Bolivia's crisis: a dollar shortage, surging inflation and sinking gas exports

Bolivia is in the midst of an economic and political crisis. Declining natural-gas production has crippled the country's ability to earn dollars; import costs have surged as a result, sending inflation soaring.

As our first chart shows, consumer price inflation reached a 16-year high of 9.97% year-on-year in November. A similar increase has been observed for the producer price index (PPI) – a recent addition to the CEIC database.

Essential imported goods such as food, medicines and fuel are now scarce; the economic crisis has also constrained the government's ability to subsidize Bolivians' fuel costs. The government has imposed rationing in the currency market, leading to a parallel market for the boliviano and a sinking unofficial exchange rate for BOB/USD.

Bolivia has been unable to take advantage of increasing prices and demand for natural gas around the world. Its existing reserves are depleting, and efforts to increase productivity or explore for new gas fields have been insufficient to replenish the nation's resources.

Bolivia exports gas to much larger and much more industrialized Brazil; it also used to send gas to Argentina, but those exports ended last year. Meanwhile, Argentina has been exploiting its own natural-gas fields.

Our second chart shows Bolivia's gas production boom and bust. Measured in USD terms, natural-gas exports surged during the 2000s – peaking during the administration of former president Evo Morales, who ran Bolivia from 2006 to 2019. Morales presided over what was dubbed an "economic miracle" at the time; gross domestic product grew at a compounded annual rate of 5%.

Morales overhauled Bolivia's gas industry, raising taxes so much that foreign producers exited the market or halted exploration spending. The government also based its expenditure on overly optimistic calculations of its gas reserves. After plateauing from 2012-15, gas export revenues declined, and the country is now dependent on imported energy.

The foreign-exchange crunch and inflation are exacerbating other economic difficulties. Droughts and fires hit key agricultural areas last year; recent weeks have seen heavy rainfall, flooding and evacuations in the cities. The country also witnessed weeks of unrest last year as Morales' supporters protested his potential arrest.

The former president has clashed with his successor (and former finance minister), Luis Arce – who also faced down a coup attempt last year. Arce has vowed to improve incentives for foreign gas explorers and said the state energy company will increase production from a new gas field in 2026.

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