Bolivia's economic freedom ranking collapses as GDP contracts accelerate

Bolivia tumbled 37 places in the global economic freedom index this week, capping an accumulation of bad news that places the country on the most worrying fiscal trajectory in South America — and making today one of the most news-heavy days for the Bolivian economy so far this year.

The deterioration in the economic freedom ranking, which places Bolivia at 117th out of 165 countries according to El Deber, is not an isolated data point: it is the symbolic synthesis of a set of structural pressures that have been building for years and that the new government of President Rodrigo Paz is now forced to confront in real time. The IMF projects a contraction of Bolivian GDP of around 3% for the current year, the worst in all of South America according to its own projections — a figure that the World Bank estimates at a 2.8% decline. Both institutions agree on the diagnosis, if not exactly on the magnitude.

What makes the situation particularly uncomfortable is the fiscal paradox taking shape for 2026. Public debt is on track to exceed 100% of GDP this year, according to sources cited by El Deber, while external public debt already reached USD 14.117 billion as of September. At the same time, the Ministry of Economy and Public Finance reports that Bolivia closed the first five months of the year with a fiscal surplus, and that tax revenue has grown 14% so far in 2026, reaching 34.7 billion bolivianos. The coexistence of these two realities — galloping debt and a current surplus — reveals the extent to which the Bolivian economy is structurally dependent on external financing to sustain even its ordinary operations.

The government's response has been to pursue that financing with unusual urgency. The recently approved agreement with the IMF contemplates a disbursement of USD 1.9 billion to back the economic reforms underway, of which USD 214 million is earmarked exclusively to shore up international reserves. The program includes a set of commitments that already carry concrete political consequences: the government agreed to eliminate the gasoline subsidy in 2027, a reform promise that was a political taboo in Bolivia for years. Simultaneously, the country issued sovereign bonds for USD 1 billion in international markets, with demand that was five times the available supply — a signal that global investors, for now, are willing to bet on the adjustment process, though at rates that reflect the perceived risk.

The exchange rate is the most visible thermometer of this transition. The BCB approved a regulation to operate under a flexible regime, abandoning the fixed exchange rate of 6.96 bolivianos per dollar that had been in place for fifteen years. In just ten days, the official dollar fell 2.25%, according to El Deber, suggesting the market had been overvaluing the greenback relative to the boliviano in the parallel market. The government claims that 99.3% of the credits in the system are denominated in bolivianos, which limits currency mismatch risk for households and businesses. Nonetheless, business associations consider that flexibilization, by itself, is insufficient to reactivate an economy that has now been contracting for three consecutive years, according to Fundación Jubileo.

The list of additional pressures is long. The BCB confirmed that inflation will close the year around 9.2%, a level that erodes purchasing power precisely when the Centro de Estudios para el Desarrollo Laboral y Agrario warns that the economic recovery is accompanied by greater labor precariousness and poverty. The transport sector is negotiating new fares with the government in a context in which recent blockades have already pushed up food and commerce costs. And ten loss-making state enterprises could be liquidated by decree, according to El Deber, in what would be the most forceful signal yet of the shift toward more orthodox state management.

At the regional level, Cochabamba — the country's third-largest economy — faces a contraction of 4.15%, though it aspires to attract mining investment through the FEMIC 2026 fair. For their part, the central government and departmental governors agreed to advance a new revenue-sharing law under a 50/50 scheme that would redistribute fiscal revenues more equitably between the central level and the territories. The Cámara Nacional de Comercio, meanwhile, is proposing a tripartite dialogue to define the 2027 wage increase, anticipating that next year's labor negotiations will be complex in an environment of high inflation and negative growth.

What lies ahead merits close monitoring on at least three fronts. First, the speed with which the government implements the conditions of the IMF agreement — in particular the elimination of fuel subsidies — and the political reaction it generates, given that the legislature has already shown a willingness to censure Economy ministers in previous episodes. Second, the trajectory of the flexible exchange rate: whether it stabilizes near the current official level or whether the adjustment continues, with an impact on imported inflation. And third, the liquidation process of state enterprises, which could become the axis of the most intense political debate of the coming months, with direct implications for formal employment and for the image of a government that promises reforms without "old-style adjustment."