Venezuela: South America’s Poverty Outlier
Although most South American countries have experienced broad growth and reductions in inequality over the last two decades, Venezuela’s economic hardship has intensified. Rising poverty levels in Venezuela point to a distressing future for the all segments of the population; it is important, therefore, to shed light on these developments so that local organizations, policy makers, and the development community can access information needed to create change.
We estimate that since 2013, the number of people earning less than US$1.90 per day in Venezuela has increased rapidly, while the number of Brazilians earning the same amount has declined steadily (see Figure 1 below). Moreover, we currently forecast that these trends will sharpen over the next decade. By 2030, only 1.6% of Brazil’s population (some 4 million people) is expected to live below the poverty line. This is nearly 15 times less than the projected poverty level in Venezuela, despite Brazil’s population being larger by sevenfold.
Figure 1: A sharp contrast between Venezuelan and Brazilian extreme poverty trends
Figure 1: PovCal (World Bank) and the World Poverty Clock
Venezuela’s poor performance and weak outlook have been – and will continue to be – driven both by a fragile political climate (which has included direct interference and distortions in the economy), as well as uncertainty and related economic mismanagement associated with the country’s oil wealth. The drop in global oil prices over the last five years 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 early July 2018, inflation reached record highs of 41,838%, with increased consumer prices by 40, 000% annually. This sharp rise in consumer prices has eroded Venezuelan’s purchasing power, eliminating essential imports into the country and triggering broad-scale food and medicine shortages.
Despite minimum wages having now tripled to 3 million bolivars a month, this new wage level is barely the equivalent of US$1 per day threshold. Amid this context, we estimate that 15.5% of Venezuelan’s population currently live on less than US$1.90 a day. By 2030, we expect this number to rise to 23.7%, or 8.8 million people (equivalent of the population of Austria). Moreover, we expect conditions to deteriorate for all segments of the population, not just the extreme poor. The share of the population earning above $10 a day will drop from 1.5% to approximately 0.5% between 2018 to 2030.
Figure 2: By 2030 more Venezuelans will earn considerably less than they do today
Figure 2; World Poverty Clock