Construction suffering from Bolivia's foreign currency shortage

Bolivia's construction industry is suffering financial problems from the nationwide lack of foreign currency because of its dependence on imported materials, while rising interest rates are also giving investors less breathing room, according to the Santa Cruz construction chamber (Cadecocruz). 

“While this situation affects all economic sectors, directly or indirectly, the degree of incidence is not homogenous. Construction is at the top of the list of the economic activities that are receiving the most negative impact,” Cadecocruz and its economic studies and development center (CEED) said in an email in response to questions from BNamericas.

Demand for dollars in Bolivia has soared in recent weeks amidst uncertainty regarding lower gas exports, the central bank’s dwindling international reserves and a high fiscal deficit, which last year reached 7.2% of GDP, albeit an improvement on the 9.3% reported in 2022 and 12.7% in 2021 (see graph below). 

Source: Cadecocruz and CEED. Based on data from the economy and public finances ministry.

(p) Preliminary figures.

In the specific case of the construction sector, Bolivia imports many key building materials such as iron and steel, some of which have undergone price increases of up to 75% over the past two years, impacting the bottom line of both public and private sector projects. 

“This doesn’t just hit housing prices when currency rates go up; it also means that interest rates go up, which causes problems for investors, delays projects in the construction sector, increases debt levels unexpectedly and delays the delivery of works,“ Cadecocruz said. 

WIDER PROBLEM

Cadecocruz says that a sizeable part of the problem comes from Bolivia’s dependence on gas exports, which have been weakened by lower prices in recent years and a shortage of investment in new exploration since the end of the commodity boom cycle in 2014. 

Economic growth has been maintained through high levels of public spending funded by domestic and external loans, but now this has resulted in high public debt levels.

Bolivia’s foreign debt climbed from US$2.2bn to nearly US$12.7bn between 2007 and June last year, according to central bank data.

In general terms, Bolivia is vulnerable to external events related to commodity price volatility, rising interest rates and slowdowns in global economic growth. In the domestic scenario, the country is also vulnerable to climatic events as well. 

“Limited gas reserves, high fuel subsidies, a more competitive regional market and the trend towards decarbonization in the energy sector make finding alternatives to gas exports a necessity,” Cadecocruz stated, adding that private investment should be promoted to speed up economic growth and improve job quality.

It also called on the government to boost exports and rein in imports in the short and medium term and take measures to reduce the fiscal deficit to 2% over the next three years.

On Friday, the lower chamber of Bolivia’s congress approved a bill to purchase gold from miners in an attempt to bolster the central bank’s foreign reserves. The proposal still has to be debated in the senate, but Cadecocruz suggested the government should focus on ensuring it is passed. 

Others expected to struggle because of the shortage of foreign currency include the financial industry since banks are facing high demand for international money, as well as any importers and the public sector, which also needs US dollars to make imports and to cover its foreign debt. 

“If you add price speculation in the domestic market and possible rises due to the increased costs of imported goods, that would create an inflationary process that would affect the purchasing power of economic agents,” the construction chamber told BNamericas.