LA PAZ — Bolivia is committed to protecting its subsidy-reliant, big-state economic model despite deficit risks and is planning an “aggressive” push into gas exploration, the economy minister told Reuters.
The landlocked nation is a key gas producer and subsidizes the sector to rein in fuel prices as well as the production of goods and services. This has helped drive inflation to 3% a year, one of the lowest rates in the world.
But gas has been dwindling with no new finds for years and exports have fallen.
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Economy Minister Marcelo Montenegro said that the government has designed “a very aggressive exploration plan” for gas in 2023, but did not go into details.
Rating agencies have warned consumers about the country’s deficit and falling reserves. The deficit is expected to close the year at 8.5% of GDP, with reserves reaching $4 billion.
“Our deficit could reach 1 or 1.5% if we eliminate public investment … but the immediate consequence is that it would hit growth,” Montenegro said in an interview at his office in La Paz, adding that the government planned to reduce spending and increase revenue.
The government is projecting to shrink the 2023 deficit to about 7.5%. Bolivia’s economy is expected to grow 5.1% in 2022 and almost 5% next year.
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The Bolivian government also expects to sign agreements with companies next year for Direct Lithium Extraction (DLE) technology. It plans to accelerate the industrialization of the sector to position itself in the lithium market before 2025.
“It is not easy because there are contracts that will last for years, even decades. … We have to push so that more profits remain for Bolivia,” Montenegro said.
Regarding public investment, Bolivia will disburse at least $4 billion in 2023 to support sectors such as agriculture, energy, mining and infrastructure, according to official data. Part of that amount will come from external financing and the issuance of debt bonds for up to $2 billion is being contemplated.
Napoleon Pacheco, an economist at the Milenio Foundation, said that given the country’s high deficit, the fundamentals of the Bolivian model “are weak or about to break.”
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“I think the government may have a way out and the way out is to contract external credit from international financial organizations, which always have lower rates, longer terms,” Pacheco said.
According to the Ministry of Economy, Bolivia’s debt is 46% of GDP and is below the thresholds established by international organizations, which reflects that the country still has debt capacity.
Some residents worry that a sudden cut in subsidies would stoke inflation and spur unrest.
“The government can’t allow this because there would be a social and economic collapse,” Oscar Rodriguez told Reuters at a gas station in La Paz. “The policies have to reduce subsidies little by little because all at once would be fatal because society would suffer.” (Reporting by Monica Machicao in La Paz; Writing by Daniel Ramos; Editing by Nicolás Misculin, Alexander Villegas, Matthew Lewis and Mark Porter)
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