Venezuela’s Finance Minister Proposes Increased Social Spending for 2014

Mérida, 23rd October 2013 (Venezuelanalysis.com)— Venezuela’s finance minister Nelson Merentes presented a draft 2014 budget to the National Assembly on Tuesday that devotes more  revenue to social services, while predicting continued economic growth and lower inflation.

62% of the 551 billion bolivars budget (around US$87 billion at the official exchange rate) would be devoted to social services, compared to 37.7% in 2013.

“Our political orientation is to include those most in need. We must address the social sector and ensure access to food, housing, education, health and sport,” National Assembly finance committee member Jose Avila told state broadcaster VTV.

Under the proposed budget, the government would deepen investment in Venezuela’s social safety net and promote improved living conditions, according to Avila. The legislator praised the increase in revenue directed towards public services, arguing that state expenditures under the Chavez administration played a key role in poverty reduction.

“Extreme poverty was at 20.3% [in 1998], it’s now at 7% due to the Bolivarian government’s social investment,” Avila stated. “Our economy is at the service of the Venezuelan people,” he added.

The proposed budget is also 39.4% larger than in 2013, and estimates GDP growth of 4% for 2014, with inflation projected at 26-28%. When the 2013 budget was released last October, the finance ministry put this year’s GDP growth at 6%. However, most analysts now predict 2013 growth will be closer to 3%. Inflation was projected at somewhere between 14% and 16%, but according to the latest figures from the central bank, this year’s inflation so far sits at 49.4%.

When presenting the budget, Merentes stated that the budget estimates oil revenue would also increase to just under 115 billion bolivars; up from 83 billion bolivars this year. However, a target for oil production hasn’t been decided on; Merentes said he would defer to the AN’s finance committee for a final figure.

Projected oil revenues are based on a target price of US$60 a barrel. So far this year, Venezuela’s oil basket has fetched an average of US$102.64 per barrel, according to the newspaper El Universal.

“We have to be cautious when estimating this value, because if there is a major external disturbance prices could collapse,” Merentes stated.

Non-oil revenues are estimated at just over 325 billion bolivars, with 317 billion bolivars coming from taxes.

However, Merentes also stated that current shortages of some consumer products, issues with Venezuela’s currency exchange mechanisms, and inflation all pose ongoing risks to the economy. “We have to overcome crisis and advance for the political model of inclusion,” he said.

Today Venezuela’s main opposition coalition, the Democratic Unity Roundtable (MUD) issued a statement condemning the budget as “unrealistic”.

Like this year’s budget, the 2014 proposal doesn’t predict any change in the official rate of the bolivar, something which the MUD labelled “unsustainable”. The bolivar was devalued by 32% in February, from 4.3 to 6.3 bolivars to the dollar.

“Upheavals in the fiscal accounts indicate that a devaluation of the bolivar in 2014 would exceed 50%,” the MUD claimed.

The opposition group also accused the government of underestimating oil revenue as part of a scheme to “deny revenue to governors and mayors”. The MUD further critised Merentes’ inflation estimates, calling the 26-28% figure “frankly underestimated”. “[It] looks not only unrealistic but also irresponsible,” the statement continued.

“Some people laugh,” Merentes stated after presenting the budget yesterday. “But the people know…this government knows how to solve complex problems,” he added.