Venezuela’s 2012 Budget: More Social Spending, Strong Debt Management, Steady Economic Growth

Venezuela’s national Budget in 2012 will grow by 43% to Bs. 297.5 billion ($69 billion), as the nation continues to benefit from construction led growth and improved employment and social development indicators. 

Approximately 40% of the budget, or Bs. 116 billion, is allocated to social spending in 2012. This reflects increases in spending on housing (88%), social security (45.8%), health care (43%), science and technology (27%), culture (24%), and education (21.1%). 

The budget lists as one of the objectives of the high public expenditure “to guarantee the advance of economic growth”, particularly through a series of new social programs that aim to build 3 million new homes, create 2.8 million jobs, boost agricultural production, and make direct monthly transfers to poor single mothers. 

Jesus Farias, vice president of the Finance Commission in the National Assembly, said the Budget has “a very high content of social integrity, and it is viable, which will allow us to advance in economic recovery, and consolidate the process of sovereignty of Venezuelan society, while the opposition wants to return to the past with a budget based on social restrictions”. 

The budget is calculated for an average price of $50 per barrel of oil – the country’s principal export and a major source of state income – and an average of 3.1 million barrels of daily oil production. The current price of Venezuelan oil hovers around $104 per barrel. Minister for Planning and Finance Jorge Giordani said the low estimated oil price is meant as a cushion against volatile global commodity prices.

He referred specifically to the drop in the price of oil from $140 per barrel to less than $40 per barrel amidst the world financial crisis in 2008. 

The minister also emphasized that income from the non-petroleum sector accounts for 55.4% of the 2012 budget, marking a step away from oil dependence. “The budget must be separated from oil income…it should be based on income from the value of production of goods and services and the payment of taxes”, said Giordani, showing optimism that the trend will continue.

National Debt Under Control

In the budget for 2012, ordinary income (including taxes from the oil and non-oil sectors and state-owned enterprises) account for Bs. 233 billion ($54.2 billion). The remaining Bs. 64.5 billion ($15 billion) in the Budget will be covered by debt outlays allocated to discretionary spending, public institutions, and service on the public debt.

An additional Bs. 22.4 billion ($5.2 billion) in debt was approved for discretionary spending, for a total of Bs. 86.9 billion ($20.2 billion) in new public debt for 2012. Discretionary spending includes investments in social services as well as energy and economic infrastructure.

The total cost of service on the public debt for 2012 is estimated to be Bs. 54.7 billion ($12.7 billion), composed of Bs. 32 billion ($7.4 billion) in service on the domestic debt and Bs. 22.7 billion ($5.3 billion) in service on the foreign debt. 

Slightly more than half of the service on the public debt will be paid for with ordinary income, and the rest will be paid out of new debt outlays. It is common for the Venezuelan government to approve new debt and spending outlays beyond initial projections, depending on the stability of oil prices throughout the year.

In 2011, the National Assembly approved 193 additional credits and the Budget grew from an initial Bs. 204.2 billion ($47.5 billion) to Bs. 330 billion ($76.7 billion). The credits were allocated to education, health care, housing, sports, culture, electricity infrastructure, flood relief, payments of worker salaries, and food security.

One of the larger credits was the National Assembly’s approval of Bs. 45 billion ($10.5 billion) in July 2011 to finance public housing construction and relief for 130,000 victims of torrential rains.

In the 2012 Debt Law, the National Assembly outlined the principles by which the national debt should be managed.

These included: “To give priority to obtaining resources in the internal market… which will lower exposure to Exchange rate risk and democratize the low-risk investment options of the small and mediumsized depositor”.

During President Hugo Chávez’s 12 years in office, the average annual public debt as a percentage of the GDP has been 29%, according to the National Office for Public Credit. 

This is far lower than the average annual public debt during the 1989-1993 presidential term (71.5%) and during the 1994- 1998 presidential term (55.8%). It is also drastically lower tan that of Greece and the United States, which reached 142% and 92%, respectively, in 2010.

The average annual inflation rate during the Chavez presidency, which lies in the low-20s percent range, is also much lower than the rates of 44.2% and 57.6%, respectively, during the 1989-1993 and 1994-1998 presidential terms. Previous administrations enacted neoliberal policies including currency devaluations and privatizations, while the Chavez presidency has enacted nationalizations and tight currency controls. 

GDP Growth and Strong Human Development

Venezuela’s Ministry for Planning and Finance estimates that the gross domestic product will grow by 5% and cumulative inflation will drop to 20-22% in 2012.

This reflects optimism that public spending will put the economy back on track and increase the supply of nationally produced goods. The economy suffered a recession that lasted a year and a half between 2008 and 2010. Prior to the recession, the economy grew consistently for five consecutive years. 

Venezuela’s GDP has grown by an annual average of 3.7% since its recovery from recession began in the second quarter of 2010. This growth has been led by the non-oil sector, particularly in residential construction, communications, manufacturing, mining, and government services such as education, health care, and food security.

Private consumption has grown by an annual average of 3.1% since the second quarter of 2010, and government consumption has grown by 4.7 percent annually. 

Venezuela has also maintained its unemployment rate between 6% and 11% even amidst the recession – far below the unemployment rates that exceded 15% the year before Chavez took office.

The country has received consistent praise from the United Nations for achieving several Millennium Development Goals, including the reduction of poverty by half, the achievement of universal primary education, reducing the gender gap in secondary and higher education, reducing the infant mortality rate by two thirds, fomenting multi-national alliances for economic development, and increasing acces to science and technology.