Andean Group - December 2008 (ISSN 1741-4466)

The slide in oil prices is posing problems for the 2009 budget. The government has yet to draw up a full budget for 2009 and will use the 2008 plan, with some adaptations, until the new congress is elected and can review the government's proposed plans. If there is a second round in the presidential election, congress may not get around to setting a formal budget for 2009 until July 2009. The biggest imponderable in the budget is the oil price. Oil provides the government with about half of its revenues. The government is budgeting on an average export price of US$85 a barrel for 2009, but currently (end-November) the country's oil is fetching less than US$40 a barrel. The government reckons that it needs to spend US$13.5bn in 2009. Of that, US$1bn may come from the IDB in the form of loans for new roads. The big element in the remaining US$12.5bn will be oil revenues. The government expects oil prices to recover from their current sub-US$50 a barrel level at the end of the first quarter of 2009. The tax office expects to pull in US$6.5bn in revenues in 2009. The big question here is whether the government's forecasts for domestic economic growth will be derailed by the waning inflow of remittances. In the first 10 months of 2008 remittances fell by 13%.

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