By Santiago del Carril and Mariana Santibanez
Bolivia has sold more gold reserves than expected, raising concerns about the sustainability of the country’s finances, according to a former central bank director, a financial analyst, a credit analyst, and an economist.
The Central Bank sold USD 1bn in gold reserves between April and August, according to a report documenting the government’s gold reserve operations, presented to Bolivia’s congress 13 September. Bolivia’s gold reserves declined from 43.6 tons in April to 26 tons in August due to these operations, according to the report.
“I don’t know if the Bolivian government will end the year without external financial support now,” former central bank director Jose Gabriel Espinoza Yañez told Debtwire. “The government bought itself much less time than expected with the Gold Law.”
The Gold Law, passed in May, allowed Bolivia’s Central Bank to monetize its gold reserves.
Bolivia had USD 3.15bn in international reserves, including USD 2.7bn in gold reserves and USD 310m in cash, as of April, according to a central bank report released on 6 July. The Central Bank stopped publishing regular reports on its international reserves in February. The reserves are estimated to be close to USD 2bn now, according to the former central bank director.
“I didn’t expect the central bank to sell such a large amount of its gold reserves by now,” Jaime Dunn, chairman of Bolivian financial consultancy Ibolsa Sociedad de Titularizacion, told Debtwire. “I thought the government would have more dollars to service debt.”
The central bank will not save the cash from the gold reserve monetization and is using it in part to service sovereign bonds, according to Alberto Bonadona Cossio, professor of economics at the Universidad Catolica Boliviana.
“The Bolivian government wants to continue maintaining the image that they are solvent and won’t default over the lack of payments,” the economist said.
The Central Bank must maintain a minimum of 22 tons of gold reserves, according to the Gold Law. To monetize beyond that limit would require the approval of Bolivia’s House of Representatives, according to Dunn. The Central Bank could only monetize about USD 253m (4 tons) without going back to congress, according to Espinoza Yañez.
“There isn’t a certain cash inflow source for the Bolivian government now. The expected multilateral loans are not being distributed because they are stuck in congress due to infighting among the MAS ruling party,” Bonadono Cossio said.
As much as USD 1.4bn from multilateral and bilateral sources has been approved this year, according to Bolivia’s Ministry of Economy and Finance, as reported.
“The Central bank was lucky to get a lifeline with some multilateral funding and this monetization law, but the fundamental problem continues,” the credit analyst said. “The central bank had to monetize the deficit with reserves and is not generating enough FX to replenish it. This puts into question the sustainability of the peg.”
Bolivia was expected to have debt service of USD 218.7m due to the IDB and USD 406.4m due to CAF in 2023, according to government projections from 31 December 2022. The Central Bank doesn’t have up-to-date official figures about how much multilateral debt matures in 2024, estimated to be around USD 1.2bn, as previously reported.
Bolivia also faces USD 109m in international bond debt service in 2024, according to Moody’s.
Representatives from Bolivia’s Economy Ministry and central bank weren’t available for comment.
Bolivia’s USD 1bn 4.5% 2028 bond traded at 60 on 8 September, according to MarketAxess. Bolivia’s USD 850m 7.5% 2030 bond traded at 73.75 on 29 August.
