Caracas Chronicles

Back in October 2016, when Maduro decided to put his budget-submitting days behind him and simply signed the National Budget with the Supreme Court’s approval, we learned that the Government planned to spend —at least— Bs.8.48 trillion. Maduro was telling us the government was going to spend all the money…and then some. Literally. Total monetary liquidity back then —all the bolivars in the world— amounted to just 7.46 trillion,

So how do you spend more money than there is? Easy! Just make s’more! By mid-February, Monetary liquidity had reached Bs. 11.93 trillion —an increase of Bs. 4.47 trillion (59.94%) in just three and a half months.

But the headline numbers Maduro aflojeated on TV were the least of my worries. Proper analysts wait to get the actual document. So I waited for the National Budget to be published… and waited… and waited… and waited…

Hope was evaporating when, suddenly, at the end of last month…

It happened!

It was Friday, February 24th and instead of celebrating the beginning of the four-day carnival weekend, my heart was racing with excitement over a message I got from a fellow budget nerd:

“…habemus presupuesto 2017 :O”

I couldn’t believe I was a click away from the National Budget for 2017. I’d started leafing for encartes in the CLAP Magazine, I was so desperate!

This reunion with our long-lost friend is all thanks to the local chapter of Transparency International. I’m particularly thankful for the job that Transparencia Venezuela is doing, and their latest analysis piece about the National Budget 2017 only turns their well deserved Orquidea from Doble Diamante to Uranio.

So how do you spend more money than there is? Easy! Just make s’more!

Sadly, the preamble of the National Budget is a no-show, so we don’t know the 2017 estimates for GDP growth rate, inflation, foreign exchange rate or oil price. Publishing a budget without publishing its macroeconomic underpinnings is a little bit like putting up a high-rise without a foundation: it may look impressive, but all it takes is a gust of wind and…

With no oficial supuestos, we’re left to scour loose official announcements for clues. According to President Maduro, the National Budget of 2017 was calculated on the basis of a $30 oil barrel. The Venezuelan basket is now closer to $50, so that’s a great start, wouldn’t you say?

I wanted to figure out how the government planned to spend those Bs. 8.48 trillion National Budget.

According to President Maduro, the National Budget of 2017 was calculated on the basis of a $30 oil barrel.

This is a somewhat artificial exercise, I know. The official budget has always been an unreliable estimator even of the Central Government’s spending for the following year — the bulk of the action has always been elsewhere: off-budget fund spending, PDVSA spending, créditos adicionales, state budgets, municipal budgets, state-owned enterprises…a whole rich and varied fauna of spending that somehow doesn’t make it into the Presupuesto Nacional.

Fully aware that we’re dissecting the tip, not the iceberg, I took a long look at the numbers unraveled by Transparencia Venezuela and adding a pinch of Excel legwork to the mix, we figured out that,

For every Bs. 100 the government plans to spend in 2017:

• Bs. 15.2 will be spent on personnel expenses, a number that already increased by Bs.7.6 after Maduro announced an increase of 50% of all public salaries back in January. The central administration of the public sector has a total of 1,323,260 workers in 2017, a decrease of a little more than 400 thousand from 2016. This is pretty interesting. (To be clear, this is far from the whole public sector: another 1.4 million or so work in, for example, regional governments and public enterprises, according to INE’s latest-and-already-outdated April 2016 figures.)

• Bs. 24.3 will be spent on education, of which Bs. 3.3 will go towards the school feeding programs (that is Bs. 339.09 per kid per school day).

• Bs. 7.3 will be spent on health, of which Bs. 0.2 will be spent on pharmaceutical products and medicines (those that showed scarcity levels of over 76% in public hospitals in 2016) and Bs. 0.3 on maintenance, expansion and remodeling of hospital equipment and infrastructure.

• Bs. 5.9 will be spent on national defense and Bs. 1.9 will be spent on crime-fighting. Needless to say, not only is Bs.1.9 a relatively small number given Venezuela’s record breaking crime levels, but —in the words of Transparencia Venezuela— “the 2017 budget reduces the number of police officers by 3,477, from 30,742 police officers in 2016 to 27,285 in 2017.”

• Bs. 1.6 will be spent on the justice system, but only Bs. 0.93 on prison services. That doesn’t seem to be enough to fight impunity levels of over 90%.

• Bs. 1 will be spent on transportation entities and services, Bs. 0.5 will be spent on electric services and Bs. 0.3 will be spent on water services. You know, those basic public services que están de mal en peor.

• However, we’ll always be properly informed thanks to the Bs. 1.5 that will be spent on the State broadcasting companies (like TEVES and VTV) and the Bs. 0.4 that will be spent on nationwide communications of the Central Administration (which includes propaganda).

• Municipalities and regional states will receive Bs. 21.5. It may sound like a big piece of the pie, but —according to Transparencia Venezuela— it’s 49% less than last year in inflation-adjusted terms. Also, with every increase of the minimum wage and food vouchers, local expenses balloon and the government still owes the regions a big chunk of change. On March 1st, the Mayor of Chacao Ramón Muchacho claimed many other mayorships were “technically bankrupt” because “they no longer have a budget to take care of wages. Salary increases exceed what is budgeted.” The next day, the Mayor of El Hatillo, David Smolansky, claimed the central government owed the municipality Bs.700 million, which is “10% of the entire budget of the mayor’s office for this year”; and the Mayor of Mérida City, Carlos García claimed the central government owes the city Bs.1.85 billion.  

And if you’re wondering, where will the money for all of this —and many other poorly distributed expenses— come from?

For every Bs. 100 the government expects to expend in 2016:

• Bs. 82.9 will come from SENIAT’s collection efforts or, in other words, directly from taxpayers pockets:Bs. 74.5 will come from the collection of four taxes: 
  • Bs. 43.9from IVA (value-added tax),
  • Bs.17.4 from ISLR (income tax),
  • Bs.7.0 from import taxes, and
  • Bs.6.3 from a new tax on large financial transactions.
• Bs. 3.3 will be oil-related income. Oil-related income represented 26% of total budgeted income for 2014, 19% in 2015 and 15% in 2016, a huge difference from the National Budget for 2017. But between 2003 and 2014 the average annual price of Venezuelan crude oil remained above the price forecast in the respective budget. Since the price of oil was usually underestimated, it made it possible for the government to carry out extraordinary oil revenue discretionary spending. The forecasts for 2015 and 2016 surpassed the real oil prices and the strategy failed. But since the supposed oil forecast of US$ 30 has remained below the current annual average (US$ 45.76 up to March 3rd), there might be some oil-related extraordinary resources to distribute. And let’s not forget: If the government decides to devalue the preferential foreign exchange rate of 10 Bs./US$, not only will the original “Bs.3.3” immediately expand, but also will any extraordinary income.
• Bs.11.9 will be extraordinary income derived from profits of public sector companies. According to Transparencia Venezuela “in defining the profits of state enterprises as extraordinary, the Executive has the excuse not to transfer 20% of that amount as part of the situado constitucional to mayors and governorships. Although state-owned companies are not making big profits and many close in on deficits, bookkeeping can generate some book profits that the government can take advantage of in different ways.” Any profits from public enterprises would be extraordinary, because losses of state enterprises in 2016 exceeded the resources spent on health, education, housing and security.
• Bs. 2 will be new debt.

And what about all the extra money Maduro and his administration will most likely spend? Some, as we have said before, may come from oil-related extraordinary income. However, legend has it that the government has an ever-ending pot of bolívares. (That was the point of bending BCV to their will, remember?)

The real problem is Venezuela doesn’t have enough dollars.

In conclusion, I will admit that getting my grubby hands on the 2017 National Budget made my week. But reading it gets more and more depressing with every passing year.