The Report's View: The Venezuelan defence sector is set to continue to be the largest in Latin America in terms of expenditure, which we project at USD3.5bn in 2015. However, in terms of production Venezuela will remain an insignificant player in the world arms market. Although falling oil prices are set to lead to budget cuts, we believe that military spending will be maintained.

Venezuela relies on oil export receipts to fund government spending, and rapidly falling oil prices in the final months of 2014 heighten the existing risks from economic mismanagement and political instability. While we estimate a decline in GDP growth of 2.5% in 2014, and believe a recessionary environment will prevail in 2015, we do not believe that the government will default in the coming year at least. Moreover, the defence budget will continue to rise despite inevitable budget cuts. We forecast defence spending to reach the USD6bn mark in 2019. This view is reinforced by the military's influence in government affairs and the fact that it is in President Nicolás Maduro's interest to keep the military on side in the face of his waning popularity.

Venezuela is set to remain an insignificant player in the global arms market. In the absence of a domestic defence manufacturing sector, it relies on imports. Although the country has developed a number of successful international partnerships, for example with Russia and China, Venezuela suffers from a US embargo of arms deals, limiting its access to cutting-edge technology.

Venezuela's weapon's imports will continue on an upward trajectory, with defence expenditure set to increase from USD3.5bn in 2015 to USD6.1bn in 2019. Arms and ammunition imports will increase by an annual average of 2.7% over the forecast period, from USD9.5mn to USD10.6mn in real terms.