Spotlight: Bolivia's economic and political risks

Bolivia's economy faces headwinds from a lack of dollars, dwindling international reserves and political infighting within the governing party.

"While inflation is not a problem in Bolivia, as it came in below 3% in February, economic growth has slowed down significantly, with real GDP below 2%," William Foster, senior VP of sovereign risk at Moody's Ratings, told the agency's Inside LatAm: Bolivia 2024 webinar earlier this week.

Foster highlights the central bank's falling reserves, which have plunged to less than US$2bn from nearly US$9bn in 2018. Most of the reserves are in gold, and the cash on hand is less than US$200mn, according to the latest data from the monetary authority.

Furthermore, a balance of trade deficit – caused by falling hydrocarbon exports – has exacerbated the lack of foreign currency, prompting President Luis Arce's administration to unveil a series of measures last month to cut red tape for exports. Economy minister Marcelo Montenegro said the government hoped to raise US$5bn from mining and agricultural exports.

But despite having the world’s largest lithium resources, Bolivia is still not a significant producer of this key energy-transition metal. State company YLB plans to advance exploration projects in the country's salt flats this year to increase output, most of which is shipped to Russia. 

"The quality of its lithium is lower than Chile's. Also, Bolivia lacks access to the sea, making logistics costs higher. In our view, it won't be enough to close the gap we're seeing in foreign trade," said Foster.

Meanwhile, Bolivia's oil and gas sector accounted for just 3% of GDP last year, compared to 8% in 2013. Its gas and crude output fell 13.0% and 15.6%, respectively, to 13.4Bm3 and 8.6Mb in 2023. State hydrocarbons company YPFB has launched a bidding process to evaluate unconventional areas as part of efforts to address falling production and replace reserves.

"It doesn't seem like the government is focused on increasing reserves and reducing the trade deficit, which means the pressure will remain and could increase," said Foster. "The risks are the lack of dollars and hydrocarbons. There's also elevated political risk."

The growing rift between Arce and former president Evo Morales (2006-19) for control of the governing MAS socialist party – which led to protests and blockaded highways earlier this year, causing economic losses of nearly US$1bn – promises to intensify ahead of next year's general elections.

One of the issues is a decision by the Plurinational Constitutional Tribunal (TCP) to eliminate indefinite reelection, which essentially bars Morales from running for president again. A delay in judicial elections, which has allowed the TCP to extend its term, has also led Morales supporters to accuse the court of a pro-Arce bias. Judicial elections are now scheduled for September, but the internal rift in MAS will likely grow and could lead to more protests and violence.

"The opposition is likely to capitalize on the situation, pitting both MAS factions against each other and further limiting governability. Political instability will remain a factor in Bolivian politics in 2024, especially with elections approaching in November 2025," Sebastian Fernández de Soto, Andean region analyst at Control Risks, wrote in BNamericas' February Poltiical Risk Report.