The government of Venezuela’s agreement with the opposition party and the easing of certain US sanctions in November 2022 have provided a much-needed boost to the country’s economy. This, coupled with increased oil production supported by high demand linked to the sanctions against Russian oil, has led to a positive outlook for the country. As a result, Venezuela’s real GDP is forecast to expand by 5.6% in 2023 and by 5% in 2024, says GlobalData, a leading data and analytics company.

GlobalData’s latest report, “Macroeconomic Outlook Report: Venezuela,” reveals that post the signing of the agreement by the Venezuelan government with opposition party, the US Treasury Department issued license to Chevron Corp to resume limited energy operations in Venezuela. The crude oil production in Venezuela increased from 553 thousand barrel per day (tb/d) in 2021 to 700 tb/d in February 2023.

Bindi Patel, Economic Research Analyst at GlobalData, comments: “Venezuela is holding almost 20% of the world’s proven crude oil reserves and was the 21st largest producer and exporter of oil in the world in 2021, according to GlobalData analysis using OPEC data. Therefore, the country has a lot of untapped potential in solving the global oil supply problems amid the sanctions on Russian oil.”

Although Europe’s oil imports from Venezuela were frozen by the US sanctions, the US reconsidered its stance and allowed two European firms Eni and Repsol to ship oil from Venezuela to Europe from July 2022 onwards. The resumption of oil exports of the state-run firm Petroleos de Venezuela (PDVSA) and the US oil producer Chevron Corp. is expected to increase the overall exports of Venezuela in 2023. Increased oil exports to Europe, China, Cuba among others is expected to boost the government finances and finance major chunk of the 2023 budget.

In terms of external relations, the cooperation agreements with other countries are expected to boost foreign trade and aid in reviving the domestic industries in Venezuela.  In June 2022, Iran and Venezuela signed a 20-year cooperation deal to step up bilateral cooperation in the fields of politics, culture, tourism, economic, oil and petrochemical industry. In February 2023, Venezuela and Colombia signed a trade deal and lifted import duties from several manufacturing items.

Meanwhile, hyperinflation continues to pose downside risks towards the Venezuelan economy. According to the Central bank of Venezuela, the annual consumer price inflation was recorded at 155.8% in October 2022, one of the highest rates across the globe. GlobalData projects the inflation rate to stay at an elevated level of 161.3% in 2023.

On the social front, humanitarian crisis and brain drain continue to pose challenges for Venezuela. According to the International Rescue Committee it was estimated that at least 12.3 million Venezuelans continue to be food insecure, as of January 2023. According to the Regional Inter-Agency Coordination Platform for Refugees and Migrants from Venezuela (R4V), migrants from Venezuela seeking refugee status in neighbouring Latin American countries totalled 7.1 million as of December 2022.

Patel continues: “Although Venezuela has a very young population with 91.3% below the age of 64 years as of 2022, according to GlobalData, the country is unable to reap the benefits of the demographic dividend. The severe economic and political crisis in Venezuela has forced many citizens to migrate to neighbouring countries in search of a better life.”

Venezuela is categorized as a very high-risk nation and ranked last out of the 153 nations in GlobalData Country Risk Index (GCRI Q4 2022). The country’s risk score continues to be high in all the parameters of macroeconomic, political, technology, legal, demographic and environment parameter when compared to the Latin American average.

Patel concludes: “The economic growth is expected to be boosted by the higher revenue from oil exports but addressing the major challenge of humanitarian crisis and uplifting the lives of millions continue to be the need of the hour. The country also must address the issues of violence, corruption, and ease regulatory constrains to attract foreign investments.”