Daniel Bases, Latin Finance:
Ratings agency cites erosion of fiscal and currency reserve buffers, weak hydrocarbon sector
Moody’s on Tuesday cut Bolivia’s foreign currency sovereign credit rating further deeper into junk territory, reducing the rating to B2 from B1, citing diminishing fiscal and foreign currency reserves.
At the same time the rating was lowered, the outlook on the Andean nation was changed to stable from negative, the firm said in a statement.
“The government’s fiscal savings buffer declined to around 10% of GDP in 2019 from 27% of GDP in 2013. During this same period, non-financial public sector (NFPS) debt increased to 57.5% of GDP from 38%,” Moody’s said. “Moody’s expects the coronavirus pandemic and relatively weak hydrocarbon sector revenues to drive the fiscal deficit and NFPS debt to 13.5% of GDP and 72% of GDP, respectively, in 2020,” it added.
In 2014, Bolivia’s foreign exchange reserves were $13.2 billion, or approximately 40% of its gross domestic product. Now those reserves have been eaten away by the COVID-19 pandemic and the drop in prices for hydrocarbons. Foreign exchange reserves are now hovering around $3.6 billion as of this past July.
“Higher imports for large energy infrastructure investment projects coupled with lower global energy prices have led to sustained current account deficits and a material decline in Bolivia’s foreign exchange reserves,” the firm said.
Weaker economic conditions, due to lower prices for hydrocarbons and “persistent political uncertainty” were already conditions the nation was grappling with and the pandemic served only to exacerbate them, Moody’s said. GDP, the firm said, is expected to contract by 6.5% this year, while annual growth is expected to rebound into the 3.5% range in 2021.
The interim president, Jeanine Áñez, dropped out of the race. She took over in a power vacuum after former President Evo Morales was forced to step down after widespread protests over alleged electoral fraud. Morales is in exile in Argentina.
Bolivia holds a general election on October 18, which Moody’s expects will not quell a prolonged period of political instability and policy uncertainty for a “highly polarized society, and fragile social fabric.” A run-off would take place November 29. This scenario would be triggered should there be no candidate winning more than 50% of the vote or securing at least 40% and a 10-point margin over the nearest competitor.
“A contentious political environment will likely complicate the government’s ability to effectively implement policies that can durably reduce fiscal and external imbalances, foster higher sustainable growth and, overall, strengthen Bolivia’s credit profile,” Moody’s said.