The Venezuelan government will be in a strong position to increase social spending to woo voters in 2024 as relief from some U.S. sanctions allows more oil income to flow into government coffers, analysts say.
The United States in October temporarily rolled back some oil industry sanctions and lifted a ban on bond trading sanctions in exchange for an electoral deal between the government of President Nicolas Maduro and Venezuela’s opposition.
Washington has conditioned an extension of the relief on the release of political prisoners and what it says are “wrongfully detained” Americans, as well as the lifting of public office bans on people including the winner of the opposition’s primary nominating contest.
The relaxed sanctions could lead to $1.4 billion in additional income for Venezuela over the next six months, analyst firm Sintesis Financiera said in a report.
The additional oil income is expected to arrive gradually, partly though the redirection of exports. One oil industry source told Reuters they expect export income to grow by 40% per month.
Under the previous sanctions, state-run oil company PDVSA had to sell to Asian markets via intermediaries, a strategy that cut into government profits.
“The increase in income will be gradual,” said Jose Vielma, a ruling party lawmaker and member of the finance committee for the government-allied national assembly. “The contribution will go to social spending and services.”
The communications ministry and ruling party PSUV did not respond to requests for further comment on spending plans.
The increased income will almost certainly lead to greater financial laxity “given the need to improve popular support for the government ahead of elections in the second half of 2024,” said Sintesis Financiera.
The government has traditionally increased social spending, public sector salaries, food distribution and housing construction projects ahead of elections, though national income has been limited over the last five years because of the sanctions and problems at PDVSA.
If the sanctions relaxations continue next year and oil production goes up, the additional income could reach $7 billion in 2024, consulting firm Ecoanalitica said.
“In electoral periods clientelist spending increases, and it’s possible we’ll see workers getting bonuses or improvements in the distribution of food,” said Venezuelan political consultant and analyst Oswaldo Ramirez.
“The challenge for the government is to convert that into votes… The ruling party has lost votes in part because of delays in salary increases and pensions,” he said.
The government has already this year launched new social programs – which it calls “missions” – for young people and women, the first since 2017.
Such social programs distribute food, houses and even goods like motorcycle parts, cellphones and computer tablets.
Opposition figures have criticized the missions for more than a decade, saying they are a poor response to the destruction of Venezuela’s economy by the ruling party, amount to “extortion by hunger,” and that public funds could be better employed raising public sector salaries and pensions.
Economist Jose Guerra, a former opposition lawmaker and head of the non-governmental Venezuelan Finance Observatory, said public sector raises may still be too costly a prospect.
“The government will spend but not at the levels it did before,” he said.
More income may also allow Maduro to revisit orthodox but insufficient inflation-fighting policies that have led to lower spending and less availability of credit, even as annual inflation reaches more than 300%.
Public spending has fallen to 15% of gross domestic product from 40% a decade ago, according to economic analysts. That has led teachers, nurses and other public workers to march for higher salaries as their wages shrink.
Some 2 million public workers earn between $45 and $60 per month, while private sector salaries are often more than $200, according to the Venezuelan Finance Observatory.
The central bank should mint fewer bolivares if there is higher oil income, several analysts said, estimating prices could fall in what remains of the year and take inflation down to 250% year-on-year.