Venezuela Fiscal


Venezuela: Government presents 2015 budget plan

October 21, 2014

Finance Minister Rodolfo Marco Torres presented the draft budget for 2015 to the unicameral National Assembly on 21 October. The budget projects that expenditures will reach VEF 741.7 billion (USD 117.7 billion), which represents a nominal increase of 34.7% over this year’s budget.

According to the draft budget, which is based on the assumption of an average price of USD 60 per barrel for the Venezuelan mix of crude oils, 16.7% of total income will come from oil revenues (2014 budget: 20.8%). The assumed oil price is unchanged from 2013 and well below the price of USD 94.8 per barrel that LatinFocus Consensus Forecast panelists expect for 2015. Venezuelan authorities tend to underestimate the price of oil, as the surplus revenues that are obtained when oil prices exceed the assumed price gives the Bolivarian administration more discretionary spending power. The government lowered the debt ceiling to VEF 100.2 billion (16.5% of the budget), down from the VEF 112.7 billion established in the 2014 budget.

Rodolfo Marco Torres stated that the budget plan was based on the assumption that the official exchange rate would remain at the current VEF 6.30 per USD. This view is not shared by most LatinFocus Consensus Forecast panelists, who see the official bolivar trading at 16.22 VEF per USD by the end of 2015.

The current draft budget assumes that inflation will range between 25.0% and 30.0% in 2015 (2014 budget: between 26.0% and 28.0%) and that GDP will expand 3.0% in the same period (2014 budget: between 4.0% and 6.0%).

Analysts expressed skepticism about the 2015 budget. As Miguel Carpio, finance manager at Delsur BU points out:

“If we consider that the approved 2014 fiscal budget was VEF 439 billion and the amount spent to date exceeds VEF 900 billion, a proposed budget of VEF 742 billion for 2015 is illogical, especially if we take into account that the government has not shown any substantial changes in its economy policies that would allow for a reduction in public spending. Moreover, the assumptions on which the budget proposal is based are illogical given what the main macroeconomic indicators are currently signaling. First, inflation between 25% and 30% is highly unlikely given that they have not solved the problems with access to foreign exchange and the shortage of various goods in the economy. Second, the proposal establishes economic growth of 3%, but how could Venezuela achieve this kind of economic growth when the price of oil is below USD 70 per barrel and the economy did not achieve this growth target even when the price of oil averaged USD 100 per barrel. Finally, the proposal assumes an exchange rate of 6.30 VEF per USD, which is absurd if we consider that fewer and fewer sectors of the economy have access to dollars at this rate and that the gap between the SICAD II and the parallel offering continues to widen.”

Author: Ricard Torné, Lead Economist

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