Bolivia’s new president, Rodrigo Paz Pereira, has chosen shock therapy as his opening act. His government will rewrite the entire 2026 budget and cut public spending by at least 30 percent, the sharpest adjustment proposed in more than a decade.
The move aims to dismantle what he calls an oversized, crisis-ridden state built under former president Luis Arce and two decades of left-wing dominance. The contrast with the old blueprint is stark.
Arce’s draft 2026 budget, sent to Congress in his final weeks, assumed growth of just 0.9 percent, inflation above 10 percent and a fiscal deficit of 10.3 percent of GDP.
About 64 percent of planned spending went to salaries and day-to-day running costs, not investment. Paz’s team says that model burned through reserves, fuelled conflict and locked Bolivia into dependency on a fixed exchange rate and costly fuel subsidies.
The new government has asked lawmakers to return Arce’s budget so it can submit a replacement by February 2026, to take effect in March. A hard rule will force a minimum 30 percent cut in fiscal spending after a line-by-line review of every ministry, agency and public programme.
Dozens of “unjustified” operating items will be scrapped, public companies that neither produce nor sell will lose support, and the number of ministries has already been trimmed from 17 to 14.
Paz Moves to Cut Business Taxes and Attract Investment
In parallel, Paz is moving to scrap four taxes seen as hostile to business: a wealth tax on large fortunes, a tax on financial transactions, a gaming levy and a charge on corporate promotions.
Together they raise little, but officials say they helped drive an estimated two billion dollars in capital to neighbours such as Paraguay. Business leaders have welcomed their removal as a first sign that the state will stop punishing investment.
To fund infrastructure, energy and private-sector projects while the deficit is cut, the government is lining up more than nine billion dollars in loans from development banks, with over three billion already agreed.
Supporters see a long-overdue correction of ideological overspending. Critics fear social pain and delayed payments. The next two years will show which side is right.