Venezuela, a country with a population of around 30 million people and one of the largest oil reserves in the world, has been experiencing an extremely difficult period of economic and political stresses. The economy, which shrank in 2014, has registered 10% contraction in GDP in 2015. These stresses show no sign of abating with rampant hyperinflation impacting food prices and causing food and other basic goods shortages across the country. For example, toilet paper and soap are in such short supply some hotels are asking guests to bring their own.
Inflation is projected to increase 481% this year and by a staggering 1,642% next year, according to the latest estimates by the International Monetary Fund. To give you a sense of how extraordinary this is, the average emerging market and developing country is forecasted to have an inflation rate of around 4.5% this year and 4.2% next year. McDonald’s french fries now cost over $133. As a result of this hyperinflation, Venezuela’s currency, the bolivar, has plummeted significantly and now worth less than it costs to print the notes.
Venezuela’s economic troubles stem from its heavy reliance on oil revenues to drive its economy. Oil prices (Brent) have fallen from $115 in 2015 to less than $50 dollars where it currently stands. At one point during January 2016, oil traded at $27. This reliance on a single source of revenues has resulted in the country being unable to pay for basic food or medical imports, causing chaos on the streets and political paralysis. The government recently re-opened its border with Columbia for 12 hours to allow its citizens to buy much needed supplies of food and medicine from its neighbour. Tens of thousands crossed the border to get their hands on much needed necessities.
Later this year things could turn even more sour for the country as the government must pay around $5 billion in debt payments in October and November.