Venezuela: Freefall in non-official exchange rate continues in November; reserves at multi-year low
November 10, 2014
The freefall of the bolivar that is traded in the parallel market continued in recent weeks due to a severe shortage of U.S. dollars and strong purchases of the greenback by Venezuelans in an attempt to protect themselves from skyrocketing inflation. On 5 November, the non-official exchange rate traded at 102.1 VEF per USD. The print was 6.4% weaker than on the same day of the previous month and marked yet another all-time low. On an annual basis, the bolivar traded in the black market lost 75.6% of its value. LatinFocus Consensus Forecast panelists project a non-official exchange rate of 109.1 VEF per USD by the end of this year. In 2015, the panel sees the non-official exchange rate depreciating even further to 150.4 VEF per USD.
The recent cash crunch also reflected the government’s increasing financial needs. While the government and state-owned oil company Petroleos de Venezuela (PDVSA) disbursed around USD 7.0 billion in debt service payments and settlement of imports in October, analysts believe that Venezuelan authorities are tapping into the country’s foreign-exchange reserves to meet its international obligations. In this regard, international reserves fell from September’s USD 21.3 billion to just USD 20.5 billion in October, which represented the lowest level since 2003. That said, the country still has large amounts of cash reserves in the National Development Fund, the Chinese Fund and PDVSA with which it can continue honoring international commitments. LatinFocus Consensus Forecast panelists expect the country’s international reserves to be USD 21.1 billion by the end of this year and to fall to USD 20.7 billion in 2015.
Meanwhile, the three official exchange rates have remained broadly stable in the last few weeks. On 5 November, the bolivar traded at a weighted average of 49.9 VEF per USD under the Sicad II mechanism and at 12.00 VEF per USD in the Sicad I system. The official exchange rate was unaltered at 6.30 VEF per USD. LatinFocus Consensus Forecast panelists expect the Sicad II exchange rate to continue to be relatively stable for the rest of this year and to trade at 50.5 VEF per USD in 2014. Next year, the panel sees the bolivar in the Sicad II system weakening to 57.6 VEF per USD. LatinFocus Consensus Forecast panelists still expect a sharp devaluation of the official exchange rate in the months to come. Panelists see the official exchange rate ending this year at 8.11 VEF per USD, which is slightly stronger compared to the 8.86 VEF per USD that was estimated last month. Next year, the panel sees the bolivar weakening even further than the depreciation expected in 2014 and see it trading at 15.77 VEF per USD.
Although no official data were published in 2014, most analysts reckon that the Venezuelan economy is stuck in recession and that the shortage of U.S. dollars is likely to continue in the months ahead, thus propping up the value of the greenback in the parallel market. Moreover, the recent fall in oil prices will trim down the government’s revenues, thereby diminishing its room to maneuver and clouding Venezuela’s economic outlook.