Venezuela will raise gasoline prices Friday for the first time in 20 years in a bid to help the troubled economy as low global oil prices shrink export revenue.
President Nicolas Maduro said late Wednesday that the price of lower grade gasoline will rise 1,000 percent to 1.00 bolivars ($0.16) per liter, while premium fuel will surge by 6,000 percent to 6.00 bolivars ($0.95) per liter.
“This is a necessary measure, a necessary action to balance things,” Maduro said during a televised address. “I ask for the support of the Venezuelan people.”
As a justification for the move, Maduro said workers at the 1,600 service stations around the country make more money than the cost of gasoline.
Even so, he said Venezuelan gasoline prices would remain among the cheapest in the world.
“The cost of gasoline is almost nothing today,” Maduro said.
State oil company Petroleos de Venezuela spends about $15 billion annually to keep gasoline prices low, according to estimates by Rafael Ramirez before ending his 10-year management of the outfit in 2014.
According to GlobalPetrolPrices.com, a provider of data and analysis on transport fuels, Venezuela had the world’s cheapest gasoline at an average price of $0.02 per liter Feb.15, compared with $0.22 in Kuwait and $0.24 in Saudi Arabia. The site does not specify the gasoline grade. The global average stood at $0.95.
The most expensive was $1.76 in Hong Kong, according to the data that did not specify the grade of the fuel.
With the higher gasoline prices, the government expects to save $800 million a year on fuel subsidies at a time when low global oil prices are slamming the economy and public finances.
The economy contracted by 10 percent in 2015 as global oil prices shrank by about 75 percent from a high of more than $100 per barrel in mid-2014, hitting around $32 per barrel this week.
Venezuela gets about 95 percent of its export revenue from oil.
The flagging economy has pushed up inflation and led to shortages of some basic goods. In another step to help the economy and public finances, Maduro also announced a devaluation of the local currency and a simplification of the exchange rate system.
The official exchange rate for importing essentials such as food and medicine will weaken to 10 bolivars per dollar from 6.30, while the currency will float on a parallel exchange rate for the rest of the economy.
But analysts warned that the measures might be too late and not enough.
This is largely because the economy is too dependent on oil after decades of failing to diversify and develop the country’s rich agriculture and mineral resources.
It also neglected to expand manufacturing capacity.
With the country on the verge of a debt default, its over-reliance on oil could make it harder for the economy to recover.
“A default will most likely lead to a sharp decline in oil exports, because the country will be unable to import the light crude it needs to mix with its heavy hydrocarbons so that they can be exported,” Walter Molano, head of research at BCP Securities in Greenwich, Connecticut, wrote in a recent note to clients.
“As a result, the government will have no money to buy food, and hunger will become pervasive in the streets of Caracas. This will become an economic nightmare that will trigger widespread social unrest,” he added.