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Venezuela Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 43 pages

Core Views

Low oil prices, high inflation and a poor business environment willsee Venezuela's recession stretch into its third year in 2016.The ruling PSUV government will suffer major losses at the Decemberlegislative elections, although the policymaking trajectory will remainlargely unchanged due to executive power. Political risk is on therise due to elevated tensions associated with the polls.Inflation will remain elevated, at the highest level in Latin America,and the operating environment will remain very precarious for foreignmultinationals in the country.Major Forecast ChangesWe have downgraded our real GDP growth forecasts for 2016 and2017, due to a further downgrade to our oil price forecasts and ourexpectations that policymaking will still be inhospitable to privateinvestment.

Table Of Contents

Venezuela Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Political Risk To Rise In Wake Of Legislative Elections8
The December 6 parliamentary elections will result in major losses for the government, such that the opposition coalition will secure
a majority of National Assembly seats, although an abrupt shift in policy is unlikely Political tensions will remain high in the weeks
following the poll, due to intense polarisation and mistrust on both sides of the aisle
TABLE: POLITICAL OVERVIEW8
Structural Characteristics Of Government 9
Long-Term Political Outlook 11
Post-Chávez Era To See Greater Turbulence11
Venezuela is entering a new era following the election of Nicolás Maduro as successor to the late President Hugo Chávez, but the
narrowness of his victory points to an increasingly polarised electorate, which will make the country harder to govern With the economy
looking weak, Maduro could well lose office before his term expires in 2019 Regardless of who rules Venezuela, the country will face
formidable economic challenges, such as excessive state control, high inflation, corruption, violent crime, and a brain drain
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Index 15
Economic Growth Outlook 16
Soaring Inflation And Government Policy Will Hamper Growth16
The predominant headwinds affecting the Venezuelan economy, including a poor business environment, high inflation, and pressures
associated with low oil prices, will persist over the coming quarters As a result, 2016 will see further contraction in real GDP, with only
marginal growth returning in 2017
GDP By Expenditure Outlook 17
TABLE: GDP GROWTH FORECASTS17
TABLE: PRIVATE CONSUMPTION FORECASTS17
Fiscal Policy And Public Debt Outlook 18
Political Pressures To Keep Deficit Wide18
We forecast that Venezuela's budget deficit will remain deep in the red over the coming years, given the low price of oil and high emand
for social services Over a longer time horizon, high inflation will allow revenue growth to outpace rises in expenditures, narrowing the
shortfall
TABLE: GOVERNMENT CONSUMPTION FORECASTS18
TABLE: FIXED INVESTMENT FORECASTS18
TABLE: NET EXPORTS FORECASTS18
Structural Fiscal Position 19
TABLE: MAIN REVENUE AND EXPENDITURES CATEGORIES19
External Trade And Investment Outlook 20
Oil Sector To Anchor External Accounts20
Venezuela's extreme reliance on the oil sector and a lack of domestic productive capacity for a range of basic goods will keep significant
pressure on the country's external accounts in coming years Meanwhile, a poor business environment will keep inward investment
subdued
Outlook On External Position 21
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE21
TABLE: TOP FIVE GOODS EXPORTS22
TABLE: TOP FIVE GOODS IMPORTS22
Currency Forecast 23
Cheap Oil And High Inflation Will Keep Downside Pressure On Bolívar23
Venezuela's exchange rate will remain under pressure, due to low oil prices and rampant domestic inflation An official devaluation of
the primary exchange rate is unlikely due to political considerations, but further back-door currency adjustments are probable
Exchange Rate Policy Framework 23
TABLE: YEARS-LONG DEVALUATION IN ALL BUT NAME24
Chapter 3: 10-Year Forecast 27
The Venezuelan Economy To 2024 27
Growth Outlook In A Post-Chávez Era27
Although the Venezuelan economy is likely to experience difficulties over the next few years, we believe there is significant economic
growth potential over the long term In our view, a more moderate and market-friendly government which is willing to make the
necessary structural reforms is needed to unlock this potential
TABLE: LONG-TERM MACROECONOMIC FORECASTS27
Chapter 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Education 31
TABLE: LATIN AMERICA - EDUCATION RISK32
TABLE: TERTIARY EDUCATION ENROLMENT, 2006-201033
Government Intervention 36
TBALE: LATIN AMERICA - GOVERNMENT INTERVENTION RISK37
TABLE: PERSONAL AND INCOME TAX BRACKETS38
Chapter 5: BMI Global Macro Outlook 41
Global Outlook 41
Emerging Markets Bending, Not Breaking41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43

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