World Economy

Venezuela Rating Slashed to Pre-Default Level

Venezuela Rating Slashed to Pre-Default LevelVenezuela Rating Slashed to Pre-Default Level

The Fitch rating agency has cut the long-term credit rating of Venezuela two notches to triple-C, saying a default is highly likely, as slumping oil prices make the country one of the biggest victims.

Fitch described the new rating as “extremely speculative.”

Plunging oil prices, which have gone down by more than 50 percent, may lead to the situation where Venezuela finds itself unable to service its external debt and lead to political instability in the country, RT quoted the agency as saying.

Oil provides about a half of the state revenue and the price drop could drag the economy down by four percent in 2014, with the recession expected to go into 2015, Fitch warned.

In 2014, oil revenues will account for 92 percent of foreign inflows in the current account, Fitch calculated.

Venezuela has the world’s largest proven oil reserves estimated at about 300 billion barrels. The country is also the world’s fifth biggest oil exporter, and sells about 2.5 million barrels of the 3 million barrels it produces daily.

  Diamonds, Gold

The Central Bank of Venezuela is adding diamonds, gold and other precious stones and metals to its foreign reserves which have fallen to an 11-year low.

The bank said in a statement recently that it intends to use a broader range of assets to increase international reserves, it will also include freely convertible foreign currencies.

Venezuela may also use Chinese loans in yuan to bolster its international reserves. Finance Minister Rodolfo Marco traveled this week to China to discuss potential deals.

The country’s reserves are now at about $21.7 billion, after falling 28 percent in the last three years, that’s despite a previous $4 billion loan from China.