As of June 2025, the Bolivian banking system maintains a defensive strategy in response to a deteriorating macroeconomic environment. Balance sheet expansion is concentrated in temporary investments, mainly in instruments issued by the BCB and now also by the TGN, to the detriment of credit, whose growth is slowing and showing higher risk, especially in reprogrammed loans. Bank funding is becoming more volatile, with less reliance on term deposits and increasing dependence on savings and checking accounts. Although profitability is improving, it is doing so through low-risk, highly liquid assets, reflecting reduced financial intermediation and growing dependence on the BCB.
Since late 2023, Bolivia has been experiencing an accelerated and widespread inflationary process, with year-on-year inflation reaching 23.96% in June 2025 and sharp increases in both tradable goods —affected by the dual exchange rate— and non-tradables, as well zas core inflation. The persistent fiscal deficit, financed by the Central Bank through monetary issuance, has weakened the exchange rate regime, eroded institutional credibility, and limited the BCB's ability to control inflation. Without credible fiscal consolidation and the restoration of the Central Bank's autonomy, inflationary pressures will continue to intensify.
In recent years, Bolivia has experienced a persistent inability to maintain fiscal balance, exacerbated by its dependence on extraordinary revenues from natural resources. Moreover, in recent months, inflation has accelerated, surpassing double digits. This post analyzes, from a historical perspective, how recurring fiscal deficits and their financing through the Central Bank have contributed to inflationary cycles. Based on this diagnosis, two concrete proposals are presented—a fiscal rule and the reform of Article 22 of the BCB Law—as complementary measures to strengthen macroeconomic sustainability.
As of March 2025, Bolivia's banking system shows clear signs of a short-term-oriented strategy in response to a challenging macroeconomic environment. Balance sheet expansion has focused on temporary investments, particularly in instruments issued by the Central Bank (BCB), reflecting increased liquidity channeled to that institution. Meanwhile, credit portfolio growth has slowed (5.4% annually), and banks face challenges in attracting time deposits, relying increasingly on current and savings accounts, which are more volatile and sensitive to confidence shocks. Delinquency remains high and is concentrated in rescheduled loans, still representing around 15% of the total. While system profitability has improved, it has done so by leveraging low-risk, highly liquid placements, suggesting reduced financial intermediation to the real economy. Overall, the system is protecting itself, prioritizing liquidity, but sacrificing credit depth in a context of structural fragility and growing dependence on the BCB.
In this post, I evaluate the quality of the new granular GDP estimates by Rossi-Hansberg & Zhang (2025), comparing them with official data from the Bolivian National Statistics Institute (INE). At the national level, the differences are below 1%, and although there are larger gaps at the departmental level—particularly in cases like Cochabamba or Santa Cruz—the estimates have improved over time. The results are promising for subnational research in Bolivia.
Researchers Rossi-Hansberg & Zhang (2025) from the Becker Friedman Institute have estimated GDP and per capita income at the subnational level worldwide from 2012 to 2021 using machine learning techniques and high-resolution data. This tool represents a key advancement for developing countries like Bolivia, where lack of data hampers policy evaluation. Applying this data at the municipal level reveals important patterns in income distribution, especially in border and urban regions. These estimates open the door to more precise research and better-informed public policy decisions.
Bolivia is facing a macroeconomic crisis marked by rising inflation, a loss of international reserves, and a persistent fiscal deficit. After years of stability driven by high commodity prices, since 2014 the country has experienced a drop in gas export revenues, leading the Central Bank of Bolivia (BCB) to finance the government's deficit through monetary issuance. This has generated distrust in the national currency, a parallel dollar market, and unanchored inflation expectations. The lack of BCB independence worsens the situation, as it acts more like an arm of the Executive than an autonomous institution. To restore stability, fiscal discipline and central bank independence are needed—and ultimately, dollarization may need to be considered if trust in monetary policy cannot be restored.
Bolivia is facing a progressive economic crisis that is increasingly reflected in its financial system. The banking sector’s balance sheet expanded by USD 1.443 billion in 2024, driven by an increase in local currency liquidity and a slowdown in credit portfolios (5% annual). Banks have increased their liquidity by shifting funds from temporary investments to cash holdings, while their dependence on the Central Bank of Bolivia (BCB) continues to rise. Deposits are still growing, albeit at a slower pace. Non-performing loans have slightly decreased to 3.2%, but remain elevated, with 15% of the portfolio still under restructuring. Profitability is gradually improving but remains below pre-pandemic levels. However, persistent macroeconomic fragility—marked by twin deficits, a dollar shortage, and high inflation—poses significant risks to the financial sector’s stability and its ability to fund the real economy.
Twin deficits, accelerating inflation, and high social unrest that hampers production are hitting the Bolivian economy. This is reflected in the banking system, which shows some worrying patterns: a credit portfolio growing at an increasingly slower pace, and delinquency that, although holding around 3.5% in recent months, continues to show an upward trend. Furthermore, data suggest that the BCB, in an effort to sterilize the credit expansion—mainly granted to public enterprises—has been raising the rates on its securities to absorb part of the excess liquidity through the banking system.
In the now-classic film Titanic (1997), directed by James Cameron, we see the story of the crew aboard the RMS Titanic, a ship famously claimed to be unsinkable. One of the most heart-wrenching scenes shows a group of first-class musicians, minutes after the ship strikes an iceberg and chaos ensues, deciding to keep playing their instruments as they await the inevitable end.
