Population 30.362 million
GDP 337.979 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
-1.5 |
4.2 |
5.8 |
3.3 |
|
Inflation (yearly average) (%)
|
28.2 |
26.1 |
21 |
30.2 |
|
Budget balance (% GDP)*
|
-10.3 |
-11.6 |
-16.5 |
-7.5 |
|
Current account balance (% GDP)
|
3.1 |
8.6 |
4.4 |
5 |
|
Public debt (% GDP)**
|
42.3 |
47.9 |
51.6 |
51.4 |
| (e) Estimate (f) Forecast * balance of the non financial public sector ** excluding PDVSA debt |
||||
STRENGTHS
- Major oil, gas and mining resources
- Considerable reserves of heavy crude oil in the Orinoco river belt
- Oil revenues a resource for extending the country’s regional political influence
- Progress in health and education funded by oil revenues
- Membership of Mercosur
WEAKNESSES
- Economy dependent on hydrocarbons, 50% of which are exported to the United States
- Opaque and discretionary management of oil revenues
- Inability of the state oil company PDVSA to increase production
- State intervention, exchange control, corruption and crime amid drug trafficking weighing on business environment
- Poor infrastructures (electricity, transport...)
- Untapped agricultural potential and shrinking manufacturing
- Uncertainty over post Chavez time
Risk assessment
Growth based on hydrocarbons
After strong growth in 2012, this is expected to slow in 2013. The high level of public investment and subsidies ahead of the October 2012 elections has considerably boosted activity and consumption. This wave is expected to subside in 2013, since it is unsustainable in the long term as it is rapidly overburdening public finances. However, growth will continue to be sustained by the performance of the oil sector (11% of GDP, 95% of exports), stimulated by high world prices. Nevertheless the national oil company, PDVSA, without which no new extraction project can begin, is struggling to maintain its production. Its revenues are largely punctured to fund a good part of social spending detrimental to investment while its staff is legion and lacks of skills. The development of the oil sector is carried out to the detriment of other sectors and of the private sector, which lacks investment and suffers from capital flight and falling productivity. The construction (social housing, public buildings) and financial services sectors are, however expected to continue to grow. There will still be patent State interventionism with nationalisation in certain sectors still on the cards.
Inflation, the continent's highest, fell slightly in 2012 thanks to pre-election price controls imposed by the government. A relaxation is expected to occur in 2013, as this policy is unsustainable in the long term since it induces shortages and requires high levels of subsidy on imported products. The devaluation of the Bolivar by 32% in February 2013 puts additional pressure.
Improvement of public finances, growth of off-budget spending
After a 2012 marked by strong public spending growth (petrol subsidy amounted to 7% of GDP), in 2013 there is likely to be a significant fall in the fiscal deficit. Revenues will remain high due to the maintenance of high hydrocarbon prices for which equivalent in bolivars will be magnified by the devaluation. As for expenditure, this is expected to return to its average level of the past decade. However, the main risk remains the frequent recourse to off-budget funding and to spending via PDVSA and the National Development Fund (FONDEN), which artificially mask the fiscal shortcomings. Because of the opacity of the public accounts, the unorthodox management of oil revenues and the unpredictability of post-Chavez orientations, the behaviour of public institutions needs careful watching.
Public debt increased in 2012 (following bond issues by the state and public entities in order to finance the deficit) and will be stable in 2013 at a still sustainable level, at least as long as oil prices do not fall.
A comfortable current account surplus linked to oil exports
The current account balance will remain in surplus due to the considerable volume of hydrocarbon exports, despite dividend repatriations and the oil-related services performed by foreign companies. However, the announced stagnation of oil production and with unorthodox policies tending to limit non-oil exports and accentuate imports of consumer products, sooner or later threaten to reduce the current surplus.
Meanwhile, in a context of falling foreign exchange reserves, rising interest on debt and persistent capital flights, despite the exchange controls operated by the Comisión de Administración de Divisas (CADIVI), keep external public debt significantly high for a country with such a current account surplus. This debt is also incurred through the PDVSA with emerging countries (mainly China and Russia). Pressures on the Bolivar have persisted, symbolised by the parallel market for foreign currency supply, where $1 was exchanged for 23 bolivars in March 2013 (14 in late 2012) against a new official rate of 6.3 bolivars to $1.
An uncertain political situation after the death of Hugo Chavez
The disappearance of Chavez on March 5, 2013 opened a period of uncertainty. The Constitution provides for the holding of a new election within 30 days after the death of the president. President of the National Assembly Diosdado Cabello should have, on paper, taken the interim until the election. But it seems that the vice-president Nicolas Maduro, designated heir by Chavez and candidate to succeed him, will remain alone at the head of the executive by then. The opposition will be represented at the election, like in October 2012, by H. Capriles. Surveys, sympathy and control over state apparel and media which will enjoy the Chavista candidate argue for a victory of the latter. His management of Chavez legacy remains unclear. The risk of dissension within the Chavista party, the PSUV, between ideologues and pragmatists exists, as well as uncertainty about the attitude of the army which Chavez came from.
