New York, September 22, 2020 -- Moody's Investors Service ("Moody's") has today
downgraded the Government of Bolivia's local and foreign-currency
issuer and senior unsecured debt ratings to B2 from B1 and changed the
outlook to stable from negative.
The decision to downgrade Bolivia's ratings reflects: (1)
the material erosion of fiscal and foreign exchange reserve buffers;
and (2) medium-term prospects for reduced economic growth,
lower government revenue generation and weaker foreign exchange earnings
in a context of relatively weak hydrocarbon sector demand and persistent
policy uncertainty.
The stable outlook reflects that, at the B2 rating level,
risks to Bolivia's credit profile are balanced. Although
the government that will come into office after the 18 October presidential
election will face material challenges in implementing fiscal policy adjustments
and structural reforms, Bolivia's favorable debt structure
and high debt affordability will help mitigate credit risks and support
its sovereign credit profile.
Concurrently, Moody's lowered Bolivia's long-term foreign-currency
(FC) bond ceiling to B1 from Ba3, its long-term FC deposit
ceiling to B3 from B2, and its local currency bond and deposit ceilings
to Ba3 from Ba2. The short-term foreign-currency
bond ceiling and the short-term foreign-currency bank deposit
ceiling remain unchanged at Not Prime (NP).
RATINGS RATIONALE
RATIONALE FOR THE RATING DOWNGRADE TO B2
EROSION OF FISCAL AND FOREIGN EXCHANGE RESERVE BUFFERS
Bolivia's fiscal and foreign exchange reserve buffers have historically
supported the country's credit profile. However, these
buffers have significantly diminished resulting in a material erosion
of Bolivia's credit strengths.
The government's fiscal savings buffer declined to around 10% of
GDP in 2019 from 27% of GDP in 2013. During this same period,
nonfinancial public sector (NFPS) debt increased to 57.5%
of GDP from 38%.
Moody's expects the coronavirus pandemic and relatively weak hydrocarbon
sector revenues to drive the fiscal deficit and NFPS debt to 13.5%
of GDP and 72% of GDP, respectively, in 2020.
In line with the anticipated deterioration in the fiscal accounts,
fiscal savings buffers will decline as well, further diminishing
a key supporting factor of Bolivia's credit profile.
Higher imports for large energy infrastructure investment projects coupled
with lower global energy prices have led to sustained current account
deficits and a material decline in Bolivia's foreign exchange reserves.
The outlook for exports is unfavorable given prospects of lower global
energy prices and decreased demand from Brazil (Ba2 stable) and Argentina
(Ca NEG), Bolivia's main export destinations. Moody's
expects a current account deficit of around 3% of GDP in 2020,
driven by the tapering off of capital imports for the government's investment
program.
Foreign exchange reserves have fallen steadily, reaching $3.6
billion as of July 2020 (9% of GDP), down from a high of
$13.2 billion (40% of GDP) in 2014. Although
reserves still provide around 5.5 months of import coverage,
the ratio has declined and pressure on the country's fixed exchange-rate
regime could rise if reserve levels continue to fall. Bolivia's
reserve coverage of short-term external debt obligations remains
above the B-rated peer median, which reflects in good part
the concessional nature of the government's external debt, but Moody's
expects reserve coverage will decline to about 70% by 2022 from
around 40% in 2020.
PROSPECTS OF STRUCTURALLY LOWER ECONOMIC GROWTH IN THE CONTEXT OF PERSISTENT
POLICY UNCERTAINTY
After nearly 15 years of strong government-led investment,
the Bolivian economy has entered a challenging period of moderating growth,
which will weigh on future government revenues and foreign exchange earnings.
Real GDP growth averaged 4.6% between 2010-19 and
Moody's expects annual growth will be in the 2.5%-3.5%
range after the pandemic, driven by lower government investment
levels, general weaknesses in the hydrocarbon sector and persistent
political uncertainty. These conditions existed before the pandemic
but have been exacerbated by the shock.
The coronavirus will negatively impact an already-slowing economy
leading to the country's first recession since the 1980s --
Moody's estimates GDP will contract by 6.5% this year.
Moody's expects growth to recover to about 3.5% in
2021 and to remain at a lower reference level over the medium term.
Domestic political developments following the October 2019 presidential
election and the subsequent resignation of President Evo Morales have
led to heightened political risk and policy uncertainty. A minority
political opposition has stepped in to lead an interim government until
a new official presidential election is held. However, the
election has been delayed two times as a result of the pandemic and domestic
political infighting, prolonging Bolivia's policy uncertainty
and highlighting its relatively weak institutional and governance framework.
Given Bolivia's weak institutional and governance framework, a highly
polarized society, and fragile social fabric, Moody's
expects a prolonged period of political instability and policy uncertainty,
even after the upcoming October election is held. A contentious
political environment will likely complicate the government's ability
to effectively implement policies that can durably reduce fiscal and external
imbalances, foster higher sustainable growth and, overall,
strengthen Bolivia's credit profile.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook balances the significant policy challenges that the
new government will face against Bolivia's credit strengths,
including a diminished, but still higher-than-peers,
fiscal savings buffer, a favorable debt structure and access to
multilateral concessional financing.
High development spending needs in the context of limited government fiscal
resources and materially weaker hydrocarbon sector earnings will constrain
the government's fiscal flexibility. Moody's believes
the next government will be challenged to implement structural reforms
and fiscal consolidation measures that can materially strengthen medium-term
economic growth prospects, reduce fiscal and external imbalances
and prevent further deterioration in the country's fiscal and foreign
exchange reserve buffers.
Bolivia's limited use of market-based financing and heavy reliance
on multilateral lending helps to mitigate risks embedded in the sovereign
credit profile. Around two-thirds of the government's
debt is owed to multilateral creditors on favorable terms with long-term
maturities, features that significantly reduce rollover risk.
Bolivia has three global bonds outstanding that account for 18%
of the government's total external debt. As a result of Bolivia's
heavy reliance on multilateral creditors, its cost of funding is
very low with interest payments representing only 2.3% of
general government revenue over the past five years, compared with
7.8% for the B-rated median. Moody's
expects government debt to remain highly affordable over the next few
years with new borrowings coming mostly from multilateral development
banks on concessional terms.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental considerations are material to Bolivia's rating.
Increased deforestation and large forest fires in the Bolivian Amazon
rainforest have contributed to rising climate change and environmental
risks. Natural resources development also poses environmental risks.
Social considerations are also material to Bolivia's credit profile,
driven by a historically high incidence of poverty and inequality.
Sustained high growth rates and government spending on social welfare
have helped to reduce poverty and improve incomes. For instance,
the share of the population living in extreme poverty declined to 15%
in 2018 from 38% in 2006, and the Gini coefficient of inequality
fell from about 0.60 in 2000 to around 0.47 in 2018.
Meanwhile, GDP per capita has more than tripled from around $1,000
in 2005 to around $3,600 in 2019 ($8,100 in
purchasing power parity, PPP, terms). Nonetheless,
overall poverty remains high, with a general poverty rate of around
38% of the population in 2018, and incomes remain low on
a global basis, indicating households' more limited capacity to
absorb income shocks Governance poses further material risks for Bolivia.
This consideration is reflected in Moody's assessment of institutions
and governance strength, which reflects relatively weak institutional
arrangements and a high incidence of corruption and weak rule of law,
balanced by somewhat stronger economic and monetary policy effectiveness.
GDP per capita (PPP basis, US$): 8,172 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 2.2% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 1.5%
(2019 Actual)
Gen. Gov. Financial Balance/GDP: -6.9%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.3% (2019 Actual)
(also known as External Balance)
External debt/GDP: 34.5% (2019 Estimate)
Economic resiliency: ba2
Default history: No default events (on bonds or loans) have been
recorded since 1983.
On 17 September 2020, a rating committee was called to discuss the
rating of Bolivia, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have not materially changed.
The issuer's institutional strength/framework, have not materially
changed. The issuer's fiscal or financial strength, including
its debt profile, has materially changed. The issuer's susceptibility
to event risks has materially increased.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's would upgrade Bolivia's rating if the government were
to implement policy adjustments that materially reduce fiscal and external
imbalances and help foster a sustainable increase in fiscal and foreign
exchange reserve buffers from current levels. Structural reforms
that lead to prospects of higher sustained economic growth, including
diversification away from Bolivia's high reliance on the hydrocarbon
sector, would provide additional support to the country's
credit profile.
Moody's would downgrade Bolivia's rating if fiscal and current account
deficits continue to widen and government policies prove ineffective in
preventing further erosion of fiscal and foreign exchange reserve buffers.
Intensification of political risks and policy uncertainty, beyond
Moody's current assessment of these risks, would exert additional
negative pressures on the rating.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
William Foster
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Yves Lemay
MD - Sovereign/Sub Sovereign
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
