Amid rampant inflation, widespread shortages, a yawning fiscal deficit, a tightening grip on the private sector and dwindling foreign cash reserves, many are worried about Venezuela’s economy.
That includes Standard & Poor’s, which on Friday cut the rating of the oil-rich country one notch, to B- from B, with a negative outlook.
Sharp political polarisation, erratic economic policymaking that exacerbates both the economy’s oil dependence and the prevailing macroeconomic inconsistencies, and weakening external liquidity remain the main constraints to the ratings on Venezuela.
Back in June, and expressing similar concerns, the agency downgraded the debt of the Opec nation to B from B+. But after months of policy paralysis, in recent weeks Venezuela’s President Nicolás Maduro has been exerting more state pressure on the economy in an “economic offensive” against businessmen he accuses of speculation. The president has been forcing retailers to slash prices, sending soldiers to seize stores and jailing businessmen.
This is an issue for S&P:
The downgrade is based on the growing radicalisation of economic policy over the last two months in the context of a sustained decline in international reserves and the continued high levels of political polarisation.
The ratings announcement came less than a week after voters gave a boost to the president in municipal elections. Some analysts believe this will determine his ability to make much-needed economic adjustments, such as a devaluation, which several economists expect to happen within the next month.
Still, for S&P:
We expect the results of the December 8 municipal elections to reinforce the recent trend towards more government intervention in the economy, creating greater uncertainty.
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