The Covid19 crisis has further deteriorated the precarious Venezuelan fiscal situation since oil prices and oil exports have registered a steep decline. Indeed, the price of the Venezuelan oil basket, which in December 2019 stood at US $49.94 per barrel and at the end of October 2020 it reached the figure of US $ 26.23 per barrel, without deducting the discounts at which they sell Venezuelan crude. In addition, oil exports decreased from 600,000 barrels per day in 2019 to an estimated 300,000 so far in 2020.
On the one hand, as we can see on the graphic on the left (on panel 1), after a few years of relative stability, where Venezuelan oil production averaged about 2,300,000 barrels per day, oil production began to fall steadily since the last quarter of 2016, going from producing 2,240,000 barrels per day in December of that year, to register about 367,000 barrels per day, plummeting in the period by -83.62%. The causes of this debacle are the continuous operational failures, the exodus of qualified and unqualified personnel due to the terrible working conditions, the cases of administrative corruption in the state oil company PDVSA, and the absence of new investments both for new studies and technology as well as to do maintenance work. All of which, now interacts with the effects of the US sanctions on PDVSA.
On the other hand, as we can see on the graphic on the right side of panel 1, and despite their stable trend in recent years, oil prices have not recovered the levels reached between February and July 2014, which had even exceeded the barrier of US$ 100 per barrel. For April 2020, given the persistent excess supply in the world market, the excessive accumulation of inventories, and the effects caused by the COVID-19 virus pandemic, crude prices registered their lowest levels since December of 1998 when the value of WTI reached US$/bl. 16.55, decreasing its value by 43.34% compared to the previous month, and a decrease of 72.36% compared to December 2019.
All the above has led to an abrupt drop in oil tax revenues, to the point that since September 2020 the actual realization prices of oil exports are close to the production costs of the Merey crude, the main reference of the Venezuelan basket, made up of a mixture of crude from the Orinoco Belt and the north of the Monagas state (1). In the context of the absence of external financing, the fiscal deficit has been financed basically by printing money from the BCV, directly or indirectly, a matter that is reflected in the increase in monetary liquidity generating very strong inflationary pressures. Officially, Venezuela entered hyperinflation in November 2017(2)registering a monthly growth of 56.7% in prices (see graphic 3), reflecting this in a significant increase in monetary liquidity of 60.25% with respect to the previous month, reaching its peak in January 2019 growing by 105.57% per month and also reaching a price growth of 2,689,458.96% annualized. Thus, inflationary pressures are still present despite the significant contraction in aggregate demand. As of October 2020, Venezuela experienced an annualized inflation of 3,332.04% (3). In practice, inflation has forced a fiscal adjustment by collapsing the purchasing power of government liabilities, particularly salaries and pensions. The significant impoverishment of Venezuelan workers has been the variable on which the reduction in spending has mainly fallen. The main figures of Venezuela’s fiscal accounts are set out below.
Fiscal accounts of Venezuela
The situation does not seem to have a solution under the Maduro regime, which lacks not only the conceptualization of the right policies but also the credibility to implement them. From the point of view of economic institutionalism, since 2008 the Annual Macroeconomic Policy Agreement has not been signed between the Venezuelan Central Bank and the Ministry of Finance, with which there has been an obvious violation of the provisions of Article 320 of the Constitution. Also, it is worth highlighting the precariousness of the economic statistics situation, as shown in the following table.
- Venezuela’s benchmark crude (Merey) has a strong positive correlation with respect to the benchmark for the American continent West Texas Intermediate (WTI) of 82.01%, and that on average its value ranges between US $ 4 and US $ 12 below the same benchmark crude. See right figure of panel 1.
- Based on the information published by the Finance and Economic Development Commission of the National Assembly of Venezuela.
- Source: own calculations based on figures published by the Finance and Economic Development Commission of the National Assembly of Venezuela.
- The most recent information available to date is published on the Venezuelan Form 18-K before the United States Securities and Exchange Commission (SEC), dated December 21, 2017 (see: https://sec.report/Document/0001193125-17-376486/).
- The National Public Credit Office (ONCP) has published information available as of June 30, 2017 on its official website.
- Only the Budget Law for the year 2019 is available (see: https://www.ghm.com.ve/wp-content/uploads/2018/12/41549.pdf).