Venezuela: Economy Registers Lower Inflation, Growth in 2023

The Caribbean nation has experienced a more stable economic outlook amidst US sanctions, but concerns remain over low wages.
Venezuela economy 2024
Despite a more stable inflation picture and modest growth, there are fears of growing inequality. (Radio Fe y Alegría)

Mérida, January 15, 2024 (venezuelanalysis.com) – The Venezuelan economy finished last year with reduced inflation numbers.

According to the Venezuelan Central Bank (BCV), the monthly price increases have been in single digits for nine straight months. December’s 2.4 percent mark bucked a recent trend of high inflation during the festive period.

Venezuela’s accumulated inflation stood at 190 percent, the lowest value for a calendar year since 2015. The Caribbean nation has not registered a 12-month accumulated figure below 100 percent since mid-2015.

12-month accumulated inflation in Venezuela, with more detail since 2022. Despite exiting hyperinflation, prices have retained some volatility. The lowest figure registered in recent years was 114 percent in August 2022. (Venezuelanalysis / Source: BCV)

Venezuelan inflation has historically been strongly driven by the devaluation of the national currency. The depreciation likewise slowed down in recent months.

The exchange rate went from 17,49 digital bolívares (BsD) per US dollar (USD) in January 2023 to 35,96 in January 2024, meaning the bolívar lost more than half of its value. However, this trend slowed down in the last quarter, with the US currency only rising by 10 percent since September with respect to the Venezuelan counterpart.

The USD-BsD exchange rate grew by 105 percent in 2023, below the year’s accumulated inflation, meaning that the cost of living also went up when measured in dollars.

The relative economic stability coincided with a third consecutive year of GDP growth after seven straight years of recession. President Nicolás Maduro stated that the economy had grown by 4.5 percent last year, citing yet-unpublished figures from the United Nations Economic Commission for Latin America and the Caribbean (CEPAL).

“I think 2023 was another step forward. We’ve had 10 consecutive trimesters of economic growth dating back to 2021,” Maduro said in an interview with Spanish journalist Ignacio Ramonet. “We have set up a perfect coordination among the country’s economic actors.”

The Venezuelan president went on to cite improvement in a number of sectors, including agriculture (5%), manufacturing (4%) and retail (4%). He highlighted growth in fishing (25%) and aquaculture (20%), two areas that have increasingly contributed to the country’s exports.

Maduro likewise reported a 25,8 percent increase in tax collection. Nevertheless, the data is not publicly available as the BCV stopped publishing global and sectoral GDP statistics in 2019.

Monthly variations of the BsD-USD exchange rate, showing stabilization following high volatility in the second half of 2022. (Venezuelanalysis / Source: BCV)

The Venezuelan economy entered a tailspin in 2014 following a collapse in oil prices. The crisis was later compounded by unilateral US sanctions which also blocked recovery paths.

The South American nation’s oil industry’s rebound from historic lows, coupled with high energy prices, drove growth in recent years, including double-digit GDP improvement in 2022. At the same time, the Venezuelan economy remains below 30 percent of its size in 2013.

The country’s recovery continues to be heavily hampered by coercive measures that limit foreign investment and bar access to financial markets. A select easing of sanctions by the US Treasury Department led to improved conditions for oil exports but Washington has repeatedly threatened a snapback and warned companies against investing in Venezuela.

For their part, Venezuelan authorities have turned to an increasingly liberal and orthodox path in an effort to spark economic growth and attract private capital. Policies have included tax breaks, concessions of state assets and special economic zones. However, the threat of sanctions has kept foreign investors at bay.

On the domestic front, economic policymakers have sought to control inflation by restraining credit and freezing wages and pensions. The last minimum wage increase took place in March 2022, set at US $30 per month at the time. It has since devalued to under $4, with the government instead relying on monthly bonuses that do not affect other labor benefits such as social security contributions or severance payments.

Similarly, the Maduro administration lifted currency exchange controls with the stated goal of allowing the market to set the exchange rate. Nevertheless, the Central Bank has remained the main source of foreign currency, providing a reported $4.8 billion to so-called “exchange tables” last year.

Venezuelan lawyer and economist Juan Carlos Valdez warned of growing inequality and that “beyond the indicators, we have to ask if people are in better or worse economic conditions.”

“The inflation slowdown is due to the Central Bank ‘burning’ foreign currency reserves to supply the bourgeoisie, as well as frozen wages and liquidity,” he explained. “But the majority of the population is not experiencing an improvement to its living standards.”

Valdez has been a strong proponent of an “indexation” policy whereby the government would peg public sector wages, alongside bank deposits, budgets and other economic aspects, to an inflation marker in order to shield the purchasing power of the Venezuelan people.

“We are under attack, with sanctions and blockades, so we have to defend ourselves, tackle speculation,” he added. “The economic authorities are wedded to a monetarist conception and that is a big liability.”

The analyst argued that a wage increase should be an urgent priority for the Maduro government in order to raise demand and further growth.