened financial sector supervision, and structural measures aimed at improving governance, investment climate, and formal employment.

Program terms and reform priorities

As reported by the International Monetary Fund, its Executive Board approves a 36-month Extended Fund Facility arrangement for Bolivia with access of SDR 1.369 billion, equivalent to 570 percent of quota, or about U.S.$1.9 billion. The approval allows an immediate disbursement of SDR 156 million, about U.S.$214 million, while later disbursements are phased over the life of the arrangement and depend on program reviews.

The authorities say the program aims to restore macroeconomic stability, strengthen social safety nets, rebuild international reserves, reduce fiscal and external vulnerabilities, reinforce financial sector resilience and support sustainable, inclusive, private sector-led growth. IMF support is also expected to catalyze additional financing from other international financial institutions.

Fiscal measures in the program include stronger institutions and more efficient spending to place public debt on a downward path while protecting vulnerable households. The package also promotes a more flexible exchange rate regime, changes to monetary policy and financial supervision frameworks, and reforms intended to improve governance, transparency and the business environment.

Regional and financial sector implications

Nigel Clarke, IMF deputy managing director and acting chair, says the Bolivian authorities have taken significant action over the past year to address long-standing macroeconomic imbalances and that sustained implementation, contingency planning and multilateral support are critical for the program's success. He says fiscal sustainability is the central anchor of the plan, with a frontloaded fiscal effort that includes phasing out remaining fuel subsidies through an automatic pricing mechanism alongside stronger and better-targeted social protection.

Clarke also says a market-determined exchange rate and a credible monetary framework are essential to improve external balance and preserve price stability. He points to ending new central bank budget financing, shifting to reserve money targeting, prudent liquidity management, reserve accumulation and limited foreign exchange intervention in disorderly market conditions as key measures.

The IMF adds that Bolivia's reform agenda includes steps to strengthen financial sector supervision and crisis preparedness, modernize prudential standards, and improve anti-money laundering and counter-terrorism financing frameworks. Broader structural reforms are intended to reduce market distortions, attract private investment and promote formal employment.

Our earlier coverage of the IMF’s Article IV assessment of Mexico highlighted a weaker growth outlook alongside a call for stronger fiscal efforts to put public debt on a clear downward path. We noted the IMF’s recommendations to bolster revenue mobilization, prioritize spending to protect investment, keep monetary policy moderately tight to preserve disinflation, and advance reforms including anti-money laundering and deeper financial intermediation to support stability and longer-term growth.

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