Bolivia

Deceleration amid high imbalances

Country Rating D4

Strengths

  • Valuable natural resources, especially hydrocarbons
  • Improving currency autonomy
  • Large, but dwindling amount of foreign exchange reserves

Weaknesses

  • High dependency on the commodity sector (mainly gas)
  • Declining but still high inequality and elevated level of poverty
  • Weak business environment
  • Threat of (re)nationalization, expropriation
  • Enclosed geographic position


Economic Overview

Low commodity prices and growing fiscal and external imbalances weigh on growth


The global fall in gas and oil prices since late 2014 has reduced the value of exports and government revenues. This resulted in a deterioration of the external account from +1.4% in 2014 to -3.9% of GDP in 2017. The fiscal account deteriorated from -3.4% in 2014 to -6.2% of GDP in 2017. Continued low commodity prices as well as slower economic performance of the country’s main trading partners (China, Brazil, and Argentina) have complicated matters further. After growing by +4.3% in 2016, the pace of real GDP growth is set to slow to +4.0% in 2017 and +3.7% in 2018, as tighter fiscal policy weighs on domestic demand.
 
Commodity-fueled growth has endowed the Bolivian government with sizable policy buffers, which have been used for poverty-relief programs. In this context, fiscal policy will remain buoyant and public and external debt will grow at a steady pace, but at manageable levels. Monetary policy has been accommodative to support economic activity. Yet excessive credit growth (+22.4% on average in the past 12 months) could lead to the build-up of financial risk.
 
Inflation remains anchored by a fixed exchange rate at around 4%. The drought in late 2016 is likely to cause a hike in food prices. The government’s efforts to de-dollarize the economy have reduced the inflow of currency and diminished foreign currency reserves. These have fallen to USD8.29bn in April 2017, down from USD13.2 bn in April 2015.

 

Lack of economic diversification and state interventions hinder long-term investment


Pegging the local exchange to the US dollar (albeit with micro-adjustments) has caused a loss of competitiveness vis-à-vis depreciating regional currencies, notably for non-energy exports. Moreover, the lack of economic diversification makes Bolivia vulnerable to external shocks and hinders investments in non-energy sectors.
 
State intervention undermines much-needed private investment. According to the 2017 World Bank Doing Business survey, Bolivia ranks 149th out of 189 countries. Notable shortcomings include the rule of law, regulatory quality, and control of corruption. The risk of expropriation is considerable. In the past years, some companies have been (re)nationalized in sectors such as hydrocarbons, electricity, and telecommunications.
 
President Evo Morales’s popularity suffers due to the economic situation. He has been in power since 2009. In February 2016, he lost a referendum designed to allow him to hold office indefinitely. The next general elections will be held in 2019.

Last review: 09/27/2016
    Bolivia

    Bolivia

    D4

    GDP

    USD33.81bn
    (World ranking 93, World Bank 2016)

    Population

    10.88 mn
    (World ranking 80, World Bank 2016)

    Form of state

    Republic / Social Unitarian State

    Head of government

    Eva Morales

    Next elections

    2019, Presidential and Legislative

    Last reviewed: 21/09/17