Venezuela's economy

Despite a rise in the oil price, Venezuela’s government is short of cash

The price of Venezuelan crude oil rose above US$50/b in mid-May for the first time in eight months. Yet this level is still too low to alleviate financing pressures on the government. Officials outlined a modest fiscal adjustment in March, along with plans to meet government financing needs with new debt issuance, but this may no be sufficient to close the budget gap.

Based on the partial fiscal adjustment programme, the government set a target for new bond issuance in 2009 of US$17bn. In order to stoke domestic demand for the bonds, the government announced a loosening of monetary policy in April, cutting the bank reserve requirement and interest rates. This resulted in a BsF1.2bn (US$560m) increase in the monetary base during April. In late April the government authorised the sale of US$5.6bn in domestic bonds, with around US$372m sold per week at a yield of around 9.5%.

Even with the debt issues, the government is still likely to face a cash crunch. It will not have access to the excess oil revenue that it typically taps for additional spending during the course of a budget year. Such revenue has been used in the past to fund social spending and significant pay hikes for public-sector workers. In addition, there is likely to be a large fiscal deficit in institutions and public enterprises outside the central government (particularly at the state oil company Petr