Sovereigns

Latin America & Caribbean

Bolivia
Full Rating Report

Ratings Key Rating Drivers

Foreign Currency Negative Outlook : The revision of Bolivia’s Outlook to Negative reflects rising macroeconomic
Long-Term IDR BB-
Short-Term IDR B vulnerability posed by the rapid erosion of external and fiscal buffers driven by high tw in deficits
that have not fallen as previously projected despite a terms -of-trade improvement due to
Local Currency
Long-Term IDR BB- adverse developments in the gas sector.
Short-Term IDR B
Post-Election Uncertainty: President Evo Morales w ill run for a fourth term in elections in
Country Ceiling BB-
October, follow ing the overturning of constitutional term limits by the courts last year. Fitch
Outlooks Ratings expects policy adjustments to be forthcoming in any election outcome, but their
Long-Term Foreign- Currency IDR Negativ e magnitude, pace and composition are difficult to predict given a lack of detailed plans among
Long-Term Local-Currency IDR Negativ e
candidates, posing uncertainty around the post-election macroeconomic outlook.

Financial Data
Gas Sector Challenges: Gas production has fallen significantly due to a demand shock from
Boliv ia export markets. Bolivia agreed to a tw o-year addendum in its contract w ith Argentina that may
(USDbn) 2018 entail some revenue risk, and faces a more competitive backdrop as it seeks to replace its
GDP 40.3
GDP per head (USD 000) 3.6 contract w ith Brazil expiring this year. Supply-side issues pose further uncertainty after a
Population (m) 11.2 decade of lacklustre investment, although some key exploration projects are ramping up.
International reserves 8.9
Net external debt (% GDP) -11.3
Central gov ernment debt (% GDP) 36.2 BOP Pressure s Persist: Low er gas production kept the current account deficit (CAD) high at
CG f oreign-currency debt 9.2
CG domestically issued debt 37.4 4.9% of GDP in 2018, and Fitch projects it w ill rise in 2019. FDI has fallen and large balance of
(BOBbn) payment (BOP) “errors and omissions” indicate further pressure. Reserves continue to fall rapidly
and are no longer high by all metrics, posing a dilemma: a devaluation could narrow the CAD but
fuel FX demand in the capital account should it unsettle expectations around a stable XR.

Debt Rising, Strong Profile: Fiscal deficits rose in 2018 and could rise further in 2019. Deficits
lifted government debt to 39.5% of GDP in 2018, near the ‘BB’ median, and have been financed
Rating Derivation
to an even greater degree by draw dow n of deposits in recent years. A flexible spending profile
Component Outcome
Sov ereign Rating Model BB could facilitate fiscal adjustment to stabilise debt metrics, but the strategy is unclear before
(SRM) elections. The debt profile is strong in terms of interest costs, creditor composition, and maturity.

Qualitativ e Overlay (QO) -1

Macroeconomic -1
Firm Grow th, Uncertain Outlook: Grow th remained solid and broad-based at 4.2% in 2018.
Structural features - Fitch projects grow th of 3.8% in 2019, but the post-2019 outlook is uncertain. An ambitious state
Public finances - investment plan (PDES) has yet to yield the revenue boost initially projected, w hich could cause
External finances -
pressure for policy adjustments to build after the elections. We expect grow th of 3% in 2020 amid
Long-Term Foreign- BB- policy tightening, but a more pronounced slow dow n is a risk.
Currency IDR (SRM + QO)
Source: Fitch Ratings
Monetary Stim ulus : Monetary policy has been loosened to support credit grow th in the face of
sagging liquidity. Fitch expects credit grow th to ease now that banks have mostly achieved credit
allocation quotas set in a 2013 law , and given low er bank capital and liquidity ratios, though
adequate, offer less scope for lending w ithout commensurate deposit funding. Inflation remains
Related Research
low despite monetary stimulus, as the demand it has fuelled has been directed to imported goods.
Global Economic Outlook (June 2019)
Latin America Sovereign Credit Overview
2Q19 (April 2019) Rating Sensitivities
Erosion of Buffers : Factors that could lead to a dow ngrade include persistence of high tw in
Analysts deficits eroding external and fiscal buffers (eg due to lack of policy adjustments , gas shock), a
Todd Martinez slow dow n leading to macroeconomic instability, or external financing constraints.
+1 212 908 0897
todd.martinez@f itchratings.com
Buffer Stabilisation: Factors that could lead to a stabilisation of the Outlook include a reduction
Christopher Dychala in the CAD that stabilises FX liquidity, fiscal deficit reduction improving debt dynamics, or stronger
+1 646 582 3558
christopher.dy chala@f itchratings.com governance or improvements in the business climate that boost grow th prospects.

www.fitchratings.com 2 July 2019

 Sovereigns

Peer Comparison
Net External Debt
Current Account Balance
% of GDP
% of GDP

30 15
20
10
10
0 5
-10
-20 0
-30 -5
-40
-50 -10

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019f
2020f
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F
General Gov ernment Debt General Gov ernment Balance
% of GDP % of GDP

60 4
50 2
40 0
30 -2
20 -4
10 -6
0 -8
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018

2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019F
2020F

2019F
2020F
Bolivia Median(BB)

International Liquidity Ratio, 2018 GDP per capita Income, 2018

%
At market exchange rates, USA=100
Uzbekistan (BB-) Dominican Rep (BB-)

Bolivia (BB-) Median (BB)

Median (BB) Bolivia (BB-)

Median (B) Median (B)

Dominican Rep (BB-) Uzbekistan (BB-)

Nigeria (B+) Nigeria (B+)

0 200 400 600 800 0 5 10 15

Note: Medians based on data for sovereigns in the respective rating category at the end of each year. Latest ratings are
used f or the current year and forecast period

Related Criteria

Sov ereign Rating Criteria (May 2019)

Country Ceiling Criteria (July 2018)

Boliv ia 2
July 2019
 Sovereigns

Peer Group
Rating Factors
Rating Country
Summary: Strengths and Weaknesses
BB Georgia
Guatemala Rating factor Macroeconomic Public finances External finances Structural issues
Serbia Status Neutral Neutral Neutral Weakness
Turkey Trend Negative Negative Negative Stable
Vietnam Note: Relative to ‘BB’ category
Source: Fitch Ratings
BB- Boliv ia
Bahrain
Bangladesh Strengths
Brazil  Real GDP grow th averaged 4.6% in the five years to end-2018, above the historic ‘BB’
Dominican Republic
Greece median of 4.2%, and grow th volatility is especially low . Inflation has moderated in recent
Jordan years at levels below the ‘BB’ median.
Seychelles
Uzbekistan  General government net debt at 28% of GDP in 2018 w as below the historic ‘BB’ median,
capturing gross debt of 39.5%, around the median, and relatively large cash deposits of
B+ Armenia
Costa Rica 12% of GDP. This strength is eroding, how ever, as debt has been rising and deposits
Cote d’Ivoire falling in recent years. Treasury guarantees on loans to SOEs (primarily from the central
Egypt
Jamaica bank) and private entities totalled an additional 9.9% of GDP in 2018.
Kenya
Lesotho  A strong public debt profile mitigates financing risks and debt service costs. External debt
Maldives mostly ow ed to multilaterals and captive local funding underpin low interest costs of 4.3%
Nigeria of revenues (2.8% after netting out central bank profits, as done in official figures), below
Rwanda
Tunisia the historic ‘BB’ median of 9.3%. Debt maturities average just 1.5% of GDP in 2019-2020.
Uganda
 FX reserve are falling but still offer ample coverage of current external payments (7.6 months
in 2018) and near-term external debt service obligations (the external liquidity ratio is over
700%), mitigating risks to external shocks. How ever, reserves have fallen below the median
Rating History as a share of broad money, highlighting risks to the FX regime from potential dollarisation
Long-Term Long-Term pressures. Reserve declines turned the sovereign into a net external debtor in 2018, but
Foreign- Local-
Currency Currency private sector net foreign assets still support a net creditor position for the broader economy .
Date IDR IDR
13 Jul 16 BB− BB− Weaknesses
15 Jul 15 BB BB
02 Oct 12 BB− BB−  Maintenance of expansionary policies and a stabilised currency has supported grow th in the
05 Oct 10 B+ B+ face of external shocks, but at the cost of high tw in fiscal and current-account deficits,
08 Sep 09 B B eroding buffers to confront future shocks and raising economic vulnerability.
17 Mar 04 B− B−
 Commodity dependence at 70% of current external receipts remains high despite on-going
diversification efforts, exposing credit metrics to price shocks and, more recently, volatile gas
demand from export markets. Mining and hydrocarbon production represented 11% of GDP
in 2018 and have important spill-overs given high shares in investment and fiscal revenues.

 Investment (21% of GDP in 2018) is slightly below the ‘BB’ median, and private investment
and FDI are very low , posing uncertainty to medium-term grow th as fiscal space for public
investment narrow s. Bolivia ranks poorly in the 2019 Ease of Doing Business survey (156 of
190) and 2018 Global Competitiveness Index (105 of 140), w ith labour costs and rigidities,
paying taxes, and legal uncertainty cited as key issues. Officials have enacted arbitration
law s, enhanced investment incentives and rolled back export quotas to boost investment.

 Per-capita GDP and social indicators are low , but have improved greatly in the past decade.
Governance standards as measured by the World Bank rank w ell below the ‘BB’ median.

Local Currency Rating

The Long-Term Local- and Foreign-Currency IDRs are equal given that public finances do not
represent a strength relative to external finances, and there is no record of preference for local-
currency creditors.

Country Ceiling
The Country Ceiling is in line w ith the Long-Term Foreign-Currency IDR due to trade and
capital restrictions, w eak rule of law and the limited flexibility of the exchange-rate regime.

Boliv ia 3
July 2019
 Sovereigns

Strengths and Weaknesses: Comparative Analysis

Dominican Uzbekistan,
Boliv ia BB B Republic Republic of Nigeria
2018 BB- mediana mediana BB- BB- B+
Macroeconomic performance and policies
Real GDP (5yr average % change) 4.6 4.2 4.6 6.6 6.3 2.0
Volatility of GDP (10yr rolling SD) 1.0 2.6 2.8 2.4 1.4 3.2
Consumer prices (5yr average) 3.7 5.6 8.0 2.5 11.2 12.3
Volatility of CPI (10yr rolling SD) 2.3 3.3 4.5 2.3 2.8 2.9
Unemployment rate (%) 4.1 9.1 8.3 5.5 5.6 22.6
Type of exchange-rate regime Stabilised n.a. n.a. Managed float Crawl-like Stabilised
Dollarisation ratio (% of bank deposits) 12.8 38.2 29.3 24.8 41.0 25.9
REER volatility (10yr rolling SD) 5.7 6.5 6.9 1.8 - 7.5

Structural features
GDP per capita (USD, mkt exchange rates) 3,590 6,345 3,489 7,403 1,560 1,820
GNI per capita (PPP, USD, latest) 7,330 14,875 8,115 15,290 - 5,680
GDP (USDbn) 40.3 n.a. n.a. 80.6 50.5 356.7
Human development index (percentile, latest) 37.7 50.8 37.9 50.5 - 17.0
Governance indicator (percentile, latest)b 28.4 43.8 37.8 42.8 17.1 17.4
Broad money (% GDP) 71.8 47.6 37.5 33.9 20.5 21.0
Default record (year cured)c 2006 n.a. n.a. 2005 - 2005
Ease of doing business (percentile, latest) 18.0 52.2 38.0 46.6 60.4 23.3
Trade openness (avg. of CXR + CXP % GDP) 32.4 46.4 39.5 35.3 47.4 25.2
Gross domestic savings (% GDP) 15.5 17.7 15.6 19.9 30.5 13.2
Gross domestic investment (% GDP) 20.6 21.7 23.2 22.9 40.2 13.2
Private credit (% GDP) 60.7 36.5 24.4 26.1 40.4 11.3
Bank systemic risk indicatorsd b/1 n.a. n.a. b/1 b/2* b/1
Bank system capital ratio (% assets) 11.9 15.7 15.6 17.0 15.8 15.2
Foreign bank ownership (% assets) 9.6 34.5 36.4 8.3 0.0 11.8
Public bank ownership (% assets) 13.8 16.3 18.8 27.5 84.0 10.0

External finances
Current account balance + net FDI (% GDP) -4.1 0.8 -1.3 1.7 -5.8 2.7
Current account balance (% GDP) -4.9 -2.6 -4.3 -1.4 -7.1 2.6
Net external debt (% GDP) -11.3 9.5 14.9 15.4 -39.7 0.1
Gross external debt (% CXR) 102.1 114.9 133.2 120.2 103.9 115.6
Gross sovereign external debt (% GXD) 79.4 46.7 62.1 69.1 45.4 52.1
Sovereign net foreign assets (% GDP) -1.8 -2.2 -14.0 -17.5 32.9 -1.6
Ext. interest service ratio (% CXR) 2.9 4.0 3.7 5.7 3.1 1.7
Ext. debt service ratio (% CXR) 9.6 13.9 11.8 12.2 7.8 4.7
Foreign-exchange reserves (months of CXP) 7.6 4.3 3.8 3.2 12.6 6.1
Liquidity ratio (latest)e 743.6 151.4 172.1 144.4 666.1 96.3
Share of currency in global reserves (%) 0 n.a. n.a. 0 0 0
Commodity export dependence (% CXR, latest) 70.7 21.8 35.1 16.8 39.2 65.6
Sovereign net foreign currency debt (% GDP) 1.5 2.2 14.5 17.8 -32.9 -5.2

Public finances f
Budget balance (% GDP) -6.0 -2.7 -3.7 -2.7 -2.1 -3.6
Primary balance (% GDP) -5.2 -0.4 -1.3 0.4 -1.9 -1.6
Gross debt (% revenue) 140.8 155.0 207.4 268.6 76.9 332.0
Gross debt (% GDP) 39.5 38.9 49.0 40.5 21.4 24.9
Net debt (% GDP) 27.7 32.9 40.3 38.3 -14.1 18.8
Foreign currency debt (% total debt) 59.9 61.6 67.1 67.7 96.5 29.7
Interest payments (% revenue) 2.8 9.3 8.8 20.3 0.5 26.8
Revenues and grants (% GDP) 28.0 25.0 23.5 15.1 27.9 7.5
Volatility of revenues/GDP ratio 11.5 6.1 9.1 5.7 15.2 36.7
Central govt. debt maturities (% GDP) 1.4 5.2 5.6 2.8 0.8 2.8
a
Medians based on actual data since 2000 (excl. forecasts) for all sovereign-year observations where the sovereign was in the respective rating category at year-end. Three-
y ear centred averages are used for the more dynamic variables (e.g. current account and fiscal balance)
b
Composite of six World Bank Governance Indicators used in the Sovereign Rating Model; Government Effectiveness; Rule of Law; Control of Corruption; Voice and
Accountability; Regulatory Quality; and Political Stability and Absence of Violence
c
Various rounds of restructuring with official and commercial bank creditors during 1980-1998, some which resulted in capital losses. Debt relief under HIPC and MD
d
Bank sy stemic indicator, which equates to a weighted average Viability Rating; and macro prudential indicator, with 1 ‘low’ systemic risk through to 3 ‘high’
e
Ratio of liquid external assets, defined as the stock of official FX reserves including gold at the end of the previous calendar year plus banks‘ liquid external assets, to liquid
external liabilities, defined as scheduled external debt service in the current year, plus the stock of short-term external debt and all non-resident holdings of marketable
medium- and long-term local-currency debt at the end of the previous calendar year
f
General gov ernment unless stated
Note: Acronyms used: Consumer Price Inflation (CPI), Gross Domestic Product (GDP), Current External Receipts (CXR), Current External Payments (CXP), Gross National
Income (GNI), Purchasing Power Parity (PPP), Standard Deviation (SD), Foreign Direct Investment (FDI)
Source: Fitch Ratings

Boliv ia 4
July 2019
 Sovereigns

Key Credit Developments

Presidential Election Poll State-Led Economic Model Faces Post-Election Uncertainty
May 2019
High tw in deficits have not improved as previously expected amid better terms of trade due to a
Evo Morales shock to gas exports volumes and expansionary policies guided by an ambitious development
Carlos Mesa plan (PDES). As financial buffers erode, Fitch believes their stabilisation is becoming
Oscar Ortiz increasingly reliant on policy adjustments, around w hich w ill be little clarity until after the
October 2019 elections.
V. Cardenas

Jaime Paz President Morales is seeking a fourth term in October elections, after the courts overturned
Others constitutional term limits in November. The race could be competitive. Polls show him w ith a lead,
Undediced
but w ith a sizeable share of undecided voters. His victory margins have slipped in past elections
and a referendum in 2016 to allow his fourth term w as voted dow n. If no candidate receives at
0 10 20 30 40 50
Source: Fitch Ratings, La Razon least half the votes in the first round, or 40% w ith a 10-point lead, the tw o frontrunners w ill
compete in a December runoff. If Morales w ins, his MAS party may not retain its strong majority in
Current Account Drivers the National Assembly, w hich could lead to a more challenging political environment.
CAB (RHS) Export vol.ª
Import vol.ª ToT Fitch expects the vulnerabilities posed by eroding financial buffers to force adjustments after
(index, 2010=100) (% GDP) elections, regardless of the outcome. How ever, the pace, magnitude and composition of any
175 15
such adjustments are hard to predict given election uncertainties and a lack of detailed plans
150 10
among candidates, posing uncertainty in the post-election macroeconomic outlook.
125 5

100 0 External Pressures Persist Despite Terms-of-Trade Improvement

75 -5 The CAD w as USD2 billion (4.9% of GDP) in 2018 and has been high since 2015 despite a
1
50 -10 23% term-of-trade recovery in this three-year period due to declining gas export volumes (see
2010

2017
2011
2012
2013
2014
2015
2016

2018

next section) and firm imports. The trend has intensified in 2019 so far and Fitch expects the
a Merchandise goods CAD to reach 6%. Low er profits among foreign companies have reduced the primary income
Source: Fitch Ratings, Central Bank, IBCE deficit, but also imply low er reinvested earnings, w hich dragged inbound FDI to 0.6% of GDP in
2018 – its low est level in over a decade. Large “errors and omissions” in the balance of
Liquid External Assets payments (almost USD1 billion in 2018) indicate additional external pressures and may represent
BCB reserves Other sovereign Banks
measurement issues, contraband or capital flight. In November 2018, FX demand briefly surged
(USDbn)
20
follow ing the decision by the central bank (BCB) to close its retail currency exchange w indow (the
“ventanilla”), highlighting public sensitivity to perceived changes in FX policies.
15
The external deficit continues to be financed via draw dow n of BCB reserves, w hich have fallen
10
since 2014, except for in 2017 w hen boosted by a sovereign bond issuance. Reserves fell to
5 USD8.3 billion by May 2019, dow n from USD8.9 billion at end-2018 and USD15.1 billion at end-
2014. The underlying pace of reserve drain has been greater net of several one-off boosts due to
0 BCB “bolivianisation” (ie conversion into local currency) of almost USD2 billion in other FX funds it
Sep 17
Aug 15
Jan 16
Jun 16
May 14

May 19
Mar 15

Feb 18
Jul 18
Dec 13

Oct 14

Nov 16
Apr 17

Dec 18

administers but that correspond to banks (the FPA deposit insurance fund, RAL reserve
requirement fund) and the sovereign (FINPRO investment fund). Rising external debt and falling
Source: Fitch Ratings, BCB
reserves turned the sovereign into a net external debtor in 2018, in line w ith the ‘BB’ median.
Intl. Reserve Adequacy
Bolivia 'BB' Median International reserves remain high compared to peers by some metrics, but their adequacy may
Latam Med. no longer be strong in the context of a stabilised FX regime and high commodity dependence.
(months CXP) (% broad money)
Reserves covered a high 7.6 months of current external payments in 2018 and underpin an
14 80
70 external liquidity ratio of 600% in 2019, highlighting ample scope to manage external shocks. But
12
10
60 reserves have fallen to 20% of GDP and 29% of broad money as of May, below the current ‘BB’
8
50 medians, signalling vulnerability to potential portfolio dollarisation by depositors or capital flight – a
40 risk evidenced by the recent “ventanilla” episode.
6
30
4 20
The boliviano w as estimated to be 33% overvalued by the IMF, posing a difficult policy dilemma:
2 10
a devaluation could improve the current account, though mainly via import compression and
2019f
2020f

2019f
2020f
2015

2018

2014
2015
2014

2016
2017

2016
2017
2018

w eaker grow th, and it could have adverse effects for the capital account and FX reserves should
Source: Fitch Ratings it unsettle w ell-internalised local expectations around the stable XR regime and fuel FX demand.
1
According to goods data from the Bolivian Foreign Trade Institute (IBCE).

Boliv ia 5
July 2019
 Sovereigns

Gas Sector Facing Supply and Demand Challenges

Gas Shipments Gas production has been declining since 2014, and both supply and demand issues pose risks to
Internal Brazil Argentina
(million cubic metres/day) a recovery. Production fell in 2018 to 53.0 million cubic metres/day from 56.7 in 2017 ( -7%) and
60 even more sharply in 2019 through May (-23% yoy). This mainly reflects sharply low er and more
50 volatile demand from Argentina and Brazil, but supply issues have also left Bolivia strained to
2
40 meet its contractual volumes to these markets at times, resulting in a recent fine from Brazil .
30
20 The regional gas landscape is undergoing changes posing demand-side risks, as Argentina and
10 Brazil ramp up their ow n energy production. Argentina recently amended its contract w ith Bolivia
0 for 2019-2020, setting low er minimum volumes through the year and higher prices linked to LNG
Jan 15

Jan 16

Jan 17

Jan 18

Jan 19
Sep 15

Sep 16

Sep 17

Sep 18
May 15

May 16

May 17

May 18

May 19

in the w inter. This could pose revenue risks: the new minimums imply a 16% reduction from 2018
exported volumes, yet the LNG-linked price may not be higher enough to compensate and may
Source: Fitch Ratings, Government of Santa 3
Cruz be more volatile . Shipments to Brazil have fallen sharply and there are dow nside risks to its
future demand. Its new government is w orking tow ard a “new gas market” w ith greater private
Gas Production Curve participation and low er prices, forcing Bolivia to negotiate in a more competitive market and w ith
Existing fields New fields new counterparties besides Petrobras as it seeks to replace its contract expiring this year. This
(milion cubic metres/day) could entail more flexible contracts, both in terms of volumes and prices, and shorter durations. It
70
w ill take time and new pipelines to export to new markets such as Peru and Paraguay.
60
50
40 On the supply side, ramp-up in production at the new Incahuasi field has not yet fully offset
30 declines at mature fields. Lacklustre exploration activity in the past decade has not yielded major
20 discoveries. Some important exploration projects have begun drilling but w ill take a few years to
10
start production if successful, and it is unclear if some of these (eg Boyui) are commercially viable
0
based on initial results. A 2018 reserves certification show ed a slight increase in “proven”
2019f
2020f
2021f
2017
2013
2014
2015
2016

2018

3 3
reserves from 10.45Tf (trillion cubic feet) in 2013 to 10.7Tf , due to a reclassification from both
Source: Fitch Ratings, Hydrocarbon Ministry 4
(including official forecasts) “probable” and “possible” reserves (ie low er likelihoods of viability) rather than new discoveries.

Growth Remains Firm, but Faces Post-Election Challenges

Real GDP Growth Real GDP grow th w as solid at 4.2% in 2018, supported by expansive policies. Falling extractive
Gas Agro
Pub admin Fin svcs activity w as offset by strength in the rest of the economy, particularly a jump in agriculture driven
Manuf Other
Total by sugar output and related ethanol production. Investment grow th eased to 3.2% grow th in 2018
(% YoY) on low er public capital spending and lacklustre private investment. Consumption grow th w as solid
8
at 4.4% due to higher current fiscal spending, monetary stimulus and high credit grow th, and
6 5
generous salary policies including resumption of the “segundo aguinaldo” bonus . Fitch expects
4
grow th to ease to 3.8% in 2019 on the sharp fall in gas production seen in 1H19 and slow er credit
2 grow th, but supported by the favourable trend in agriculture and expansive pre-election policies.
0

-2 The grow th outlook after 2019 is uncertain. The authorities expect investment projects under the
2010

2011

2012

2013

2014

2015

2016

2017

2018

PDES to lift grow th and fiscal revenues as they come online, narrow ing the tw in deficits w ithout
Source: Fitch Ratings, INE policy adjustments. But this inflection point has not yet occurred as previously projected, as
finished projects have had production and profitability issues (eg a fertiliser plant) and those in the
Investment Rate pipeline (a plastics plant) are delayed. Plans to develop vast lithium and potash resources w ith
Bolivia 'BB' median foreign players are making progress, but could take time to yield large results. In the absence of a
LatAm median boost from these projects or better terms of trade, pressure for post-election policy adjustment w ill
(% of GDP)
build. Fitch expects adjustment centred on a rollback in public investment to support a soft landing
28
to a 3% grow th pace in 2020, but there is a risk of a more pronounced slow dow n.
26
24
Private investment is w eak and is unlikely to quickly compensate for low er public investment, in
22
Fitch’s view . Business groups and global surveys point to labour costs and rigidities, legal
20
uncertainties, and tax pressures as key constraints. In response, the government has loosened
18
16
export quotas and moderated mandated w age increases this year.
2011

2012
2010

2013

2014

2015

2016

2017

2018

2
Monthly deliveries below requested volume in 2018 prompted a fine of USD134 million in March 2019.
Source: Fitch Ratings 3
Conversely, the authorities estimate this represents a revenue gain up to USD500 million.
4
“Probable” reflect at least 50% success rate, “possible” indicates at least 10%.
5
By law, triggered when four-quarter rolling GDP growth through 2Q surpasses 4.5%.

Boliv ia 6
July 2019
 Sovereigns

Continued Monetary Stimulus amid Low Inflation

Deposit and Credit Growth Expansionary monetary policy has been further loosened in the past year via new reserve
Deposits Bank credit
BCB credit requirement cuts, maintenance of low policy rates and measures to cap or reduce bank lending
(% YoY) rates, rollback in the stock of sterilisation notes, and measures to induce repatriation of liquidity
30 held abroad by financial firms. The BCB has continued to lend directly to SOEs and the stock of
25
these credits reached 12.7% of GDP in 2018. It also increased its financing to the Treasury in
20 6
2018, disbursing BOB14.9 billion (equivalent to USD520 million or 1.3% of GDP) .
15
10
Expansive monetary policies have aimed to prop up financial liquidity as it has sagged in recent
5
years, and thus support credit market objectives. Credit grow th has moderated since 2015 but
0
remains high at 10.4% yoy as of May, far above deposit grow th of 3.7%. Fitch expects credit
May 14

May 15

May 16

May 17

May 18

May 19
Nov 16
Nov 14

Nov 15

Nov 17

Nov 18

grow th to slow in 2019, given banks have now met the main quotas set by the Financial Services
Source: Fitch Ratings, BCB Law (ie 60% of portfolios in designated “productive” sectors) and have less liquidity to fund credit
w ithout commensurate deposit grow th. Capitalisation and liquidity ratios have fallen in recent
years but remain adequate, and non-performing loan (NPL) ratios remain low after a small uptick.
Fiscal Balances
General govt Public sector
(% GDP) Inflation remains low at 1.7% yoy as of May. Expansive monetary policies have not generated
4 significant price pressures because the domestic demand they have fuelled has been directed
2 (net of spending in large part to imported goods and thus accommodated via draw dow n in FX reserves.
0 advancesa)
-2
-4
Fiscal Deficit Continues To Grow
-6 The general government deficit rose to 6.0% of GDP in 2018 from 5.0% in 2017, and the
-8 headline public sector deficit to 8.1% from 7.8%, continuing their steady climb since 2013.
-10
Revenues continued to fall as a share of GDP as a price-driven recovery in gas revenues only
2010

2011

2012

2013

2014

2015

2016

2017

2018

partially offset continuing declines in non-gas revenues (despite a 0.5pp boost from a tax
a Salaryand pension outlays advanced from
Jan-16 to Dec-15 amnesty). Spending fell slightly, balancing a higher salary bill (due to resumption of the
Source: Fitch Ratings, MEFP “segundo aguinaldo” bonus) and low er capital spending. Fitc h projects the general government
deficit w ill rise to 6.4% in 2019, and to 8.5% for the public sector (above the 7.8% official
projection), as further tax amnesty receipts and the absence of a salary bonus (not triggered
Gen Govt Balance Sheet under Fitch’s baseline grow th projections) partially balance the gas revenue shock and
Debt Guarantees election-year spending pressures.
Deposits
(% GDP)
General government debt rose to 39.5% of GDP in 2018 from 37.6% in 2017, surpassing the
60 7
historic ‘BB’ median . The pace of debt increase slow ed in 2018 given the government opted
50
40 not to issue a Eurobond and instead drew dow n on its cash deposits, w hich fell to 11.8% of
30 GDP from a peak of 23% in 2013. Borrow ing from the BCB explained most of the debt rise in
20 2018. Treasury guarantees (mostly on BCB loans to SOEs) reached 9.9% of GDP.
10
0 Fitch estimates a fiscal adjustment of 4% of GDP w ould stabilise debt in the medium term.
2019f
2020f
2017
2010
2011
2012
2013
2014
2015
2016

2018

Fitch expects deficits to fall after elections in 2020, but the pace, magnitude and strategy are all
Source: Fitch Ratings, MEFP
difficult to assess before post-election policy plans become clearer. Fiscal adjustment could
facilitated by a flexible spending profile, and feasible w ithout politically difficult reforms. Capex
w as already cut to 13% of GDP in 2018 from 19% in 2014, but remains high enough to serve
Central Govt Debt by Creditor as a large source of potential fiscal savings. Non-payment of the “segundo aguinaldo” bonus
(USD14.5bn total, end-2018)
w ould low er deficits by about 1% of GDP.
External - bonds
(USD2.0bn)
14% The debt profile is strong in terms of maturity and creditor composition. Near -term maturities
Internal - BCB average just 1.6% of GDP in 2019-2021, and Treasury cash deposits as of end-2018 cover
(USD2.2bn)
15% over tw o years of debt service. Interest payments at 4.6% of revenues are low , reflecting a high
share of low -interest debt from multilateral and bilateral creditors (49% of central government
Internal - debt) and the central bank (15%). Eurobonds total just USD2 billion (5% of GDP), and local
market External -
(USD2.2bn) multi/bilateral
bonds (8% of GDP) are long-dated and easy to roll over in the largely captive domestic market.
22% (USD7.1bn)
49%
6
Source: Fitch Ratings, MEFP BCB credits are authorised for specific investment projects, but have been drawn upon after projects have
finished in some cases and thus effectively used for general budgetary purposes.
7
Inc. central and regional governments, FINPRO investment fu nd, FNDR regional development fund.

Boliv ia 7
July 2019
 Sovereigns

Fitch uses stylised projections for a Public Debt Dynamics

sovereign’s gross general
government debt/GDP ratio to
illustrate the sustainability of its debt
burden and its sensitivity to economic
growth, the cost of borrowing, fiscal
policy and the exchange rate.
Fitch projects that Bolivia’s gross general government debt w ill reach to 42.4% in 2019 and rise
more slow ly thereafter, w hich assumes that post-election fiscal adjustment measures reduce
the deficit and contribute to a moderate economic slow dow n to a 3% grow th pace. Key risks
include failure to reduce the deficit, a greater-than-expected economic slow dow n induced by
policy tightening, or a devaluation of the boliviano.

Debt Dynamics – Fitch’s Baseline Assumptions

2018 2019 2020 2021 2022 2023 2028
Gross general government debt (% GDP) 39.5 42.4 43.9 45.6 46.9 48.1 54.5
Primary balance (% of GDP) -5.2 -5.5 -3.2 -3.0 -2.5 -2.5 -2.5
Real GDP growth (%) 4.2 3.8 3.0 3.0 3.0 3.0 3.0
Avg. nominal effective interest rate (%) 3.5 3.6 3.8 4.0 4.1 4.3 4.7
Local currency/USD (annual avg.) 6.9 6.9 6.9 6.9 6.9 6.9 6.9
GDP deflator (%) 3.1 2.8 4.0 4.0 4.0 4.0 4.0

Sensitivity Analysis
Gross general government debt
Baseline Scenario A Scenario B Scenario C
(% of GDP)
80
70
60
50
40
30
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Source: Fitch Ratings debt dynamics model

Debt Sensitivity Analysis: Fitch’s Scenario Assumptions

Scenario A Maintenance of current policy settings supporting growth of 4.2% and preventing primary
deficit from falling after 2019 (5.5% of GDP); accumulation of 150bp risk premium.
Scenario B Same primary deficit as baseline, but a sharper slowdown in growth to 0% in 2020 and a
weaker recovery to a 2% trend pace by 2023.
Scenario C A 25% devaluation of the boliviano at end-2019.

Forecast Summary
2014 2015 2016 2017 2018 2019f 2020f
Macroeconomic indicators and policy
Real GDP growth (%) 5.5 4.9 4.3 4.2 4.2 3.8 3.0
Unemployment (%) 3.5 4.4 4.5 4.5 4.1 4.1 4.5
Consumer prices (annual average % change) 5.8 4.1 3.6 2.8 2.3 2.8 4.0
Short-term interest rate (bank policy annual avg.) (%) 3.9 1.6 1.5 2.5 2.0 2.5 2.5
General government balance (% of GDP) -2.5 -4.5 -3.4 -5.0 -6.0 -6.4 -4.2
General government debt (% of GDP) 30.7 32.4 34.6 37.8 39.5 42.4 43.9
BOB per USD (annual average) 6.91 6.91 6.91 6.91 6.91 6.91 6.91
Real effective exchange rate (2000 = 100) 121.5 140.1 146.3 143.3 147.4 149.7 151.9
Real private sector credit growth (%) 8.8 13.0 10.8 9.7 8.8 5.1 -1.0
External finance
Current account balance (% of GDP) 1.7 -5.9 -5.6 -5.0 -4.9 -6.0 -4.0
Current account balance plus net FDI (% of GDP) 3.8 -4.2 -4.9 -3.3 -4.1 -5.2 -3.2
Net external debt (% of GDP) -42.6 -33.2 -25.1 -17.3 -11.3 -3.6 0.9
Net external debt (% of CXR) -90.8 -95.9 -86.5 -57.0 -37.6 -13.1 3.4
Official international reserves including gold (USDbn) 15.1 13.1 10.1 10.3 8.9 7.5 6.5
Official international reserves (months of CXP cover) 12.2 11.7 10.3 9.3 7.6 6.2 5.7
External interest service (% of CXR) 1.0 1.4 2.0 2.4 2.9 3.2 3.6
Gross external financing requirement (% int. reserves) 2.5 18.2 20.4 26.6 27.3 39.0 36.9
Real GDP grow th (%)
US 2.5 2.9 1.6 2.2 2.9 2.4 1.8
China 7.3 6.9 6.7 6.9 6.6 6.2 6.0
Eurozone 1.4 2.1 2.0 2.4 1.9 1.2 1.3
World 2.9 2.8 2.6 3.3 3.2 2.8 2.7
Oil (USD/barrel) 98.9 52.4 45.1 54.9 71.6 65.0 62.5
Source: Fitch Ratings

Boliv ia 8
July 2019
 Sovereigns

Fiscal Accounts Summary

(% of GDP) 2015 2016 2017 2018 2019f 2020f
General gov ernment
Rev enue 36.1 31.3 29.3 28.0 27.4 26.6
Expenditure 40.6 34.6 34.3 34.0 33.8 30.8
O/w interest payments 0.9 0.6 0.7 0.8 0.9 1.1

Primary balance -3.6 -2.8 -4.4 -5.2 -5.5 -3.2

Ov erall balance -4.5 -3.4 -5.0 -6.0 -6.4 -4.2

General gov ernment debt 32.4 34.6 37.8 39.5 42.4 43.9
% of general government revenue 89.8 110.6 129.2 140.8 154.9 165.3

Central government deposits 15.8 14.8 13.9 11.8 9.7 8.8

Net general government debt 16.7 19.8 23.9 27.7 32.7 35.1

Central gov ernment

Rev enue 18.7 16.8 15.0 14.4 14.3 14.1
O/w grants 0.1 0.2 0.1 0.1 - -
Expenditure and net lending 19.6 17.5 18.4 18.6 18.4 17.5
O/w current expenditure and transfers 16.3 14.9 15.5 16.0 15.8 15.6
- Interest 1.0 1.0 1.0 1.1 1.2 1.3
O/w capital expenditure 3.3 2.6 2.9 2.6 2.6 1.9

Current balance 2.2 1.7 -0.6 -1.6 -1.5 -1.5

Primary balance 0.1 0.2 -2.3 -3.0 -2.9 -2.1
Ov erall balance -0.9 -0.8 -3.3 -4.1 -4.0 -3.4

Central government debt 29.5 31.3 34.5 36.2 39.3 41.0

% of central government revenues 158.0 186.7 229.0 250.4 274.4 290.6

Central gov ernment debt (BOBbn) 67.3 73.4 89.3 100.7 116.8 130.5
By residency of holder
Domestic 28.2 29.6 31.1 37.4 43.9 48.9
Foreign 39.1 43.8 58.2 63.3 72.9 81.6
By currency denomination
Local currency 26.6 29.0 31.1 37.4 43.9 48.9
Foreign currency 40.7 44.5 58.2 63.3 72.9 81.6
In USD equivalent (eop exchange rate) 5.9 6.4 8.4 9.2 10.5 11.8
Average maturity (years) 28.7 28.7 - - - -
Memo
Nominal GDP (BOBbn) 228.0 234.5 259.2 278.4 297.2 318.3
Source: Fitch Ratings estimates and forecasts, Ministry of Finance

Boliv ia 9
July 2019
 Sovereigns

External Debt and Assets

(USDbn) 2013 2014 2015 2016 2017 2018
Gross external debt 8.0 9.0 9.9 10.7 12.7 12.3
% of GDP 26.2 27.2 30.1 31.6 33.9 30.6
% of CXR 55.8 58.0 87.0 108.7 111.5 102.1

By maturity
Medium- and long-term 7.8 8.6 9.2 10.1 12.2 11.7
Short -term 0.3 0.4 0.7 0.7 0.6 0.6
% of total debt 3.1 4.7 7.3 6.2 4.4 4.9

By debtor
Sov ereign 5.2 5.6 6.2 6.9 9.1 9.8
Monetary authorities 0.3 0.3 0.3 0.3 0.3 0.3
General government 4.9 5.3 5.9 6.7 8.8 9.5
O/w central government 4.7 5.0 5.7 6.3 8.4 9.2
Banks 0.1 0.2 0.5 0.4 0.4 0.3
Other sectors 2.7 3.2 3.2 3.4 3.3 2.2

Gross external assets (non-equity) 20.7 23.0 20.9 19.3 19.2 16.9
International reserves, incl. gold 14.4 15.1 13.1 10.1 10.3 8.9
Other sovereign assets nes 1.6 1.5 1.4 1.4 0.9 0.1
Deposit money banks' foreign assets 1.7 2.2 2.6 2.4 2.3 2.0
Other sector foreign assets 3.1 4.3 3.8 5.4 5.7 5.8

Net external debt -12.7 -14.1 -11.0 -8.5 -6.5 -4.5

% of GDP -41.4 -42.6 -33.2 -25.1 -17.3 -11.3
Net sovereign external debt -10.8 -11.0 -8.2 -4.5 -2.1 0.7
Net bank external debt -1.5 -2.0 -2.2 -1.9 -1.9 -1.7
Net other external debt 3.1 4.3 3.8 5.4 5.7 5.8

Net international inv estment position 4.7 5.1 2.5 0.1 -1.9 -3.9
% of GDP 15.2 15.5 7.7 0.4 -5.1 -9.6

Sov ereign net foreign assets 10.8 11.0 8.2 4.5 2.1 -0.7
% of GDP 35.3 33.3 24.9 13.4 5.6 -1.8

Debt serv ice (principal & interest) 0.6 1.1 1.0 1.0 1.1 1.2
Debt service (% of CXR) 4.5 7.1 8.5 9.7 9.5 9.6
Interest (% of CXR) 1.5 1.0 1.4 2.0 2.4 2.9

Liquidity ratio (%) 1,562.5 1,201.0 1,241.5 938.6 720.4 743.6

Net sovereign FX debt (% of GDP) -29.4 -28.6 -20.8 -9.8 -3.9 1.5
Memo
Nominal GDP 30.7 33.0 33.0 33.9 37.5 40.3
Inter-company loans 1.7 1.7 1.9 2.0 2.0 1.5
Source: Fitch Ratings estimates and forecasts, central bank, IMF and World Bank

Boliv ia 10
July 2019
 Sovereigns

External Debt Service Schedule on Medium- and Long-Term Debt at Dec 2018
(USDm) 2019 2020 2021 2022 2023 2024 2025+
Sov ereign: Total debt serv ice 778 804 808 1,318 1,298 785 7,276
Amortisation 397 438 462 992 1,017 555 6,051
Official bilateral 47 47 60 77 104 113 738
Multilateral 350 391 402 414 413 442 4,313
O/w IMF - - - - - - -
Other 0 0 0 0 0 0 0
Bonds placed in foreign markets 0 0 0 500 500 0 1,000

Interest 381 366 346 326 281 230 1,225

Non-sov ereign public sector n.a n.a. n.a. n.a n.a. n.a. n.a.
Source: Fitch Ratings, Ministry of Finance, central bank

Balance of Payments
(USDbn) 2015 2016 2017 2018 2019f 2020f
Current account balance -1.9 -1.9 -1.9 -2.0 -2.6 -1.8
% of GDP -5.9 -5.6 -5.0 -4.9 -6.0 -4.0
% of CXR -17.0 -19.3 -16.4 -16.5 -21.9 -15.5

Trade balance -0.4 -0.9 -0.5 -0.5 -1.0 -0.3

Exports, fob 8.7 7.0 8.1 8.9 8.7 8.7
Imports, fob 9.1 7.9 8.6 9.4 9.7 9.0

Serv ices, net -1.6 -1.6 -1.7 -1.8 -1.9 -1.7

Services, credit 1.2 1.2 1.4 1.5 1.5 1.5
Services, debit 2.8 2.9 3.1 3.3 3.4 3.3

Income, net -1.1 -0.6 -1.1 -1.0 -0.9 -1.0

Income, credit 0.1 0.1 0.2 0.2 0.2 0.2
Income, debit 1.2 0.8 1.3 1.2 1.1 1.2
O/w: Interest payments 0.2 0.2 0.3 0.3 0.4 0.4

Current transfers, net 1.2 1.2 1.4 1.3 1.2 1.2

Capital and financial accounts

Non-debt-creating inflows (net) 0.3 -0.1 0.7 0.6 0.4 0.4
O/w equity FDI 0.4 0.2 0.7 0.2 0.4 0.4
O/w portfolio equity -0.1 -0.2 0.0 0.4 0.0 0.0
O/w other flows 0.0 0.0 0.0 0.0 0.0 0.0
Change in reserves -1.6 -3.0 -0.2 -1.2 -1.4 -1.0
Gross external financing requirement 2.7 2.7 2.7 2.8 3.5 2.8
Stock of international reserv es, incl. gold 13.1 10.1 10.3 8.9 7.5 6.5
Source: Fitch Ratings estimates and forecasts, IMF

Boliv ia 11
July 2019
 Sovereigns

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Boliv ia 12
July 2019