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BOLIVARIAN REPUBLIC OF VENEZUELA
1. General trends
The GDP of the Bolivarian Republic of Venezuela expanded by 4.2% in 2011. Inflation remained high
and stood at 27.6%. An expansionary monetary and fiscal policy stance sought to shore up the recovery of
economic growth, with the further incentive that 2012 is a presidential election year. High oil prices
improved the balance-of-payments current account and, along with increased borrowing, provided
funding for stepping up public spending during the period.
2. Economic policy
(a)
Fiscal policy
The central government ran a primary deficit equal to 1.3% of GDP in 2011, which was an
improvement over the 2% posted in 2010. But higher public indebtedness meant that the overall deficit, at
3.4% of GDP, was only slightly below the 3.5% for 2010. The reason for this improvement is that
revenue rose more than public expenditure. The increase in public spending and revenue outpaced both
inflation and GDP growth. The most recent available data on the restricted public sector are from 2010.
Total central government revenue went from 19.5% of GDP in 2010 to 22.7% of GDP in 2011.
Non-oil revenue rose from 13.5% of GDP to 16.7% of GDP between 2010 and 2011; oil revenue held
steady at 6% of GDP. The jump in non-oil revenue was fuelled mainly by an increase in economic
activity that was reflected in customs duty, VAT and income tax receipts. Total expenditure and current
expenditure both rose between 2010 and 2011: the former went from 23% of GDP to 26.1% of GDP; the
latter climbed from 19.2% of GDP to 21.8% of GDP. Interest on the public debt was a substantial
component of this increase; the wage bill and the transfer of resources to the public sector were up as
well. Central government capital expenditure posted a smaller increase (from 2.9% of GDP in 2010 to
3.1% of GDP in 2011). Note in this regard that in the Bolivarian Republic of Venezuela much capital
expenditure is through off-budget funds like the National Development Fund (FONDEN), which is
funded out of central bank reserves, contributions by the oil company Petróleos de Venezuela (PDVSA),
and the China-Venezuela Fund, which is funded by loans from China.
Public indebtedness of the Bolivarian Republic of Venezuela continued to climb in 2011. Total
public debt rose a nominal 10.5% but fell as a percentage of GDP (from 30% to 25.3%) measured at the
official exchange rate. Unlike 2010, in 2011 external public debt rose more (by 17.3%) than internal debt
(up 3.2%) measured in dollars. These borrowings were used to fund the public deficit and provide the
private sector with currency by selling dollar-denominated bonds abroad. However, the official figures on
indebtedness do not include what the Bolivarian Republic of Venezuela has borrowed from China to feed
the joint Venezuela-China Fund, which is being paid off in oil.
(b)
Credit and monetary policy
The monetary policy stance continued to be expansionary in 2011. M1 increased 56.7% between
December 2010 and December 2011; M2 rose by 53.6%. Both aggregates far outpaced inflation.
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Interest rates for absorption operations were unchanged in 2011. Average bank lending rates fell,
however, to stand at 16% at year-end.
Bank lending picked up sharply in 2011. Total lending surged 44.1%; private bank lending
accounted for nearly three fourths of the increase.
(c)
Exchange rate policy
Since a single official exchange rate of 4.3 bolívares fuertes per dollar for currency obtained
through the Foreign Exchange Administration Commission (CADIVI) was set in January 2011 there have
been no changes in official exchange rate parity. The explicit exchange rate under the Transaction System
for Foreign Currency Denominated Securities (SITME) remained at 5.3 bolívares fuertes per dollar through
April 2012. SITME allows the purchase of dollars for operations that are not eligible for currency authorized
by CADIVI. Through CADIVI, the central bank liquidated US$ 36.105 billion in foreign currency, pushing
the monthly average up by 3% over 2010. The US$ 8.778 billion negotiated through SITME amounts to a
72.8% increase over 2010. All of this helped explain the jump in imports during the year.
High cumulative inflation since the bolívar was last devalued in January 2010 has fuelled steady
real appreciation of the bolívar against the currencies of the country’s trading partners (between
December 2010 and December 2011, the total real effective exchange rate appreciated by 16.6%).
In 2011 the central bank transferred US$ 3.5 billion in international reserves to FONDEN; in
February of that year the government withdrew US$ 829 million from the Macroeconomic Stabilization
Fund (FEM). As a result, central bank international reserves (including FEM) stood at US$ 29.892 billion
(9.5% of GDP) in December 2011, essentially the same nominal level as in December 2010.
3. The main variables
(a)
Economic activity
The pace of GDP growth picked up in the second half of 2011 and reached 4.9% in the fourth
quarter, so for 2011 as a whole GDP rose by 4.2%.
The sectors accounting for most of the expansion of GDP in 2011 were general government
services, commerce and manufacturing, which were up by 5.5%, 6.5% and 3.8%, respectively. The oil
sector posted a gain of just 0.6% during the year, contributing 1.7% to GDP growth. The financial and
insurance sector surged 12% for the year, paired with a sharp uptick in lending. On the expenditure side,
private consumption contributed the most to GDP growth, increasing 4% during the period. Gross fixed
capital formation and government consumption expenditure, which were up by 4.4% and 5.9%,
respectively, also helped drive GDP expansion. Exports did not contribute much to growth, despite a
4.7% increase over their sluggish performance in 2010. Exports at constant prices had hit a 15-year low in
2010 owing to flatlining oil extraction, issues with basic industries in Guyana and currency appreciation.
On the aggregate demand side, imports in constant dollars gained 15.4%.
According to data from the Organization of the Petroleum Exporting Countries (OPEC), oil
output by the Bolivarian Republic of Venezuela rose 3.9% between 2009 and 2010.1 The second half of
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Based on figures reported by OPEC, drawing on secondary sources cited in its Monthly Oil Market Report.
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2010 saw renewed investment in extraction operations in response to rising crude oil prices. According to
the Baker Hughes rig count, the number of drilling rigs in the country rose between 2010 and 2011, with
the first quarter of 2011 seeing the highest number since 2000. This indicator subsequently fell back
slightly to stand at the late-2010 mark for the first quarter of 2012.
(b)
Prices, wages and employment
The national consumer price index rose by 27.6% between December 2010 and December 2011.
The average unemployment rate eased somewhat between 2010 and 2011, going from 8.5% to 8.2%. On
average, the number of persons employed rose by some 230,000 during the period as economic activity
picked up. However, the activity ratio dropped from 64.8% to 64.5% during the same period as the
economically inactive population grew.
Wages increased by 38.3% in nominal terms between the fourth quarter of 2010 and the same
quarter of 2011, which is an improvement in real terms. Private sector wages climbed 29.8%; the public
sector posted a 58.6% wage gain owing to the 25% two-step minimum wage hike ordered by the
administration in 2011.
(c)
The external sector
The current account surplus reached 8.7% of GDP in 2011, up from the 5% surplus posted in 2010.
The value of goods exports surged 40.9% over 2010 to stand at 29.5% of GDP (27.4% of GDP in
2010). This increase was attributable primarily to the 40.7% average rise in the price of Venezuela’s
basket of crude oil and refined products between 2010 and 2011. Oil export volume increased by only
2.2%. Non-oil exports rose 30.4%. Driven by economic growth, goods imports were up 20.3% in nominal
terms, going from 16.1% of GDP in 2010 to 14.8% of GDP in 2011. The public sector has become a
major importer of goods such as food and some intermediate products as the State has taken on a larger
role in a number of economic sectors in recent years. Public sector non-oil imports thus rose 37.8%
during the year while the private sector posted a 17.8% gain.
The capital and financial account balance deteriorated during the period, going from a deficit of
7.4% of GDP in 2010 to a deficit of 8.8% of GDP in 2011. This was due mainly to growth in external
assets held by the private and public sectors. The main factor was the rise in public sector currency and
deposits, from 1.5% of GDP to 5.3% of GDP, as liquid assets held by FONDEN and the China-Venezuela
Fund increased. Private sector acquisition of external assets held in currency and deposits was another key
factor, edging up from 6.3% of GDP in 2010 to 4.9% of GDP in 2011.
As for capital flows, net foreign direct investment outflows from the Bolivarian Republic of
Venezuela went from a negative balance of 0.6% of GDP to a positive balance of 1.6% of GDP.
Contributing factors included the reinvestment of earnings. Public-sector lending was up as well, to stand
at 2.5% of GDP for 2011. This reflected an increase in government debt placements to fund both direct
expenditure and spending through off-budget funds. Errors and omissions as a percentage of GDP went
from 1% in 2010 to 1.2% in 2011.
The end result was a balance of payments deficit of US$ 4.032 billion, equal to 1.3% of GDP.
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4. General trends for the first quarter of 2012
GDP growth is expected to accelerate in 2012 to stand at 5%. The inflation rate is expected to remain
high, fuelled by the wage hike and other cost pressures during the year.
The monetary policy stance was more expansionary in the first quarter of 2012 than in the same
quarter in 2011. M1 and M2 both increased (by 7% and 5.9% respectively) between December 2011 and
March 2012, compared with gains of 3.6% and 3.9%, respectively, between December 2010 and March
2011. Total lending continued its rapid climb in the first quarter of 2012 (surging 8.5% between December
2011 and March 2012). Public banks accounted for a larger share (40%) of the increase in lending.
Inflation fed the 1% appreciation of the real effective exchange rate between December 2011 and
March 2012, as the nominal exchange rate remained unchanged. As a result, in March 2012 the real
effective exchange rate was 39.2% below (appreciation) the average for 1990-2009.
Central bank international reserves fell slightly during the first three months of 2012, to US$
27.482 billion at the end of March, after the central bank transferred US$ 2.5 billion to FONDEN over the
first three months of the year.
GDP growth is expected to pick up speed in 2012, expanding by 5% as fiscal and monetary
factors encourage public and private consumption. The increase in public consumption expenditure will
be funded by relatively high oil prices, greater government borrowing and available resources in the
China-Venezuela Fund and FONDEN.
Economic activity saw a strong 5.6% rally in the first quarter of the year, on the back of 6%
private sector growth. The oil sector and non-oil activity gained 2.2% and 5.6%, respectively. Among the
non-oil sectors, the construction industry expanded 29.6% and financial and insurance institutions posted
27.7% growth.
Aggregate domestic demand climbed 16.3% in the first quarter of 2012 compared with the same
quarter in 2011, with gross fixed capital formation up by 27.3%, government consumption gaining 5%
and final private consumption increasing by 5.6%.
Inflation, while still high, slowed somewhat in the first quarter of 2012 compared with 2011.
Inflation in the twelve months to March 2012 was 24.6%, with cumulative inflation for the first three
months of the year standing at 3.5% (6% for the same period in 2011). Prices were pushed up by higher
food and beverage prices and, above all, by rising agricultural product prices.
The unemployment rate fell during the first quarter of 2012 compared with the same period in
2011, from 9.3% of the economically active population to 9.1%, although the activity ratio dropped as
well, from 64.3% of the working-age population to 63.5%. In April 2012 the administration announced a
15% increase in the minimum wage effective from May, to be followed by another 15% hike taking effect
in September. Real wages are therefore expected to rise during the year.
The current account surplus shrank 7% in the first quarter of 2012 despite the 5% improvement in
the goods balance. Exports surged 23.6% on the strength of a 25.4% jump in oil exports. The performance
of the goods balance was despite a 48.5% leap in imports. The services and income deficits were up
43.5% and 5.6%, respectively.
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The balance of payments capital and financial account deficit shrank by 16.5% in the first quarter
of 2012 compared with the same period in 2011, owing to the 58.8% drop in foreign direct investment.
The accumulation of assets abroad fell back sharply as the private sector went from asset accumulation
amounting to US$ 3.3 billion in the first quarter of 2011 to a slight disaccumulation in the amount of US$
51 million in the first quarter of 2012.