A report published by the IMF on October 9 indicates that Venezuela’s annual inflation rate will surge to 1.37 million percent by the end of 2018. In July the IMF had previously anticipated 2018 would witness an annual inflation of 1 million percent. The report further establishes that consumer prices will surge by 10 million percent in 2019. Additionally, the IMF indicates that Venezuela’s Gross Domestic Product (GDP) will shrink 18 percent in 2018, further forecasting a double-digit decline in 2019.
The abovementioned forecast highlights Venezuela’s rapidly deteriorating situation and the persistent inability of the government to tackle worsening macroeconomic trends. Notwithstanding surging oil prices, Venezuela’s oil outputs continue to plunge amid political instability and mismanagement of the national oil company, PDVSA, which continues to accumulate debt and therein the prospect of suffering litigation cases with its creditors. Considering that the government continues to print money and periodically raising the minimum wage, efforts to halt rampant inflation are highly unlikely to succeed. Furthermore, although authorities are actively attempting to tie the bolivar (VES) to the government-sponsored cryptocurrency, the Petro, such efforts are unlikely to yield the desired results, particularly in terms of capitalization. However, given that the Petro is in turn fixated to the price of oil, efforts to install the cryptocurrency to replace fiat money could progressively lead to a formal dollarization of the Venezuelan economy.