Washington , United States (AFP) — Amid the financial and humanitarian crisis in Venezuela, the country is expected to see hyperinflation reach epic proportions: a million per cent a year by the end of 2018, the International Monetary Fund said Monday.
And the nation’s economic collapse will increasingly spillover into neighbouring countries, the IMF said in its updated regional outlook for Latin America.
“We are projecting a surge in inflation to 1,000,000 per cent by end-2018 to signal that the situation in Venezuela is similar to that in Germany in 1923 or Zimbabwe in the late 2000s,” said Alejandro Werner, head of the IMF’s Western Hemisphere Department.
Venezuela’s economy is expected to contract by 18 per cent this year, the third consecutive year of double-digit declines and three points worse than projected in May, amid falling oil production, he said in a statement.
He also pointed to economic “distortions”, including printing money to finance the government.
“We expect the government to continue to run wide fiscal deficits financed entirely by an expansion in base money, which will continue to fuel an acceleration of inflation as money demand continues to collapse.”
Tens of thousands of Venezuelans have fled the country to escape the crisis, which is having an impact on the neighbouring economies, he said.
OPEC data show Venezuelan oil production crashed to a new 30-year low of 1.5 million barrels a day in June even though the country has the world’s largest reserves of crude.
The South American nation earns 96 per cent of its revenue through oil sales but under the government of populist President Nicolas Maduro a lack of foreign exchange has sparked economic paralysis that has left the country suffering serious shortages of food and medicine.
Venezuela’s collapse is dragging down growth in Latin America and the Caribbean to 1.6 per cent this year, four-tenths lower than the May forecast.
Excluding Venezuela, however, the region “continues to recover” amid a pick-up in consumption, with growth of 2.3 per cent this year and 2.8 per cent in 2019.
Argentina, which just signed a loan agreement with the IMF, is expected to see its economic growth slow to 0.4 per cent this year, rather than the two per cent forecast in May.
But the country should see “a gradual recovery in 2019 and 2020 that will be supported by restored confidence under the Fund-supported stabilisation programme,” Werner said.