Venezuela: South America’s Poverty Outlier
"To restrain the passions of men when they arrive at the loss of reason, is a more arduous undertaking than to paralyze the waves of the sea." (Venezuela heroica, by Eduardo Blanco, 1881)
While most countries in South America have experienced broad growth and reductions in inequality over the past two decades, Venezuela’s economic hardship has intensified. Rising poverty levels in Venezuela point to a distressing future for all segments of the population.
In the South American context, Venezuela’s experience has clearly been an outlier. We estimate that since 2012, the number of people with less to spend per day than the international benchmark of US$1.90 (in 2011 PPP) has increased rapidly in Venezuela. Moreover, we currently forecast that these trends will persist over the next decade. In 2010, there were 2.7 million people living in extreme poverty in Venezuela, representing 9.5% of the population. By the end of this year, this number is expected to increase to over 9.5 million people (29.1% of the total population) and if current trends remain the same, this means that 16 million Venezuelans will be living in extreme poverty by 2030, representing a share of 43.8% of the total population.
As Venezuela has the fourth largest population in South America, this trend also affects the general performance of South America as a whole in terms of fulfilling SDG 1, which intends to bring the share of people with less than $1.90 to spend daily beneath the World Bank’s benchmark of 3% of the total population. Whereas in 2014, the share for all of South America dropped to 2.9%, it has since steadily risen. At the beginning of 2019, it reached 5.0% and by 2030 it will stand at 5.3% reflecting an increase of around 3.6 million people.
Figure 1: Share of people in extreme poverty in South America
It is clear that Venezuela is causing the South American numbers to rise, which can clearly be seen when compared to Brazil. Brazil, the most populous country in South America, is doing better in terms of poverty reduction. Currently, 9 million people (4.3% of total population) live below the poverty line. By 2030, this is expected to drop to 2.8% of Brazil’s total population (some 6.4 million people). This is almost 17 times less than the projected poverty level in Venezuela, despite Brazil’s population being approximately seven times larger. The number of people living in extreme poverty in Brazil—apart from a short period between 2014 and early 2018— has consistently dropped and this trend is projected to continue. Venezuelans in comparison are getting poorer and poorer. Hence, by September this year, our forecasts indicate that Venezuela will surpass Brazil in terms of the amount of extremely poor people living within its borders: both having around 9 million people living on less than $1.90 per day.
Figure 2: A sharp contrast between Venezuelan and Brazilian extreme poverty trends
Venezuela’s poor performance and weak outlook have been—and will continue to be—driven by a fragile political climate as well as uncertainty and related economic mismanagement associated with the country’s oil wealth. The drop in global oil prices since the outbreak of the financial crisis has caused the country’s economic collapse to surpass the experience of the United States during the Great Depression. Job losses and lack of industrial output in Venezuela have stymied foreign investment and opportunities for revenue creation. In January 2019, inflation reached an all-time high of 2,688,670% annually. According to estimates from Venezuela’s opposition-led congress, the rate has dropped since then but is still a very high 1.3 million percent as of April this year. This hyperinflation and corresponding sharp rise in consumer prices has eroded Venezuela’s purchasing power, eliminating essential imports into the country and triggering broad-scale food and medicine shortages.
Amid this context, we expect economic conditions to deteriorate for all segments of the population, not just the extremely poor. The share of the population with spending power of more than $11 a day has already more than halved from 70.8% in 2010 to 31.6% this year and will most probably drop to approximately to 14.7% by 2030. People with a daily spending power between $11 and $110 are considered to be middle class. Right now we are seeing the complete collapse of this segment of the population.