Wirtschaftsanalysen
Bolivia

Bolivia

Population 11.4 million
GDP 3,565 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 4.2 4.2 2.6 -3.7
Inflation (yearly average, %) 2.8 2.3 1.7 3.0
Budget balance (% GDP) -7.8 -8.1 -7.8 -7.5
Current account balance (% GDP) -4.9 -4.9 -5.0 -4.1
Public debt (% GDP) 51.3 53.9 57.7 59.7

 

(e): Estimate. (f): Forecast.

STRENGTHS

  • Substantial mineral resources (gas, oil, zinc, silver, gold, lithium, tin, manganese) and agricultural resources (quinoa)
  • World’s 15th largest exporter of natural gas
  • Membership of the Andean Community and associate member of Mercosur
  • Tourism potential
  • Currency pegged to the US dollar

WEAKNESSES

  • Economy is underdiversified and dependent on hydrocarbons
  • Underdeveloped private sector; high dependence on the public sector
  • Landlocked
  • Large informal sector
  • Insecurity, drug trafficking, corruption
  • Risk of social unrest; highly polarised country

Risk assessment

Growth slowdown amplified by social tensions

While the main drivers of Bolivian growth had already begun to decelerate, the political crisis triggered in the aftermath of the October 2019 presidential elections will amplify the slowdown in 2020. The decline in natural gas demand from Argentina and Brazil, which receive 98% of exports, is expected to gather speed. Demonstrations at the end of 2019 specifically targeted gas production sites, curbing the already declining production and preventing Bolivia from meeting its quotas. The drop in Bolivian gas supplies has led both partner countries to further step up their use of domestic gas. Moreover, 2019 growth came in below the 4.5% threshold, meaning that, for the second year running, salary bonuses equivalent to two months’ salary and awarded to any formal sector employee (public and private) at the end of the year, were not paid. Private consumption is likely to be affected by this, while household confidence has been severely dented by the protest movements and the uncertain political transition. Public consumption, which has been very high in recent years owing to implementation of the Plan Nacional de Desarrollo Económico y Social investment programme, worth USD 48.6 billion over 2016-2020, is also expected to slow with the mounting uncertainty, while project delivery delays are building up already. Private investment will also be affected by the credit crunch, a trend that will be accentuated by the slowdown in bank deposit growth in 2019 and the rise in non-performing loans, which has gathered pace with the unrest (+6.8% in October 2019 compared with September). Destruction of infrastructure, including roads and gas pipelines, during the clashes is also expected to weigh on activity, while the construction sector is set to suffer from the downturn in public works activity. The agricultural sector is expected to feel the after-effects of forest fires in the third quarter of 2019.

 

Deficits dictated by gas revenues

The fall in gas production, which generate 30% of the State’s revenues, will constrain public finances. Public accounts are already under pressure owing the large investment plan rolled out between 2016 and 2020. With social tensions running high, a sharp spending cut is unlikely given the risk of stoking popular discontent. The USD 100 million loan taken out with the Latin American Development Bank (CAF) in October 2019 for budget support highlights these difficulties. Public debt, although rising, is expected to remain sustainable, with the external share representing only 24.5% of GDP as of June 2019.

The current account deficit, although still high, is expected to decline. Goods exports, which are largely dominated by gas, other hydrocarbons and ore, are expected to be adversely affected by the renegotiation of the agreement with Brazil and Argentina. The supply agreement with Brazilian company Petrobras expired in January 2020, and negotiations for a new agreement are expected to result in a decrease in Bolivian exports in favour of Brazilian gas. Higher zinc and gold prices should offset some of this decline. The slowdown in imports, caused by weaker domestic demand, and the slowdown in public works, which will curtail demand for intermediate goods, will help to reduce the trade deficit. This deficit will be partially financed by expatriate remittances (3.5% of GDP at the end of 2018), despite the slowdown in host countries (Argentina and Spain). With FDI at very low levels, the current account deficit will be financed by the foreign exchange reserves, which are already significantly reduced, having fallen from USD 8.9 billion to USD 6.9 billion between the end of 2018 and October 2019. The exchange rate regime, which features a crawling dollar peg, is likely to increase the pressure on these reserves.

 

Tensions heightened by deep divisions within the country

After losing a 2016 referendum proposing to remove the two-term presidential limit, Evo Morales, President since 2006 and a member of the Movimiento al Socialismo (MAS) party, obtained authorization from the Supreme Court to run in the October 2019 presidential elections. He declared himself the winner after the first round against Carlos Mesa, former President and candidate for centre-left coalition Comunidad Ciudadana. This declaration, after a non-transparent count, sparked off a crisis. After an audit by the Organization of American States found major irregularities, Mr Morales was forced to resign under pressure from the army and opposition protests. Jeanine Áñez, second vice-President of the Senate and face of the right-wing opposition, declared herself interim President without obtaining approval from parliament, which was boycotted by MAS representatives. This was followed by violent clashes between Morales’ supporters and the army, leading to several dozen deaths. The interim government and a number of pragmatic MAS members reached a deal to hold elections within 120 days of the appointment of a new electoral authority, temporarily easing the tensions. Neither Mr Morales nor his Vice-President Álvaro García Linera, is allowed to run. The climate will remain highly polarised until the new elections, with indigenous communities fearing a clawback of recently acquired rights. On the international scene, the interim government has ripped up its existing partnerships, leaving the Bolivarian Alliance with Cuba and Venezuela to move closer to the United States and Israel.

 

Last update: February 2020

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