Venezuela and Argentina both feature in the top five of Bloomberg’s index of the most “painful” economies in the world, where a large number of people are under great financial stress. Rising unemployment and soaring inflation have created misery and distress for a large chunk of both populations.
The Misery index, created using Bloomberg survey data, indicates the countries where it is most painful to live and work. Tumultuous political landscapes, decreasing value of currency, high taxes and a variety of restrictions are crippling the businesses in these nations.
Venezuela tops the list and is closely followed by Argentina, while the other three countries in the top five are South Africa, Ukraine and Greece. Colombia and Brazil also feature in the top 15 countries where life has become miserable.
A sharp fall in oil prices and bulky social welfare programs are Venezuela’s primary problems. Oil accounts for 90% of Venezuela’s export earnings and it is the chief financier for the country’s numerous social welfare schemes.
While decreased have oil prices drained Venezuela’s exchequer, social welfare programs have stoked inflation. According to Bloomberg, consumer price (CPI) inflation is currently soaring at 78%.
The Venezuelan story can be a lesson for others relying heavily on one particular industry. Its foreign currency reserve has been reduced to US$20 billion and there are fears that the country could default on bond repayments. Another worry is rising inflation and the scarcity of consumer products on supermarket shelves.
“The three countries that will probably see the most economic misery in 2015 — South Africa, Argentina and Venezuela haven’t budged much from their 2014 rankings, when they occupied three of the top four spots,” the report said.
For Argentina, trouble came in the guise of bond buyers. After it failed to make repayments to a few bond-buyers, the country has found it extremely difficult to attract foreign investment. As a result, its foreign currency reserve shrank and the peso nosedived in value.
Argentina’s economy contracted 1.5% last year. Bloomberg predicts that the economy will shrink a further 1.4% this year before growing 2.6% in 2016.
Like Venezuela, Argentina has also imposed restrictions on importing consumer goods. The idea was to protect the shrinking foreign currency reserve, but the move stoked further inflation.