No road to recovery

Bolivia's fiscal and trade woes compounded by the pandemic.

Bolivia’s economy, like 90% of the world’s countries, shrank in 2020. According to preliminary data presented by the Central Bank of Bolivia (BCB), this decrease was 8.4%, very close to the regional average.

Public spending increased due to the pandemic, while tax revenues fell. According to the most recent BCB estimate, the fiscal deficit in 2020 reached 12.3% of GDP. The exact amount of the external debt accumulated until the end of 2020 is not yet known, but, together with the latest credits contracted with the IDB and the CAF to pay the Bond Against Hunger, it is estimated that it could be close to USD 12 billion.

According to an estimate by the Economic Commission for Latin America and the Caribbean (ECLAC), Bolivia could grow by 5.2% in 2021, the highest rate since 2015, but this will not be enough to offset contraction of 2020.

A former board member of the BCB expressed his concern, “The fiscal situation in Bolivia is extremely worrying. The state does not have enough money for current spending, let alone the public investments the MAS party has advertised. This is not just COVID, Bolivia has been experiencing fiscal and trade deficits for the past 5 years.”

“The fiscal situation in Bolivia is extremely worrying. The state does not have enough money for current spending, let alone the public investments the MAS party has advertised.”

Former board member, Bolivian Central Bank

A former vice-minister of planning is equally worried, “Incomprehensibly, Arce, fully aware of the situation, is making decisions that are deepening the crisis, to fulfil his ideology. He has repealed decrees that supported the business community, he has reinstated a ban on exports for agribusiness, and has approved a wealth tax that will not have a significant impact on collection, maybe USD 14 million, but will reduce investment.”

Other sources of state income don’t appear likely to solve the problem either: gas sales have dropped from USD 6 billion in 2014 to an estimated USD 2 billion in 2020 and mining has received no investment so new discoveries can’t be expected.

“The Bolivian government will seek to issue new sovereign bonds of around USD 3 billion. We will have to see how the international market responds.”

Latin American economist, USA

A Latin American economist in New York commented, “The Bolivian government will seek to issue new sovereign bonds of around USD 3 billion. We will have to see how the international market responds. I anticipate high interest rates due to the high risk and that would be a disaster for Bolivia but there are no foreseeable sources of income to be able to pay in the future and investors know that.”

Meanwhile, the Arce government continues with the discourse of reactivating domestic demand to return the country to growth, an exasperated former economic adviser exclaimed, “Please, explain how, this isn’t possible, it’s a dream.”

 

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