Economy Minister Marcelo Montenegro said the latest grading given to Bolivia by Fitch Ratings entailed a biased vision according to which the country's total public debt, internal and external, represented 71.7% of the Gross Domestic Product (GDP) when it actually amounted to 46%.
The internal debt added to the external debt gives 46% of the GDP, not 71%, so it is clear that it is a bad accounting, but we still consider that the level of external debt is not a problem that attracts investors' attention, Montenegro said in an interview as he disagreed with Fitch's decision to downgrade Bolivia on Tuesday from B- to CCC in Net International Reserves (NIR), which increases risks to macroeconomic stability and debt servicing capacity.
Montenegro also said foreign credit worth around US$ 804 million was pending treatment at the Plurinational Legislative Assembly. According to Bolivian Central Bank (BCB) data, the country's Net International Reserves closed last year at US$ 1.709 billion, a 55% drop from 2022 due, in part, to the increase in the cost of fuel imports, which has required the use of resources to guarantee supply.
Large fiscal deficits, largely financed by central bank borrowing; and the absence of a concrete consolidation plan are likely to continue to put pressure on reserves, Fitch argued. The rating agency added that this scenario was reflected in foreign exchange rationing and the emergence of parallel (black) market exchange rates while risks to debt service capacity are increasing.
Fitch pointed out that NIR fell in 2023 from US$ 2.1 billion to US$ 1.7 billion, of which $1.57 billion is gold reserves and only US$ 166 million is foreign exchange. In December 2023, the BCB also entered into a repurchase operation with a commercial bank, providing $99 million in foreign exchange that was discounted from reserves because it used another reserve asset as collateral; which would likely have been gold. The less timely release of reserves data has increased uncertainty. Fitch forecasts that the current account deficit will widen from 1.5% of Gross Domestic Product (GDP) in 2023 to 1.9% in 2024. In addition, it stresses that gas exports continue to decline due to falling production, while imports of heavily subsidized fuel remain high.
Bolivia is excluded from global capital markets with 2028 bond yields of 24% as of January 2024. The BCB has changed rules to incentivize repatriation of foreign assets by banks and investment funds, which could help alleviate short-term pressures, but lack of policy adjustment means external pressures are likely to continue, Fitch also explained while forecasting that Bolivia's public debt will rise to 73.8% of GDP in 2024, up from 71.7% in 2023 and 66.5% in 2022. It also projects Bolivia's growth to decelerate to 2.1% in 2023 from 3.6% in 2022, and forecasts growth of 1.8% in 2024.
Montenegro's office insisted Fitch's assessment lacked an analysis of its true dimension of the positive results achieved in the national economy and the efforts made to face the adverse international environment. The National Government maintains a sustainable fiscal policy that will continue to promote economic diversification in sectors that generate income and employment, to foster sustainable and inclusive economic growth. It also reaffirms its commitment to promote food, energy, and health security and social protection, to improve the quality of life of the population, the Ministry also pointed out in a statement.