CARACAS (Reuters) - Venezuela’s Finance Minister Rodolfo Marco said on Tuesday the OPEC nation was “fully prepared” to cope with price volatility on the global oil market and would honor a $3 billion bond payment due next week.
The tumble in crude oil prices on international markets to around $85 a barrel comes at a bad time for cash-squeezed Venezuela as it faces a heavy debt repayment schedule and an economy believed to be in recession.
Venezuela depends on oil for 96 percent of its hard currency revenues, so market fears have grown over its ability to service its major debt payments, though President Nicolas Maduro’s government has time and again ruled out a default.
Presenting the 2015 budget bill to the National Assembly, Marco reiterated Venezuela would have no problem paying the upcoming bond and all future debt.
“Venezuela maintains and will maintain an impeccable record in paying its sovereign debt. The government has the seriousness, will and financial capacity to honor its commitments,” he said to applause in the National Assembly where the ruling Socialist Party has a majority.
“We will fulfill the payment of the 2014 PDVSA bond for $3 billion due on Oct. 28,” Marco added. Despite market jitters, most Wall Street analysts say there is little sign the government may default.
“We still think the government will prioritize external debt service, and a muddle through is possible, but scenarios for political and social stability seem highly unpredictable,” said a J.P. Morgan analysis.
The price of Venezuela’s oil basket, which trades at a discount to other benchmarks because of its higher content of heavy oil, was currently $76.63, Marco said.
J.P. Morgan analyst Ben Ramsey estimated Venezuela would lose between $8-10 billion next year if the country’s barrel averaged around $80.
The proposed 2015 budget is based on economic growth of 3 percent and inflation of 25 to 30 percent. The official exchange rate is seen remaining at 6.3 bolivars per U.S. dollar.
Budget estimates are routinely based on optimistic assumptions for gross domestic product and inflation, and in recent years have been far off the mark.
Annual inflation is running over 60 percent, while the economy is believed to be in recession though the central bank has not published GDP figures for 2014.
Caracas-based Ecoanalitica estimates GDP will contract around 2.9 percent next year, less than their estimate for a 4 percent fall this year, mainly due to increased spending ahead of the December 2015 parliamentary elections.
The budget is for 742 billion bolivars, equivalent to $118 billion at the strongest official exchange rate. Actual government spending will likely be considerably greater than what is budgeted, as the assembly routinely approves “additional credits” during the course of the year.
The budget paper predicted Venezuela would have a fiscal deficit equivalent to 3 percent of GDP both in 2015 and 2014.
Marco stressed the government is prepared to cope “with any scenario relating to the price of oil,” and said popular but expensive social programs were guaranteed.
The fall in oil prices, and annual debt repayment obligations of about $10 billion over the next three years, have added to pressure on Maduro to enact reforms that would bolster state coffers.
International reserves have fallen more than 30 percent since the start of 2013, to stand at $19.78 billion this month.
Reforms under consideration are a unification of the different exchange control bands - which would effectively mean a devaluation - and a rise in the domestic price of gasoline which is currently the world’s cheapest at under 2 cents per liter.
But Maduro appears hesitant to take measures that would be likely to stoke inflation and risk public ire, given the late 2015 elections and also given pressure on him from factions within government not to tamper with the economic model of his revered predecessor Hugo Chavez.
Additional reporting by Brian Ellsworth, Andrew Cawthorne and Alexandra Ulmer; Editing by Chizu Nomiyama