Barclays:
Given the negative outlook for oil production, the government’s focus on reforms has shifted toward remittances as a source of hard currency; however, they are clearly insufficient to compensate for the oil production decline. Remittances have increased rapidly and could amount to c.USD2bn this year, but this represents about USD0.18 per inhabitant per day, far below the poverty line of USD2 per day. They would have to multiply by more than 10 to reach levels similar to those in economies such as El Salvador, where remittances help sustain consumption to a great extent. There would at least be a timing mismatch. Venezuela’s oil production could fall from the current 1.4mn b/d to as low as 500k b/d within the next year, and reaching the nearly USD20bn in remittances that would be necessary to compensate for that decline would take years, if it happened at all. That amount would approach what Mexico receives from more than 12 million migrants (equivalent to 40% of Venezuela’s population) located in a high income country such as the US. Venezuela’s new migrant flow is going mainly to South American countries with much lower income per capita and increasingly precarious conditions, which limits the ability to send money back home, at least in the short term.
The acceleration of the economic crisis deepens the erosion of the support base of the government and increases the risk of a fracture. Maduro is aware of this risk and focused his reelection campaign on asking for a vote of confidence and promising to address the economic crisis. However, he seems unable to deliver on his promise and recently accepted responsibility for the crisis.
[1] Therefore, although the absence of institutional rules creates a high level of uncertainty and there are no precise milestones in the transition that Venezuela is experiencing, three main factors could provide a catalyst for change: the declining effectiveness of containment mechanisms, the deterioration of the relationship with allies, and the increase in internal frictions . The shape that the transition might take and who might lead the process will depend on the different stakeholders’ ability to coordinate over the coming months. Given the difficulty that the different actors, in both the opposition and the government, have had in organizing, the transition could turn more disorderly, driven more by economic and social dynamics than by political leadership, but a consolidation of the Maduro government still appears challenging.