waltermasoni
Caribbean Trader
Bolivia Downgraded To 'BB-' On Weaker External Position; Outlook Is Stable
RATINGS
Foreign Currency: BB-/Stable/B
Local Currency: BB-/Stable/B
For further details see Ratings List.
OVERVIEW
On May 23, 2018, S&P Global Ratings lowered its long-term foreign and local
currency sovereign credit ratings on Bolivia to 'BB-' from 'BB'. At the same
time, we affirmed our 'B' short-term foreign and local currency ratings. The
outlook on the long-term ratings is stable.
We also lowered our transfer and convertibility assessment to 'BB-' from 'BB'.
OUTLOOK
The stable outlook reflects our view that in the next 12-24 months Bolivia's
economy will continue to grow at around 4.3%, underpinned by sustained levels
of public investment and consumption, thanks to a recovery in external
revenues stemming mainly from the rebound in hydrocarbon prices. We expect
that such growth will be accompanied by large but declining current account
and fiscal deficits. We expect broad continuity in economic policy through the
national elections in 2019. We also expect domestic credit growth to
decelerate in the coming years after many years of rapid increase.
We could lower our ratings on Bolivia in the next 12-24 months if we see
indications of unexpected economic imbalances in the financial system stemming
from a rapid increase in domestic credit. We could also lower our ratings if
fiscal slippage results in higher-than-expected annual increases in net
general government debt.
We could raise our ratings on Bolivia in the same period if timely and
substantial adjustment in fiscal and other policies were to contain and
reverse the ongoing deterioration in the sovereign's external profile,
resulting in greater economic resilience against external shocks. Similarly,
better-than-expected export performance, especially through improved prospects
for long-term hydrocarbon output and exports, could sustain favorable GDP
growth beyond our expectations and contain the current account deficit (CAD).
RATIONALE
The downgrade reflects our view that Bolivia's external position has been
weakened by sustained large CADs. We project that Bolivia's narrow net
external profile (total external debt, less official foreign-exchange reserves
plus public- and financial-sector liquid external assets), will move into a
debtor position of 5% of current account receipts (CAR) in 2019 from a
creditor position of 8.7% this year and 24% in 2017. The country accumulated
large external and fiscal buffers during the period of high commodities
prices. However, lower export earnings in recent years have contributed to a
trade deficit and CAD, eroding the country's external position.
We expect that CADs will persist, but gradually narrow, in the coming three
years. The combination of recently rising oil prices (which are connected to
the price of Bolivia's natural gas exports to Brazil and Argentina) and
continued strong demand for imports, reflecting GDP growth above 4%, on
average, will likely reduce the CAD to around 5% of GDP in 2018, down from
over 6% last year.
Our ratings on Bolivia reflect its low GDP per capita, which we project to be
around $3,600 in 2018. Despite substantial improvement in income, social
indicators, and physical infrastructure in recent years, the country remains
poor by overall Latin American standards. We expect that per capita GDP growth
will average 2.6% over the next three years--faster than in most of the
region.
We view Bolivia's governing public institutions as still developing and
susceptible to politicization. Policy decisionmaking is highly centralized. In
our view, Bolivia's exchange-rate policy provides for limited monetary
flexibility, despite considerable progress in recent years in reducing the
share of dollar-denominated assets and liabilities in the financial system.
The ratings on Bolivia also reflect its fiscal and export dependence on
commodities. Hydrocarbons (mainly natural gas) and minerals account for the
bulk of the country's exports, contributing to volatility in its terms of
trade. In addition, our ratings on Bolivia reflect its limited monetary
flexibility.
On the other hand, Bolivia's low net general government debt (which we project
to be 23% of GDP in 2018) is a rating strength. The government's policy of
running fiscal surpluses during the years of high commodity prices gave it
substantial fiscal reserves, allowing it to sustain public spending in recent
years while containing its borrowing needs. We think that the financial system
poses limited contingent liabilities for the sovereign.
Institutional and economic profile: Growth prospects remain tied to the
hydrocarbon sector and large infrastructure projects
growing 4.2% in 2017. Economic performance has been, and we expect it to
continue to be, underpinned by high levels of public-sector investment in
strategic sectors of the economy. Low inflation, aided by a stable exchange
rate versus the U.S. dollar, and sustained investment should support growth in
the next couple of years. We estimate GDP per capita to average $3,940 in
2018-2021. Per capita GDP growth is likely to average 2.5% in this period.
Bolivia is a small, open economy whose performance is influenced by
developments in natural gas, mining, and agriculture. Commodity exports
account for more than 80% of total exports, while natural gas is about
one-third of all exports. About 40% of public-sector revenues (in the form of
royalties and tax revenues) came from the hydrocarbon sector, on average, in
2010-2017, diminishing to 27% in terms of general government revenues
(excluding public companies). We expect that higher oil prices in 2018 will
partially compensate for the decline in gas output. Gas output continued to
decline in 2017, following the trend that began in 2015 (an average of an
almost 3% decline per year).
- 23-May-2018 19:58 EDT
RATINGS
Foreign Currency: BB-/Stable/B
Local Currency: BB-/Stable/B
For further details see Ratings List.
OVERVIEW
- Bolivia's external position has been weakened by sustained large current
account deficits. - We project that Bolivia's narrow net external profile will move into a
debtor position of 5% of current account receipts in 2019 from a creditor
position of 8.7% this year and 24% in 2017. - We are therefore lowering our long-term foreign and local currency
sovereign credit ratings on Bolivia to 'BB-' and affirming the short-term
sovereign credit ratings at 'B'. - The outlook is stable, reflecting our view that Bolivia's economy will
continue to grow, underpinned by sustained levels of public investment
and consumption, as well as a recovery in external revenues.
On May 23, 2018, S&P Global Ratings lowered its long-term foreign and local
currency sovereign credit ratings on Bolivia to 'BB-' from 'BB'. At the same
time, we affirmed our 'B' short-term foreign and local currency ratings. The
outlook on the long-term ratings is stable.
We also lowered our transfer and convertibility assessment to 'BB-' from 'BB'.
OUTLOOK
The stable outlook reflects our view that in the next 12-24 months Bolivia's
economy will continue to grow at around 4.3%, underpinned by sustained levels
of public investment and consumption, thanks to a recovery in external
revenues stemming mainly from the rebound in hydrocarbon prices. We expect
that such growth will be accompanied by large but declining current account
and fiscal deficits. We expect broad continuity in economic policy through the
national elections in 2019. We also expect domestic credit growth to
decelerate in the coming years after many years of rapid increase.
We could lower our ratings on Bolivia in the next 12-24 months if we see
indications of unexpected economic imbalances in the financial system stemming
from a rapid increase in domestic credit. We could also lower our ratings if
fiscal slippage results in higher-than-expected annual increases in net
general government debt.
We could raise our ratings on Bolivia in the same period if timely and
substantial adjustment in fiscal and other policies were to contain and
reverse the ongoing deterioration in the sovereign's external profile,
resulting in greater economic resilience against external shocks. Similarly,
better-than-expected export performance, especially through improved prospects
for long-term hydrocarbon output and exports, could sustain favorable GDP
growth beyond our expectations and contain the current account deficit (CAD).
RATIONALE
The downgrade reflects our view that Bolivia's external position has been
weakened by sustained large CADs. We project that Bolivia's narrow net
external profile (total external debt, less official foreign-exchange reserves
plus public- and financial-sector liquid external assets), will move into a
debtor position of 5% of current account receipts (CAR) in 2019 from a
creditor position of 8.7% this year and 24% in 2017. The country accumulated
large external and fiscal buffers during the period of high commodities
prices. However, lower export earnings in recent years have contributed to a
trade deficit and CAD, eroding the country's external position.
We expect that CADs will persist, but gradually narrow, in the coming three
years. The combination of recently rising oil prices (which are connected to
the price of Bolivia's natural gas exports to Brazil and Argentina) and
continued strong demand for imports, reflecting GDP growth above 4%, on
average, will likely reduce the CAD to around 5% of GDP in 2018, down from
over 6% last year.
Our ratings on Bolivia reflect its low GDP per capita, which we project to be
around $3,600 in 2018. Despite substantial improvement in income, social
indicators, and physical infrastructure in recent years, the country remains
poor by overall Latin American standards. We expect that per capita GDP growth
will average 2.6% over the next three years--faster than in most of the
region.
We view Bolivia's governing public institutions as still developing and
susceptible to politicization. Policy decisionmaking is highly centralized. In
our view, Bolivia's exchange-rate policy provides for limited monetary
flexibility, despite considerable progress in recent years in reducing the
share of dollar-denominated assets and liabilities in the financial system.
The ratings on Bolivia also reflect its fiscal and export dependence on
commodities. Hydrocarbons (mainly natural gas) and minerals account for the
bulk of the country's exports, contributing to volatility in its terms of
trade. In addition, our ratings on Bolivia reflect its limited monetary
flexibility.
On the other hand, Bolivia's low net general government debt (which we project
to be 23% of GDP in 2018) is a rating strength. The government's policy of
running fiscal surpluses during the years of high commodity prices gave it
substantial fiscal reserves, allowing it to sustain public spending in recent
years while containing its borrowing needs. We think that the financial system
poses limited contingent liabilities for the sovereign.
Institutional and economic profile: Growth prospects remain tied to the
hydrocarbon sector and large infrastructure projects
- GDP grew 4.2% in 2017 despite continuing unfavorable global economic
conditions and low commodities prices. We expect growth to average 4.1%
in 2018-2021. - Ambitious investment projects, low inflation, and higher oil prices will
buttress economic growth. At the same time, bottlenecks related to policy
implementation may reduce the effectiveness of investment. - President Evo Morales is likely to maintain his dominant political
standing and run for reelection in 2019.
growing 4.2% in 2017. Economic performance has been, and we expect it to
continue to be, underpinned by high levels of public-sector investment in
strategic sectors of the economy. Low inflation, aided by a stable exchange
rate versus the U.S. dollar, and sustained investment should support growth in
the next couple of years. We estimate GDP per capita to average $3,940 in
2018-2021. Per capita GDP growth is likely to average 2.5% in this period.
Bolivia is a small, open economy whose performance is influenced by
developments in natural gas, mining, and agriculture. Commodity exports
account for more than 80% of total exports, while natural gas is about
one-third of all exports. About 40% of public-sector revenues (in the form of
royalties and tax revenues) came from the hydrocarbon sector, on average, in
2010-2017, diminishing to 27% in terms of general government revenues
(excluding public companies). We expect that higher oil prices in 2018 will
partially compensate for the decline in gas output. Gas output continued to
decline in 2017, following the trend that began in 2015 (an average of an
almost 3% decline per year).
