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16 Dec 2013
New York, December 16, 2013 -- Moody's Investors Service has downgraded the Government of Venezuela's
local and foreign currency ratings to Caa1 from B1 and B2 respectively.
The outlook on both ratings remains negative. The key drivers for
the action are:
1. Increasingly unsustainable macroeconomic imbalances; and
2. Materially higher risk of an economic and financial collapse.
RATINGS RATIONALE
The downgrade reflects Moody's view that Venezuela is facing increasingly
unsustainable macroeconomic imbalances, including a skyrocketing
inflation and a sharp depreciation of the parallel exchange rate.
As government policies have exacerbated these problems, the risk
of an economic and financial collapse has greatly increased.
Inflation is out of control having crossed the 50% mark.
The parallel exchange rate has risen to 64 bolivares to the dollar --
10 times the official rate - from 17.5 at year-end
2012. Widespread shortages of various categories of goods have
forced the government to ramp up imports.
Venezuela's external position has deteriorated as well. The
current account surplus shrank by 35% through the past three quarters
relative to the same period last year, and liquid financial assets
continue to decline. Though the country still has a substantial
amount of gold reserves and other liquid assets, foreign exchange
reserves have reached perilously low levels.
Growing macroeconomic imbalances and distortions have taken a severe toll
on growth. While the economy has been able to escape a recession,
GDP growth was an anemic 1.4% through the first three quarters
of 2013.
A sharp increase in Venezuela's sovereign yields to more than 15%
in early December from less than 10% in mid-May suggests
the country's ability to access markets has been severely curtailed.
Moody's has also lowered Venezuela's foreign currency bond
ceiling and local currency bond and deposit ceilings to Caa1 and the foreign
currency deposit ceiling to Caa2.
WHAT COULD CHANGE THE RATINGS UP/DOWN
The negative outlook reflects our expectation that conditions will continue
to deteriorate. The rating will face further downward pressure
if macroeconomic imbalances persist at current levels or increase further,
or if external liquid assets -particularly foreign exchange reserves
- continue to decline. Given the negative outlook,
the rating is unlikely to face upward pressure in the short-to-medium
term. However, the outlook could stabilize if macroeconomic
imbalances are reduced to levels that do not threaten an economic collapse.
GDP per capita (PPP basis, US$): 13,480 (2012
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 5.6% (2012 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 20%
(2012 Actual)
Gen. Gov. Financial Balance/GDP: -4.9%
(2012 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: 2.9% (2012 Actual) (also
known as External Balance)
External debt/GDP: 31.2% (2012 Actual
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 13 December 2013, a rating committee was called to discuss the
rating of the Venezuela, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have materially decreased.
The issuer's governance and/or management, have materially decreased.
The issuer's fiscal or financial strength, including its debt profile,
has materially decreased. The issuer has become increasingly susceptible
to event risks.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September, 2013. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
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in each case where the transaction structure and terms have not changed
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Aaron Freedman
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's downgrades Venezuela to Caa1; outlook negative
No Related Data.
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