Moody's: Venezuela's Caa1 reflects substantial challenges
Global Credit Research - 17 Oct 2014
New York, October 17, 2014 -- Venezuela's Caa1 sovereign rating and negative outlook reflect substantial economic and credit challenges that more than offset ongoing credit strengths, says Moody's Investors Service in its annual credit analysis of the country. Credit risks include macroeconomic imbalances that are growing, low and tightening availability of foreign exchange, which heightens the risk of a balance of payments crisis, and a highly discretionary policy framework, reflecting weak institutions.
"Growing macroeconomic imbalances from erratic monetary and fiscal policies, supply-side and unorthodox public policy-related shocks, and exchange rate misalignments are taking a toll on economic activity," says Moody's Vice President -- Senior Analyst Jaime Reusche.
Moody's forecasts Venezuela's economy contracting by 2.1% in 2014. Expansionary macroeconomic policies ahead of 2015 legislative elections will then push the economy toward a small expansion of 1.2% next year.
Moody's does not currently foresee an impending credit event, despite high and increasing uncertainty in economic forecasts for Venezuela and its continued shortage of foreign exchange.
Credit strengths include high income levels relative to emerging market and Latin American countries, a favorable government debt structure, and high fiscal strength.
With low, albeit rising, and affordable government debt, fiscal health depends on oil revenues from the state-owned oil company, PDVSA (Petróleos de Venezuela S.A.), the largest foreign currency earner in the country, says Moody's.
Moody's credit analysis on Venezuela is an annual report and does not constitute a rating action. For more information, Moody's research subscribers can access the credit analysis at
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_176379.