Fitch Upgrades Bolivia to ‘B’; Outlook Stable

NEW YORK–(BUSINESS WIRE)–Fitch Ratings today upgraded Bolivia’s foreign and local currency Issuer Default Ratings (IDR) to ‘B’ from ‘B-‘. The Rating Outlooks on both ratings are Stable. At the same time, Fitch has affirmed the short-term rating at ‘B’ and upgraded the country ceiling to ‘B’ from ‘B-‘.

The maintenance of macroeconomic stability in the context of political and social turbulence and an unfavourable external environment supports the upgrade of Bolivia’s sovereign ratings.

Favourable public and external debt ratios following debt relief under HIPC and MDRI, international reserve accumulation and abundant natural resources also underpin sovereign creditworthiness. At the same time, Bolivia’s ratings remain constrained by structural weaknesses, as denoted by poor governance and business climate indicators, as well as its high commodity dependence.

‘Although resurgent political pressures in advance of December 2009’s general elections could combine with the deteriorating economic environment to result in renewed civil unrest, this is not expected to derail macroeconomic stability,’ said Casey Reckman, Associate Director in Fitch’s Sovereign group. Political tensions have eased somewhat as the stalemate over the draft constitution ended with its approval in a January 2009 referendum. Furthermore, increased discretionary public spending and conditional cash transfers may continue to mitigate social pressures arising from economic deceleration and declining remittances.

Bolivia has confronted reduced commodity prices, contracting export volumes and lower workers’ remittances as a result of the global economic crisis. Nevertheless, limited foreign participation in Bolivia’s banking system as well as the absence of toxic assets or sizeable international funding has shielded the country from fallout from the global crisis through direct financial channels. Fitch expects real GDP growth to decelerate to 1.6% in 2009 in response to the less favourable external environment before recovering to 2.8% in 2010 with some support from informal economic activity.

The performance of the key extractive sectors is significant to overall economic activity as well as the scope for the increasingly important role of public spending in GDP growth and the government’s social and economic strategy. Yet, state intervention in the economy has discouraged investment and diluted technical capacity in hydrocarbons and other industries, which could undermine the sustainability of higher growth rates as well as the fiscal impulse.

On the fiscal side, notwithstanding sustained expenditure expansion under President Morales, Bolivia has posted general government surpluses underpinned by revenue related to extractive sector exports for the past three years. Bolivia’s fiscal policy response to the global economic crisis has taken the form of continued expenditure expansion and higher public investment. However, the effectiveness of this fiscal stimulus is hindered by weak execution capacity. As a result, Fitch expects a near balanced position for fiscal accounts in 2009 (including pensions costs). Higher expenditures combined with lower revenues and more difficult financing conditions could increase fiscal pressures over the forecast horizon. In spite of expected fiscal slippage, Bolivia’s fiscal indicators will remain robust relative to ‘B’ peers.

Continued resilience to domestic and external shocks or sustained higher economic growth could be positive for creditworthiness. On the other hand, fiscal slippage which jeopardizes macroeconomic stability and debt dynamics, a more difficult financing outlook as well as resurgent political and social pressures that result in macroeconomic imbalances could put downward pressure on the sovereign ratings.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, ‘‘. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.

Source: Fitch Ratings


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