Bolivian lawmakers have approved a $1.9 billion loan agreement with the International Monetary Fund (IMF), a critical step for President Rodrigo Paz's government to address foreign currency shortages, fiscal deterioration, and declining international reserves. This agreement, ratified by both the lower house and the Senate, is part of a 36-month Extended Fund Facility (EFF) program and is expected to unlock over $5 billion in additional financing from institutions like the World Bank and the Inter-American Development Bank.
Key conditions of the IMF deal include a stabilization program featuring a reduction in the fiscal deficit, stricter monetary discipline, a more flexible exchange rate regime, and reforms to boost productivity and improve the investment climate. A significant aspect is the planned elimination of government fuel subsidies. While the government commits to spending cuts, it also emphasizes the need for protective mechanisms for vulnerable sectors. Economy Minister Christian Morales defended the agreement, noting that the government inherited an economy with just $52 million in liquid reserves out of $3.17 billion in net international reserves.
The government projects international reserves to increase to nearly $6 billion by the end of 2026, almost $8 billion in 2028 when the program concludes, and around $9.07 billion by 2031. The fiscal deficit is also targeted for reduction, from 9.1% of Gross Domestic Product (GDP) in 2026 to 6.4% in 2027 and 3.8% in 2028. This will involve containing public sector wages and capital expenditure, in addition to phasing out fuel subsidies. The fuel subsidy system, in place for over 20 years, costs the government about $2.9 billion annually and has been cited as unsustainable, draining foreign currency reserves and encouraging illegal shipments.
However, the elimination of fuel subsidies, which the government aims to complete by January 2027, has drawn strong opposition from labor federations and unions, including the Bolivian Workers' Central. Critics warn that these spending cuts could increase living costs and hardship, potentially reigniting social unrest. Weeks of road blockades in June and July already paralyzed the nation due to similar grievances, leading to a declared state of emergency. Despite the potential for protests, Minister Morales stated that while the measure aligns with the IMF agreement, it was developed by Bolivia to address its fiscal imbalance rather than being directly imposed by the IMF. The government has indicated that it will implement social measures to cushion the economic impact on the most vulnerable.
