March 31 (Bloomberg) -- Venezuela will sell 2.68 billion bolivars ($1.2 billion) of bonds in the local market as part of an effort to finance a budget gap that has widened as oil prices tumbled.

The bonds will be sold in two separate issues, according to a resolution published today in the Official Gazette, a government publication. The bonds will have a fixed coupon and mature between 2010 and 2016.

Venezuela tripled its debt ceiling this month to 37 billion bolivars for 2009 to finance government spending after a 67 percent plunge since July in crude oil, which accounts for 93 percent of the country’s exports and half its budget. President Hugo Chavez on March 21 raised the country’s value-added tax and cut the budget by 6.7 percent to offset declining oil revenue.

“This is a sign that the government has some problems in their cash flow,” said Miguel Carpio, an economist at Banco Federal CA in Caracas. “We’ll have to wait to see if banks have the capacity to take on all the local debt this year. The government will need to facilitate the liquidity.”

The central bank on March 4 lowered the reserve requirements for banks to increase the amount of available funding in the financial system.

To contact the reporter on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net.

Last Updated: March 31, 2009 12:17 EDT