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Opinion and Analysis: Economy

Farewell to the Deficit: Venezuela Closes the Year with a Surplus

The Venezuelan government is closing this fiscal year with black figures (a surplus), after several consecutive years of closing it with red figures (a deficit).

After several deficit gaps between 5% and 4.5% of the Gross Domestic Product (GDP), in years marked by the Carmonazo (coup d’état that placed Pedro Carmona in the presidency for 48 hours) and the oil strike, the State’s accounts are expected to end in a surplus above 3.2% of the GDP, affirmed Tobías Nóbrega, Minister of Finance, upon delivering the fundamental guidelines for the 2005 National Budget Act bill before the directive board of the National Assembly. This document, which stipulates next year’s national incomes and expenses, totals 69.3 trillion bolívares (Bs.), nearly 30% of the GDP(total goods produced and services provided during a certain period), which is expected to surpass 224 trillion Bs.

The amount fixed in the forthcoming Budget Project implies a 20% rise compared to the 57 trillion Bs. for this period about to end. Opposition sectors have accused the Ministry of Finance of propitiating great spending that will end up generating an inflationary spiral. Nevertheless, the minister explained in the parliament that these resources -a result of a more efficient internal tax collection and rising oil prices- should be reinvested in the national economy in order to avoid a process of economic depression.

Indeed, next year’s growth expectations are above 5%. Moreover, the president of the National Council of Economy, Efráin Velásquez has said that “if the fiscal strategy remains the same as in 2004, we could expect economic growth at the same inflation rate we have this year. Besides, the fiscal expenses that should promote economic activity will be financed by the rise in oil incomes. A financing strategy may have to be defined in case extra resources are needed.”According to Nóbrega, there are already enough resources available in the Budget Project to finance great part of the expenses. “Ordinary incomes cover almost 80% of the estimated spending. Thanks to an increase in the ordinary incomes, it will not be necessary to issue papers to cover it”. Hence - Nóbrega pointed out, the recovery of social and productive investment will be maintained amid a context of fiscal solvency and sustainability, thus reducing reliance on oil incomes, honoring the social debt and consolidating popular economy

Conservative measures

The scenario for which the 2005 fiscal incomes are calculated is still as conservative as that of 2004.For instance, the price per exported barrel of oil fixed to estimate the oil income was 20 U$. So far, however, the mean price of oil products has been 33.07U$ per barrel. In the case of the new Budget, these are the fundamental guidelines:
-  To keep up the trend of economic growth (5% real), with 4.7% of the non oil sector.
-  To reduce the inflationary index to 15% by yearend.
-  To estimate the national income based on moderate oil prices (23 U$ per barrel), with a 3.5 million barrel per day production, and to save the surplus income.
-  Thanks to these conditions, fiscal contributions from the oil industry are 26.1 trillion Bs., 9.7 trillion of which will be collected as tax revenues, 13.6 trillion Bs. as royalties, and 2.8 trillion Bs. as Petróleos de Venezuela(Pdvsa, the state owned oil company) profits. Another goal has yet been fixed: 4 billion U$ in savings, as a consequence of oil sales at 5U$ above the price fixed for the Budget Project.
-  To maintain the Tax on Bank Debits, as a means of financing social programs and of supporting state and city governments. These institutions will receive 380 billion Bs. out of this tax.
-  To increase internal revenues collected by the National Integrated Customs and Tax Administration Service (Seniat) through the Zero Tax Evasion Plan and the upgrading of the customs and tax collection systems.
-  Fewer and more organized debts and extension of the Public Debt Reorganization Program as a means of alleviating debt payments in future fiscal years.

Incomes, debt, and investments

As for the ordinary incomes, the minister commented that they would not be below 51.6 trillion Bs. And that public investments have been estimated at 14.9 trillion Bs., a figure 50% above the average of the last few years.

Moreover, the amount stipulated in the Debt Contraction Act represents a 30% reduction in real terms, since this debt would drop from 18.4 trillion Bs. in 2004, to 14.5 trillion Bs. in the 2005 project. Nóbrega could not help making comparisons when he mentioned the debt issue. In his exposition, he pointed out the following figures: the GDP/Public-debt relation, which reached 66% in 1990, dropped to 47% in 2003, to 40% in 2004 and we expect to reduce it to 30% in 2005.