Bolivia continues to struggle with a steep decline in domestic oil production, which fell by over 50% from 18.6 million barrels annually in 2014 to 8.6 million barrels in 2023. This sharp reduction has increased reliance on imported fuel, with the state covering approximately 86% of diesel and 56% of gasoline demand through subsidized imports. Maintaining this policy imposes a significant fiscal burden, costing the government roughly $56 million every week, according to Hydrocarbons Minister Alejandro Gallardo.
At current subsidized rates, priced at about 3.72 bolivianos (0.53 USD) per liter of diesel and 3.74 bolivianos (0.54 USD) per liter of gasoline, Bolivians pay less than half the global market price—a situation that not only strains public finances but also encourages smuggling and illicit fuel trade across borders, resulting in estimated losses exceeding $600 million annually. These shortages have triggered protests, particularly from agricultural and transport sectors that face operation disruptions due to fuel rationing. In Santa Cruz, for instance, the agricultural chamber marked over 40 days of diesel scarcity as of mid-November 2024, warning of potential threats to food security in 2025.
To address these challenges, the government has authorized private sector participation in fuel imports for a limited period to improve supply. Additionally, Bolivia is investing in biodiesel plants utilizing soy as a raw material, with operational facilities emerging in Santa Cruz and upcoming projects in El Alto. These initiatives aim to temper import dependency and reduce subsidy costs, although debates over their environmental impact and efficiency persist.
Despite the fiscal pressures, the 2025 General State Budget safeguards continued subsidies, highlighting the government’s intent to avoid abrupt price hikes that could jeopardize social stability. Hydrocarbons Minister Gallardo emphasized that a technical and coordinated review of the hydrocarbon pricing structure is underway, acknowledging that removing subsidies is a complex process involving the evaluation of numerous regulatory decrees established over the years.
President Paz’s administration faces a delicate balancing act: while committed to fiscal consolidation and economic reform—including a planned 30% cut in public spending and elimination of select taxes that have stifled investment—the government intends to phase out fuel subsidies carefully. Officials argue that any subsidy reduction must be paired with targeted social protections and alternative support mechanisms, especially for transport users and low-income populations, to prevent exacerbating poverty or inflation.
Economic advisors have confirmed that dismantling the blanket fuel subsidy will likely transition toward demand-side subsidies, focusing assistance more effectively rather than broadly undercutting market prices. The administration also seeks to stabilize the currency market amid a persistent gap between the official and parallel exchange rates, which contributes to inflation and market distortions.
Meanwhile, state-owned enterprise Botrading, responsible for fuel logistics and international transactions, faces closure due to ongoing investigations into alleged financial irregularities, underlining the government’s broader efforts to reform and increase transparency in the energy sector.
Despite the uncertainty surrounding timelines and the full scope of reforms, the Bolivian government projects full normalization of fuel supply within weeks in central urban hubs and shortly thereafter in more remote regions. Procuring international financial support, including a recent $550 million tranche from the Corporación Andina de Fomento (CAF), is pivotal to maintaining operations and meeting immediate liquidity demands.
The challenges ahead are significant: Bolivia must reconcile the need for fiscal discipline with the socio-economic realities of a population long accustomed to subsidized fuel prices. How effectively the government transitions away from these subsidies, while safeguarding vulnerable citizens and maintaining energy security, will critically shape Bolivia’s economic recovery in the coming years.
This article was curated and published as part of our South American energy market coverage.
