Economic Analysis - Current Account Deficit To Narrow Over Medium Term - MAY 2018

BMI View: Bolivia's current account deficit will remain substantial in 2018, owing in part to rising goods imports. Increases in natural gas and minerals production will drive a modest narrowing of the current account deficit over the next five years.

  • Rising goods and services exports will drive a narrowing of Bolivia's current account shortfall, from 6.6% of GDP in 2017 to 5.3% in 2018.
  • A turnaround in natural gas production beginning in 2019 will help to drive a further, modest narrowing of the current account deficit over the next five years.

Bolivia will run a significant current account deficit in 2018. Rebounding goods imports and persistent services trade and primary income account shortfalls underpin this dynamic ( see 'Current Account Deficit To Persist', January 12). After contracting in 2015 and 2016 goods imports grew by 9.0% in 2017, with H117 data showing a broad-based expansion across consumer, intermediate and capital goods. We expect this to continue in 2018, as a pick-up in infrastructure spending will support solid demand for imported goods, particularly capital goods. Persistent shortfalls in the services trade and the primary income accounts, the latter driven largely by profit repatriation by foreign companies, will also contribute to the current account deficit.

Rising goods exports will help to narrow the current account shortfall. An increase in the price of crude oil will bolster the value of Bolivia's energy exports, as natural gas exports are typically indexed to WTI, despite a modest decline in natural gas production and net exports this year ( see our Q2 2018 Industry Forecasts for Bolivia 'Trade - (Pipeline And LNG)' and 'Upstream Production - Gas', January 15). We forecast WTI to average USD61.0/bbl in 2018, 20.0% above the 2017 average of USD50.85/bbl ( see 'Brent: Breaking Into Higher Ground', March 6). Higher average prices and modest production gains for tin and zinc, two of Bolivia's major mineral exports, will also help to support goods export growth of 11.7% this year, up from 10.7% in 2017.

Current Account Deficit Turning A Corner
Bolivia - Current Account Breakdown
f = BMI forecast. Source: BCB, BMI

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