October 2, 2012 / 10:11 PM / 6 years ago

Fitch upgrades Bolivia credit rating one notch to BB-minus

NEW YORK, Oct 2 (Reuters) - Fitch Ratings on Tuesday upgraded its long-term sovereign foreign currency sovereign credit rating for Bolivia by one notch to BB-minus, citing improvements in the country’s debt profile and diversification of financing sources.

Fitch’s move brings it even with Standard & Poor’s BB-minus rating and Moody’s Investors Service’s Ba3 rating. All three agencies have a stable outlook on Bolivia’s credit and rate its debt at three notches below investment grade status.

“Bolivia’s ratings incorporate its moderate inflation record, declining dollarization, healthy banking system and stable currency regime,” Fitch said in a statement.

Fitch cited increases in public investment as a potential support for economic growth.

However, the still heavy reliance on commodities for economic activity and a lack of transparency on the health of an unregulated financial sector pose risks of contingent liabilities to the government.

On the positive side, Fitch cited international reserves covering half of the nation’s economic output, 14 months of the current external payments and four times the foreign currency deposits in the banking sector in 2011.

These factors mitigate the risks related to commodity dependence, moderate but declining financial dollarization and limited exchange rate flexibility.

“Bolivia could record the largest international liquidity ratio and the strongest net sovereign external creditor position among BB-rated sovereigns through 2014,” Fitch said.

Bolivia’s economy grew 5.17 percent in 2011 due to strong domestic demand and a rebound in farming and mining, the government said in July.

While Bolivia is one of South America’s poorest countries, it is rich in natural gas and minerals. Social programs instituted by leftist President Evo Morales have helped push up consumer spending in the Andean nation of 10 million.

Fitch said the government’s plan to spend $1.2 billion, or 9 percent of net international reserves, on industrialization and public enterprise projects is “not likely to have a material impact on external solvency indicators” when taken in the context of $13.4 billion in international reserves.

However, Fitch also said “accommodative policies, rapid credit growth and rising real estate prices, if sustained, could increase vulnerabilities in the broader financial system.” (Reporting By Daniel Bases, Luciana Lopez and Joan Gralla)

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