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Wednesday, 20 January, 2021

What to expect from the Venezuelan economy in 2021?

The Econoalitica firm projects an inflation rate of 1000% in 2021. The economic forecast for the next year is still reserved however experts augur a period of "stabilization in the hole" amid the current Venezuelan crisis.

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By Leswin Granados.

The Venezuelan economy in 2019 sustained in three axes: The massive use of foreign exchange in payments, business closure due to the COVID -19 pandemic, and the continuous hyperinflation.

Now, with the arrival of the new year, the forecast is not encouraging, although experts augur a period of “stabilization in the hole” amid the current Venezuelan crisis.

For the experts from Econoalitica, the financial situation of Venezuela to 2021 is uncertain. However, its director, Asdrúbal Oliveros, considerate that there are chances of opening for some specifics areas. But he is no optimistic about hyperinflation, which is now the third-largest in history. There is no expectation that could disappear in the next year. The balance was presented during the forum Venezuela Perspective 2021, organized by the Political Studies Center from the Catholic University Andrés Bello.

Below, El Pitazo introduces the five most outstanding projections made by Econoalitica.

1. Disproportionated collapse

Olivares pointed out a moderate shrank of the economy in 2021, around 1%. The expert said that the situation would show some growth in some areas, but not enough to a total recovery of the national production. Items such as food, health-care services, retail, and telecommunications could see more profits.

2. Inflation

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The projection is 1000% under the 6.500% that the International Monetary Fund augured for 2020. However, experts agree that inflation “is still too high compared with any serious country.”

3. Financial dollarization

The economist considers that Venezuelan banking could offer more instruments and services linked to the dollar, which goes deep into the so-called financial dollarization, which could open new opportunities and the State could have the capacity to collect taxes. In that direction, a step forward occurred last November when got announced a tribute on dollar transactions.

At the beginning of 2020, operations with dollars stood at 60%, and that percentage increased to 65.9%, meaning that two-thirds of commercial transactions get made in foreign currency. For that reason, Oliveros suggested working in a multi-currency environment.

4. Remittances

Oliveros affirmed an increase of 26% in the remittances flow gets expected. The amount stood at $1.500 million, a drop of 57,14% consequence of the pandemic. “Is good news because meaning a positive impact on the families who depends on the remittances.”

5. Reconversion

Finally, Oliveros explained that given the progressive increase in the exchange rate and devaluation of the currency, new currency conversion is foreseen or, even, the circulation of a new one for next year. “Probably, the government removes five zeroes from the monetary system, and we must be prepared.”

It would be the third conversion in 20 years with the Chavismo in power after the ones executed in 2008 and 2018.

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