Bolivia formally projects 1.5% recession while promoting investment abroad

The 2027 budget that the Bolivian government unveiled this week contains a confession that no sitting executive typically makes out loud: the economy will contract 1.5% next year, the official exchange rate will be fixed at 12 bolivianos per dollar, and fuel subsidies will remain intact. It is a rarity in Latin American fiscal policy for a government to formally project its own recession, and that data point starkly captures the moment Bolivia is going through: an economy that already fell 3.27% in the first half of the current year, with nine of eleven sectors contracting during the second quarter, and which the Central Bank projects will close 2025 with a 3.6% decline.

What makes this picture particularly bleak is its contrast with the official narrative. The government of President Rodrigo Paz — who upon taking office acknowledged inheriting a "devastated" economy — last week staged the so-called "Bolivia Day" in Madrid, an event that filled two investor rooms and where the Investment Law bill was presented alongside promised reforms in mining and energy. The president met with Repsol executives and sought capital to reactivate the gas sector. In parallel, the Ministry of Economy and Public Finance reports that the country risk has fallen to 364 basis points, that the fiscal trend has reversed, and that the first five months of 2026 posted a surplus. Nevertheless, ECLAC ranks Bolivia as South America's slowest-growing economy, the IMF projects a 3.3% contraction for 2026 with inflation that could reach 20.7%, and the World Bank anticipates a 3.2% decline that same year before a 4% rebound in 2027. The gap between the government narrative and multilateral projections is, in itself, the main credibility risk facing the current administration.

The tension between urgency and structural reform is felt on every front. Economy Minister Christian Morales — who took office after the parliamentary censure and subsequent removal of José Gabriel Espinoza, amid a week described by the international press as scandal-ridden — was given the mandate to "change course" and unblock reforms that have been stalled for months. The Santa Cruz Chamber of Industry, Commerce, Services and Tourism (Cainco) was direct in warning that attracting foreign investment requires legal certainty and a predictable legal framework, two ingredients that the opposition and business leaders themselves consider absent. Former president Jorge Quiroga, meanwhile, presented a $12 billion external cooperation plan seeking to position himself as an alternative amid the deterioration, while Samuel Doria Medina called Paz's first year "disappointing."

Against this backdrop, the advances that are being recorded have more the character of crisis management than transformation. The Inter-American Development Bank approved $750 million to support stabilization, the IMF formalized a $1.9 billion agreement — with an immediate disbursement of $214 million — marking the organization's return to Bolivia after more than two decades, and CAF sealed a $3.1 billion strategic alliance. The Central Bank, for its part, restored deposits of up to $50,000 and advanced the return of $333 million to savers, measures aimed at rebuilding confidence in the financial system after years of foreign exchange scarcity. Cumulative inflation through October reached 6.03% according to INE, with a monthly increase of 2.07% in October — figures that coexist with high prices and sales in free fall in retail markets.

The productive structure offers equally ambivalent signals. Soybeans overtook natural gas as the main export product, but sales of the soy complex fell 36% in September. Silver and gold generate seven out of every ten additional export dollars, reflecting a growing dependence on precious metals in a country historically defined by its hydrocarbons. The government says gas supply is assured and is preparing a report on reserves, but Paz's meeting with Repsol in Madrid suggests that the search for capital for the sector is urgent. Meanwhile, the closure of the Manaco footwear factory — 86 years of history, 600 workers in emergency, and accumulated losses of 130 million bolivianos — has become a symbol of the exhaustion of national industry under a model that, according to Los Tiempos, gives the State control over 38% of the economy via nationalizations, while Bolivia drops 37 places in the global economic freedom index.

The government announced the imminent closure of between eight and ten loss-making public companies, a step the market considers insufficient but that signals at least a willingness to trim an oversized State. The tax relief law is advancing in the Legislative Assembly and the 2027 budget concentrates public investment in infrastructure and the agricultural sector. Departmental governments, meanwhile, reject the 1% allocation that would correspond to them — equivalent to $45 million — and demand a broader fiscal pact, which adds political friction to an already delicate adjustment process.

What will define the coming months is whether the combination of multilateral financing, pending legal reforms, and a more realistic exchange rate signal manages to halt the flight of confidence before a self-sustaining inflation expectation takes hold. The Harvard Growth Lab has argued that Bolivia needs a "structural turn" that goes beyond fiscal patches. With the IMF back, country risk falling, and an investment law under construction, the instruments are on the table. The question that investors gathered in Madrid could not resolve is whether Bolivia's political class, divided and under electoral pressure, has the capacity to execute them.