END OF A MULTI-YEAR CRISIS, BUT THE ECONOMIC SITUATION IS STILL CRITICAL

In 2023, the Venezuelan economy should continue its slow recovery after eight years of decline. However, GDP was only 24% of the pre-crisis level in 2013. Although oil prices are expected to have peaked in 2022, their persistently high level will continue to support growth. The economy will also benefit from an increase in the amount of oil produced, which has risen from 666,000 barrels per day in September 2022 to 717,000 barrels per day in October 2022. Nonetheless, this is below the government’s initially announced target of 1 million barrels per day. The increase will be supported by high demand linked to the sanctions against Russian oil. The war in Ukraine has prompted the major Western powers to reconsider their position towards Venezuela, as the country holds 20% of the world’s proven oil reserves. The US is cautiously resuming its involvement. US oil company Chevron, which has four joint ventures with the Venezuelan state oil giant PDVSA, has been granted a license to extract and export oil to the US again. In addition, although oil flows from Venezuela to Europe had been frozen for a lengthy period, two European companies, Eni and Repsol, have been allowed to ship Venezuelan oil to Europe since July 2022, replacing Russian crude. However, oil production is expected to remain well below pre-2013 levels (around 3 million barrels per day), with outdated infrastructure and low foreign investment still a straitjacket on the heavily oil-dependent economy. The recovery of non-oil GDP is expected to be slower, despite large remittance flows from neighboring countries and the US, home to Venezuela’s 7 million emigrants, helping to sustain consumption. On that score, about 30% of households depend partly on these remittances. However, real wages will remain very low due to continuing high inflation, leaving most of the population below the poverty line. In addition, weak credit will continue to suppress investment.

THE CURRENT ACCOUNT CONFIRMS ITS POSITIVE TRAJECTORY, BUT PUBLIC ACCOUNTS ARE STILL IN POOR SHAPE

The current account will consolidate further, thanks to the robustness of expatriate remittances and increased oil exports. However, foreign direct investment will remain very low, maintaining pressure on foreign exchange reserves, which have been depleted by the central bank’s interventions to limit the depreciation of the bolivar, which has been abandoned by local players for the dollar.

Largely dependent on oil, fiscal revenues are expected to rise as sanctions on Venezuelan crude are relaxed. The national budget is expected to be 63%-financed by oil exports, an increase from 2022. In particular, the contribution to the 2023 budget from the state oil company PDVSA is expected to increase by 14%. However, revenues from the license granted to Chevron will not be able to generate royalties or taxes for the state and dividends for PDVSA, as they will be used to pay down PDVSA’s debt to Chevron. In addition, the budget will continue to be partly financed by public debt, notably through domestic bond issues and loans. Public debt will therefore remain very high and arrears massive.

RESUMPTION OF TALKS WITH THE WEST AND THE OPPOSITION

The upheaval caused by the war in Ukraine and the election of new South American left-wing presidents, notably in Brazil, Chile, and Colombia, coincided with a reopening of political dialogue in the country and with its neighbors, as well as an easing of Western sanctions. In September 2022, the border with Colombia was reopened to goods vehicles. In addition, a meeting took place in Mexico City at the end of November between the government and the opposition, leading to the signing of a “social agreement,” which is supposed to lead to further negotiations and the prospect of free presidential and legislative elections in 2024 and 2025. Since the re-election of Nicola Maduro in 2019, which was considered illegal, Western countries recognized the appointment by the then-sitting National Assembly of its president Juan Guaido as the legitimate head of government. In this context, in December 2022, the members of the Assembly, dominated by the opposition and maintained in office despite the election of a new Parliament dominated by the government in 2020, which was also deemed to be rigged, put an end to this interim presidency, considering that this position had become fictitious and that the decision did not allow the government to access Venezuelan state assets blocked abroad.