Caracas , October 16, 2006 (Venezuelanalysis.com)— Venezuela’s Minister of Planning and Development, Jorge Giordani, said last Monday that the country’s Gross Domestic Product (GDP) was expected to reach $150 billion by the year’s end, up from $100 billion just a few years ago.
Giordani’s comments, made during the opening session of the 35th Annual Congress of the Venezuelan Federation of Artisans and Micro, Small and Medium-Sized Manufacturers (Fedeindustria), were part of a series of observations he made about Venezuela’s recent economic performance and economic prospects.
Giordani, who also heads President Hugo Chávez's Economic Cabinet, pointed to the positive performance of Venezuela’s economy since the end of a two month long oil strike in February 2003. The strike, which was led by sectors opposed to the government, crippled Venezuela’s economy, with GDP falling by 24.9% in the period between the first quarter of 2002 and the first quarter of 2003. The recovery of GDP since then has been dramatic.
According to figures from the Central Bank of Venezuela (BCV), GDP growth in 2004 and 2005 was 17.9% and 9.3% respectively. GDP growth for the first semester of 2006 was 9.6%. “Over the next presidential term, GDP is expected to grow at least 5 to 6%,” Giordani said.
A major factor driving this high growth has been the state’s increased oil revenues. According to Giordani oil revenues have risen from $9.84 billion in 2003 to $16.29 billion in 2004, and from $29.83 billion in 2005, to $33.5 billion so far this year.
Earlier this month, Rafael Ramirez, President of PDVSA and Minister of Energy and Petroleum, presented the company’s 2005 financial statements. These showed PDVSA’s profits for 2005 at $19.21 billion, an increase of 59% since 2004. The statements also showed that PDVSA’s total transfers to the government, in the form of royalties, taxes, and spending on social programs, reached $26 billion, a 65% increase since 2004. The financial statements were audited by accounting firm KPMG, which, according to Ramirez, found no irregularities.
These increases in oil revenues and PDVSA’s total transfers to the government have helped the Chávez government finance significant public spending, which is expected to reach $57 billion this year, around 40% of GDP. Equally, social spending, a component of public spending, has risen steadily under the Chávez government, from 8.2% of GDP in 1998 to 11.2% of GDP in 2005, according to figures from the Ministry of Planning and Development. On education, for example, real government spending per capita has increased by 80% between 1998 and 2005, with public spending on education reaching more than 4% of GDP annually during this period. Social spending in 2006 is expected to reach 12.5% of GDP in 2006.
Despite these significant increases in government income and expenditure, the government seems to be spending beyond its means. According to BCV figures released last week, Venezuela's accumulated deficit at the end of July stood at $2.3 billion.
Inflation has also seen a rise in recent months. A 2.2% rise in consumer prices in August meant that inflation was on course for an annual rate of 14.9%. Rodrigo Cabezas, who heads the National Assembly’s finance committee, warned last month that inflation could even surpass 15% this year. Many analysts have blamed high government spending in the run-up to the December presidential elections for boosting money supply and hence inflationary pressures. According to BCV figures, under the Chávez government inflation has averaged 19.7%, compared with 59.6% under the previous government.
Giordani’s speech last week also highlighted the positive impacts of the increases in government spending: the fall in unemployment and poverty.
Based on the data provided by the National Statistics Institute (INE), Giordani said that the unemployment rate was currently 10%, but that he expected this figure to fall to 7% by the end of the year. Since hitting a high of 19.6% in the first quarter of 2003, unemployment fell to 15.3% in 2004 and to 10% in 2005.
The fall in unemployment has in turn improved poverty indicators. Giordani said that the 2006 first semester figure for critical poverty was 12.9%, a fall of 17.3% compared to the same period in 2003. In June this year the World Bank said that Venezuela had achieved “substantial improvements in the fight against poverty” and that their statistical evidence showed that between 1995 and 2005 “the number of homes under the poverty line has decreased.”