UNDP forecasts 4.2% growth for Venezuela
On 28 June, the United Nations Development Programme released its forecast of 4.2% economic growth for Venezuela.
UNDP joins a broad consensus between economists and multilateral organisations—including the IMF—that Venezuela’s GDP will grow by about 4% this year. UNDP estimates that GDP for 2023 would be $77.7 billion, contrasting with the IMF’s higher calculation of $97.1 billion.
In January Ecoanalitica, a consulting firm, projected 4% growth in a scenario where the OFAC’s General License 44 was not renewed in April. Had it been renewed, the forecast then would be 9.6%, given that oil is Venezuela’s main economic driver.
This would be the third-highest rate for the Latin America and Caribbean region, after Guyana and the Dominican Republic. However, Venezuela is growing from a low base after 9 years of economic decline and widespread hardship, and many wish to see a much speedier recovery.
In fact, there is a debate on whether economic activity grew in 2023, after rising in 2021 and 2022. While the IMF says growth was 4%, the NGO Observatorio Venezolano de Finanzas says that there was a 1.2% contraction.
UNDP’s sources include the Central Bank of Venezuela (BCV), the tax agency SENIAT, the ECLAC, the IMF, and the OPEC, as well as consulting firms and its own efforts.
GDP evolution (1997 constant prices, % change)
Oil revenues
The oil sector would be the main driver of growth this year, adding 9.5%, while the non-oil sector would add 3.6%. Comparing Q1 2024 to the same period in 2023, the report estimated that oil exports grew by 12.3% to 723,000 b/d, and revenues from this increased by 28.2% to $4.46 billion—this would be achieved as the Venezuelan crude discount tightened. Crude oil output also rose, to 864,000 b/d by 18.4% (PDVSA), or to 812,000 b/d by 16.8% (secondary sources) in the same period.
The report highlights that trade with the US and Europe has grown considerably between Q1 2024 and Q1 2023. Imports from the US rose by 71% to $1.15 billion, and exports by 95% to $1.02 billion. Considering only January and February, trade with Europe increased by 120.5% to €395 million.
The key factor here is GL 44, which lasted from October 2023 to this April, making the difference between the first quarters of each year—the limited sanctions waiver affected both export volumes and prices. However, as it expired, we can infer that for the rest of the year we will see a continuation of the “specific licenses” regime. To this date, six US and European companies have a license to operate oil fields or trade.
The handful of foreign companies will have a limited, though significant impact. Corporations like Chevron, Repsol, and Maurel et Prom are continuing to boost output in their joint ventures. Western markets are also becoming reaccustomed to Venezuelan crude thanks to Chevron and other traders. Finally, some authorisations also allow for the import of essential inputs and refined products.
Oil export revenues (million US dollars)
Election spending
Aggregate demand would be growing by 3.2% in 2024. Broken down, it would mean a 2.5% rise in private consumption, 6.2% in public spending, and 14.9% in gross fixed capital formation.
A substantial increase in state spending can be largely attributed to the upcoming vote on 28 July—while certainly greater oil revenues also play a part. A Bloomberg article quoted economist Tamara Herrera, who said that public sector expenditure rose by 80% from January to May.
The UNDP report pointed out that cash transfers to households through the “Sistema Patria” almost tripled in US dollar terms to $1.67 billion between Q1 2023 and Q1 2024.
While elections are due in the middle of the year, the inauguration date is in January 2025. This means that the result is not likely to have a large impact just this year. Instead, domestic regulations, investor confidence, and US sanctions would more likely start changing in the new year.
The vote will still have short-term effects. For example, it will clear doubts for investors waiting to see the election play out before they make any commitments. This holdup could be whether they expect a change in government or continuity. Likewise, the increase in public spending should subside after July.
Taxes and credit
UNDP also sees the expansion of tax revenues and credit as indicators for growth, which was considerably faster than the overall economy. Credit in dollar terms rose by 79.7% from Q1 2023 to Q1 2024. Comparing the same periods, the state collected 45% more in taxes; tariff revenues rose by 55.2%, income tax by 54.6%, and VAT by 26.5%.
They are not clear indicators of growth on their own, but instead they add to the larger picture. Tax revenues in large part rose thanks to a government drive to increase collection, while credit grew even in periods of stagnation, as it would be recovering its due size.
Inflation
The UN agency also highlighted a continued cooling of inflation, which would end up at 30% by the end of the year. This rate relies on the assumption that the bolivar will depreciate by just over 20% by yearend, as the key factor behind inflation remains the exchange rate.
Monthly inflation rates this year have been no higher than 2% according to the BCV, and the OVF even recorded a month with 0.2% deflation. The official exchange rate has been tightly maintained at around 36.5 bs to 1 dollar with large injections from the BCV.
Such estimates, if realised, would mark a considerable improvement. For 9 years, inflation figures have remained on or above three figures. However, they will require that the BCV is able to match the government’s spending spree with hard currency.
Inflation and the bolivar
Fast growth needs to be faster
Both GDP growth and inflation rates show an improvement from last year, and from the long period of economic collapse and a freefalling national currency.
The economy still faces many obstacles, ranging from low liquidity to sanctions to widespread corruption, and has still managed to grow. Still, the 4.2 rate leaves much to be desired, considering that Venezuela needs to catch up after nine years of declining output.
There are also clear indications of fragility. Oil exports are highly sensitive to changes in the global market and to US sanctions. Meanwhile, the stability of the bolivar relies on the BCV’s ever-larger interventions.
It is also difficult to plan for next year, given that we are heading into an uncertain election with enormous consequences. Domestically, the question is whether there will be continuity or a dramatic change in the economic and political system. Externally, if there will be a normalisation with the US—which should unlock investment and the debt restructuring. There are also degrees in the two answers.
