Marco Torres gave us little to no useful information during his 2016 National Budget speech to the National Assembly on October 20th. It was a Budget Full of Silences.
To date, the government still hasn’t published the Budget online. Trust me: I’m wearing out my ‘refresh’ key I check so often.
However, an alma caritativa sent me an awesome gift: the 268 page preamble of the Budget.
Yep, that’s right: 268 pages of numbers and mind tricks. As we dive in, we have to remember that Venezuelan budgets and actual government spending aren’t exactly wedded to each other… they’re not even friends with benefits. They’re more like that guy you meet at a party whose face looks vaguely familiar and whose name you can’t remember for the life of you. They know the other one exists, but that’s about it.
That said, here are the highlights (or lowlights).
First up: macroeconomic goals.
We’d already heard that the oil price estimate for 2016 would be 40 US$/barrel, which comes 30 short of the 70 US$/barrel oil price floor promoted by Venezuela just a few days ago.
But now we know that the government would like to think that the inflation rate will reach 60% in 2016. This stretches the word ‘optimistic’ to breaking point: is gonna be WAY over 60%. The IMF estimate for 2016 comes close to 200% and is still a rather conservative one. Food inflation as measured by the CENDA food basket, for instance, is running at 340% on a year-on-year basis.
We now also know that the provided exchange rate for 2016 is 6,3 BsF/US$. In fairness, the government never includes devaluations in its Budget, so a provided 6,3 BsF/US$ exchange rate doesn’t necessarily mean that the government won’t devalue the bolívar in 2016.
But the most fun of all: we got a GDP number, but don’t really know what it means. Usually, we would find an expected GDP variation rate in the Budget, but now we get a number (BsF 8.078 trillion.) At the official exchange rate, that’s nearly $1.3 trillion, about the GDP of South Korea. At the black market rate, it’s just shy of $10 billion – the GDP of Tajikistan. Somewhere between South Korea and Tajikistan the truth lies.
It’s not just that we don’t know what 8 trillion Bs. is in dollars, is that we don’t know if the GDP number implies growth or decline. To know that, we would need the 2015 GDP numbers. But guess what: we only have data up to QIII, 2014.
Expenses vs. Income
The Budget is set at BsF 1.549 trillion, of which 81.11% is current expenses. Meaning: it’s pretty hard to trim down. Also, the government tends to spend way over budget: up to October 20th, the National Assembly approved 403 additional credits that allowed the government to spend 125.5% over the 2015 Budget.
On the flip side, close to 84% of the expected “current income” for 2016 comes in the form of non-oil related tax, 1% is non-oil non-tax income and only 15% is oil related (tax and non-tax). Meaning: Bs.F 84 of every BsF 100 the government expects to expend in 2016, will come directly from Venezuelan pockets.
But, where will the money for the traditionally over-budget expenditures will come from? How will we pay for Créditoadicionaland?
The extra cash we usually got via high oil prices will most likely be a no-show, so the government probably expects to collect a lot more tax revenue. Let’s not forget that Maduro recently spoke of possible tax reforms to increase tax revenues.
But let’s be frank: a lot more inorganic money must be on its way, which is why the 60% inflation goal seems kind of absurd (cue the Central Bank printing press!)
Problems with a side of salaries
Salaries are estimated at BsF 226.990 million, which represents 14.7% of the Budget. Crazily enough, salaries provided for 2016 are 11.9% less that the ones paid by the government up to October 2015, and that’s in nominal terms, without considering inflation.
Even crazier: since the Budget was handed in prior to the announcement of the 30% salary increase for all the public administration workers, salaries will increase -at least- 30% by the end of 2016. In other words: the money expected to cover salaries will come -at least- 30% short.
41.5% of the Budget will be supposedly directed towards “social” expenditures, including: education, culture and communication, science and technology, housing, health, social development and participation and social security. But the real question should be: What about quality?
Even though Maduro keeps insisting that “capitalista que no pueda, que entregue la empresa a sus trabajadores”, only 6.1% of the Budget is meant for the “productive sectors”. Venezuela is currently the 4th worst country for doing business (according to the World Bank) and without government money, I’m not sure that workers would be able to keep companies afloat.
And the number that tends to send me in shock-mode every single year: the budget for law enforcement (seguridad ciudadana) is 0.9% of the total Budget. Meaning, of every BsF 100 the government is set to spend in 2016, only BsF 0.90 will be devoted to keeping Venezuelans safe. That’s just irresponsible when you consider that Venezuela ranks as the second most violent country in the world.
Look, Venezuelan budgets have never been a really reliable guide to how the government plans to raise and spend money the following year. The story here is that we’re seeing that divergence reach grotesque extremes now.