Estudios económicos
Venezuela

Venezuela

Population 30,5 million
GDP 6890 US$
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Synthesis

major macro economic indicators

  2016 2017 2018 (e) 2019 (f)
GDP growth (%) -16.5 -14.0 -18.0 -25.0
Inflation (yearly average, %) 254.4 1,087.5 14,000.0 10,000,000.0
Budget balance (% GDP) -17.8 -31 .8 -30.2 -30.0
Current account balance (% GDP) -1.6 2.0 6.1 4.0
Public debt (% GDP) 31.4 38.9 159.0 162.0

(e): Estimate. (f): Forecast.

STRENGTHS

  • Significant oil reserves along the Orinoco river and potential offshore gas fields
  • Assets (including in the United States) of the state oil company, PDVSA

WEAKNESSES

  • In default on its sovereign and quasi-sovereign debt
  • Economy heavily dependent on oil and gas sector and loans from China and Russia
  • Hyperinflation
  • Shortages of currency and goods (basic foodstuffs, medicines)
  • Non-transparent and discretionary management of oil and gas revenues
  • Payment delays in everyday business
  • Serious political insecurity
  • Crime (homicides), corruption, trafficking of all types, black market

RISK ASSESSMENT

A persistent economic downturn

In the absence of political change, Venezuela's economic situation remains extremely difficult. The economy is expected to contract again in 2019 against a backdrop of hyperinflation and a steady decline in oil production. Due to a lack of investment, oil production is at its lowest level ever, at just 1.2 million barrels per day in October 2018 compared with 2.4 million b/d before the crisis began in 2013. The mass exodus taking place (2.3 million people, or 7% of the population, have fled the country according to UN figures) is causing a brain drain that is particularly affecting PDVSA, the national oil company, and its production capacity. The drop in oil production – which accounts for 90% of exports, 50% of tax revenues and is the main source of foreign exchange – is constraining the resources available for non-oil activity. Already hit by government import restrictions and exchange controls, companies have also been severely affected by the minimum wage increases and price controls introduced by the government in 2018. As a result, the number of businesses and small businesses forced to close continues to increase, further curtailing the country's productive capacity. Hyperinflation, caused by increasing monetisation of the government deficit and the soaring prices of imported goods resulting from the fall of the bolivar, is seriously eroding household purchasing power. Private consumption is dependent on expatriate remittances traded on the black market, and there is an acute lack of basic necessities. Investments continue to decline in what is still a very difficult business environment, featuring arbitrary expropriations and intrusive state controls and inspections.

 

A precarious fiscal and external situation

The sharp decline in oil production since the beginning of the crisis has led to a fall in fiscal revenues and an explosion in the government deficit. To compensate for the lack of financing, the government is relying on monetisation and oil-for-loan deals with Russia and China. In arrears on principal payments on its sovereign and quasi-sovereign (PDVSA) bonds since November 2, 2017 to private creditors, and since December 14, 2017 to the Inter-American Development Bank (IDB), the government did start to make payments on PDVSA 2020 bonds at the end of 2018. These securities are secured by 51% of the shares of Citgo, a PDVSA subsidiary in the United States and a key partner of the state-owned company. In this setting, some creditors affected by the partial default in 2017 have already decided to file appeals claiming that the government has the capacity to pay. New appeals are likely to be introduced in the coming months. Debt restructuring is still hampered by US sanctions that prevent US creditors from participating in the negotiations.

From an external accounts perspective, the current account balance is expected to remain in surplus. The sharp contraction in imports – combined with the relative increase in oil exports with the restart of facilities in the Caribbean following the agreement with ConocoPhilips in August 2018 – puts the balance of goods in surplus. This surplus, combined with increased expatriate remittances, finances the services deficit related to weak tourism performances and the cost of oil engineering services, as well as debt interest payments. Foreign investment will continue to be very limited and will not be enough to finance debt repayment, prolonging the reduction in foreign exchange reserves, which stood at USD 8.8 billion in November 2018. These low reserves, combined with capital flight, are fuelling the decline of the bolivar despite the redenomination carried out in August 2018. The new sovereign bolivar introduced in August 2018 corresponds to 100,000 units of the old currency. However, this measure has had no effect on hyperinflation or the gap between the official exchange rate and the black market rate because it does nothing to change the underlying macroeconomic imbalances.

 

The political situation remains tense

Few changes are expected on the political front. The government of Nicolas Maduro (Partido Socialista Unido de Venezuela) still dominates most of the institutions and enjoys the support of the army, while a growing share of the population is principally concerned with securing basic necessities. The opposition, represented by Mesa Unitaria Democratica (MUD), is split by internal divisions that prevent it from standing up to the government and agreeing on a strategy, particularly vis-à-vis the largely pro-regime Constituent Assembly set up in August 2017. However, discussions with the government could start ahead of the municipal elections scheduled for December 2019.

On the international scene, the government is trying to establish closer ties to Russia and China in order to obtain funding, while the European Union and the United States, followed by a majority of Latin American countries, are stepping up sanctions. At the end of 2018, the United States said that if nothing changed, it might even add Venezuela to the list of state sponsors of terrorism, alongside Iran, Syria, North Korea and Sudan.

 

 

Last update: February 2019

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