500% Inflation Expected For Venezuela – Emerging Markets Focus

Posted on July 22nd, 2016


With oil exports accounting for over 95% of Venezuela’s revenue, the 50% collapse of oil prices in the past two years has thrown the country into fiscal and political turmoil. In order to raise critical cash to keep the government operational, officials have started to sell the country’s gold reserves.

Even though the country is a major exporter of oil, it is also a major importer of essential goods for its citizens. The country’s currency, the bolivar, has collapsed to the value of one U.S. cent, creating hyperinflation which led to prices soaring over 121% in 2015, and expected to rise nearly 500% in 2016, as estimated by the IMF.

In addition to its fiscal woes, the country is also suffering from little rain, which has brought about severe electricity shortages due to its main source of power generation, a dam whose water levels have dropped to historical lows. In late April, the country’s president ordered a two-day work week for government employees, in order to stem the consumption of electricity. The government workweek now is down to Mondays and Tuesdays, affecting roughly 2.6 million employees, representing 20% of the nation’s workforce.

Economic conditions have worsened, as the economy shrank 5.7% in 2015 and is projected to shrink another 8% in 2016, as estimated by the IMF. Such dire circumstances have created concern among U.S. officials, which are increasingly worried about an unraveling socialist economy and a political meltdown. Such an occurrence could lead to social unrest, chaos and political instability, causing tensions to rise with neighboring countries in South America.

Sources: IMF

Top