MercoPress. South Atlantic News Agency

Venezuela “fully prepared” to cope oil price volatility and will honor sovereign debt

“We will fulfill the payment of the 2014 PDVSA bond for 3 billion due on Oct. 28,” Marco pledged

Venezuela's Finance Minister Rodolfo Marco said on Tuesday that the Mercosur member was “fully prepared” to cope with price volatility on the global oil market and would honor a 3 billion dollar bond payment due next week.

The tumble in crude oil prices on international markets to around 83 dollars a barrel comes at a bad time for cash-strapped Venezuela as it faces a heavy debt repayment schedule and an economy believed to be in recession.

Venezuela depends on oil for 96% of its hard currency revenues, so market fears have grown over its ability to service its major debt payments, though President Nicolas Maduro's government has time and again ruled out a default.

Presenting the 2015 budget bill to the National Assembly, Marco reiterated Venezuela would have no problem paying the upcoming bond and all future debt.

“Venezuela maintains and will maintain an impeccable record in paying its sovereign debt. The government has the seriousness, will and financial capacity to honor its commitments,” he said to applause in the National Assembly where the ruling Socialist Party has a majority.

“We will fulfill the payment of the 2014 PDVSA bond for 3 billion due on Oct. 28,” Marco added. Despite market jitters, most Wall Street analysts say there is little sign the government may default.

The price of Venezuela's oil basket, which trades at a discount to other benchmarks because of its higher content of heavy oil, was currently 76.63 dollars, Marco said.

J.P. Morgan analyst Ben Ramsey estimated Venezuela would lose between 8-10 billion next year if the country's barrel averaged around 80 dollars a barrel.

The proposed 2015 budget is based on economic growth of 3% and inflation of 25 to 30%. The official exchange rate is seen remaining at 6.3 bolivars per U.S. dollar.

Budget estimates are routinely based on optimistic assumptions for gross domestic product and inflation, and in recent years have been far off the mark.

Annual inflation is running over 60%, while the economy is believed to be in recession though the central bank has not published GDP figures for 2014.

Caracas-based Ecoanalitica estimates GDP will contract around 2.9% next year, less than their estimate for a 4% fall this year, mainly due to increased spending ahead of the December 2015 parliamentary elections.

The budget paper predicted Venezuela would have a fiscal deficit equivalent to 3% of GDP both in 2015 and 2014.

Marco stressed the government is prepared to cope “with any scenario relating to the price of oil,” and said popular but expensive social programs were guaranteed.

The fall in oil prices, and annual debt repayment obligations of about 10 billion over the next three years, have added to pressure on Maduro to enact reforms that would bolster state coffers. International reserves have fallen more than 30% since the start of 2013, to stand at 19.78 billion this month.