Bolivia’s reserves have fallen to ‘worrying’ levels: Fitch

(Bloomberg) – Bolivia’s foreign exchange reserves have fallen to “quite worrying” levels, making the country more vulnerable to external shocks, Fitch Ratings said.

“In the face of a new shock, reserves do not necessarily offer the protection Bolivia needs to protect its economy and its exchange rate regime,” Fitch Ratings analyst Todd Martinez said in a video interview. “Bolivia would have to resort to external financing or perhaps capital controls.”

Bolivia’s international reserves have had a long downward trend since gas prices fell in 2015, reducing the country’s export earnings. Last year, the top three credit rating agencies sank Bolivia further to speculative degree, as the economy suffered its worst downturn on record during the pandemic.

The country’s foreign exchange reserves fell to a 14-year low in March, although they have since recovered slightly. It is not yet clear whether the stabilization in recent weeks is temporary or a tipping point, Martinez said. On June 25, Bolivia had reserves of US $ 4.7 billion, more than half in gold, of the US $ 6.3 billion it had a year earlier.

IMF loan

In response to written questions, Bolivia’s central bank said that the country currently has a sufficient level of reserves to cover seven months of imports, which exceeds the “international threshold” of three months. The reserves also cover five times the short-term external debt obligations. The recent improvement in the trade balance and the increase in remittances are strengthening the nation’s reserves, the bank said.

A bill sent to congress last month authorizing the bank to buy domestically produced gold will also strengthen reserves, he added.

Part of the drop was due to the early repayment of an IMF loan earlier this year.

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Fitch forecasts a 5% expansion this year, which will not be enough to offset the 7.7% contraction in 2020. This year’s growth is primarily a rebound from the collapse, rather than something attributable to the government of President Luis Arce, who took office the charge last November, Martinez said.

Exchange parity

Arce, of the Bolivian Socialist Party, won the presidency overwhelmingly last year. When he was economy minister in 2008, he helped introduce the exchange rate of around 7 per dollar. The fixed currency, combined with the country’s vulnerability to changing energy prices, means that it needs a larger reserve buffer than some of its peers, Martínez said.

Bolivia’s strength is that it has relatively low levels of external debt, which means that it could borrow more from multilateral lenders or in international markets, Martínez said. Bolivian bonds maturing in 2028 currently yield 6.22%.

Original Note: Bolivia’s Reserves Have Dropped to ‘Worrying’ Levels, Fitch Says

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