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Venezuela’s inflation will surge to one million percent by the end of this year as the country with the world’s biggest oil reserves remains stuck in a profound economic and social crisis, the International Monetary Fund (IMF) predicts.
“We are projecting a surge in inflation to 1,000,000 percent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000’s,” Alejandro Werner, Director of the Western Hemisphere Department, wrote in an IMF blog post this week.
Venezuela’s real gross domestic product is expected to drop by 18 percent this year, which would be the third consecutive year of GDP plunging by double digits, “driven by a significant drop in oil production and widespread micro-level distortions on top of large macroeconomic imbalances,” Werner said.
“The collapse in economic activity, hyperinflation, and increasing deterioration in the provision of public goods (health care, electricity, water, transportation, and security) as well as shortages of food at subsidized prices have resulted in large migration flows, which will lead to intensifying spillover effects on neighboring countries,” the IMF warns.
In its World Economic Outlook Update from earlier this month, the IMF said that “The outlook for Venezuela, which is experiencing a dramatic collapse in activity and a humanitarian crisis, was revised down further, despite the pickup in oil prices, as oil production has declined sharply.”
According to OPEC’s secondary sources in the latest Monthly Oil Market Report, Venezuela’s crude oil production dropped in June by 47,500 bpd from May, to average 1.340 million bpd last month. This compares with an average of 2.154 million bpd in 2016, and an average of 1.911 million bpd in 2017.
The plunging oil production is nearing the psychological threshold of just 1 million bpd as early as this year, analysts and industry experts say, and it is difficult to see how production can be restored after years of underinvestment and mismanagement.
On top of the lack of investment, there is an exodus of oil workers who don’t see the point of working for salaries that have become worthless overnight due to 13,860-percent hyperinflation.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.