Bolivia Economic Outlook
As expected, GDP growth weakened in Q4. Private and public spending and fixed investment grew at weaker rates in Q4 than in Q3, while exports contracted. Activity was likely knocked by higher inflation and a weakening global economy. Turning to Q1, news has been mixed. Inflation was lower in Q1 than in Q4, supporting private spending. However, the currency peg came under attack in early March; excluding gold, international reserves equaled just USD 0.9 billion in February. That figure has likely fallen since, with the Central Bank forced to sell dollars to defend the peg. These events led all major credit agencies to downgrade Bolivia’s debt rating. More positively, the attack on the peg has since abated, and in early May, the Senate passed a bill to let the Central Bank sell some of its USD 2.6 billion of gold reserves to buy dollars.
Inflation rose to 2.7% in April (March: 2.5%). The currency peg and government subsidies have capped inflation in recent months. Our panelists expect Bolivia to maintain one of the region’s lowest inflation rates this year and next. Key factors to watch include changes to the currency peg, government subsidies and export controls.