Fitch Chops Venezuela to Single B

Fitch has downgraded Venezuela to B+ (stable) from BB- amid increased risk of financial and economic crisis due to a tenuous macro policy framework and concerns that a timely adjustment may not be forthcoming, particularly within the context of upcoming electoral events. “Electoral processes in 2009 and 2010 will deter the government from making difficult policy choices to address current macroeconomic imbalances,” says Fitch. It also highlights dependence on oil revenues, high inflation and an overvalued fixed exchange rate. Fitch expects Venezuela to revert to a net public external debtor in 2009, while most BB credits will remain net creditors. “In addition, the country’s international liquidity could fall below the BB median by 2010,” adds Fitch. However, it notes a comparatively low government debt burden and manageable government debt maturity profile, as well as an accumulated $18bn in liquid external financial assets in addition to international reserves of $38bn. “Government debt maturities, at 2% of GDP in 2008, are forecast to decline to less than 1% of GDP over our forecast horizon,” says Fitch.