S&P downgrades Venezuela’s sovereign credit rating to B

Standard & Poor’s downgraded Venezuela’s sovereign foreign currency credit rating by one notch on Monday, citing political turmoil as an impediment to enacting meaningful reforms in order to stop a slide in economic activity.

S&P’s move to a B rating from B-plus on the OPEC nation brings it in line with Moody’s Investors Service’s current rating of B2, while Fitch Ratings remains one notch higher at B-plus. Both Moody’s and Fitch have negative outlooks on the credit.

“Growing political uncertainty is weakening the implementation of economic policies and may possibly undermine governability,” S&P said in a statement. The outlook on the credit is negative, meaning another downgrade could occur between six months to two years.

S&P said the narrow election victory of President Nicolas Maduro, the ensuing challenge by opposition lawmakers and signs of internal government disagreement make it more difficult to contain inflation and ease inflationary pressures.

Maduro, successor to the late Hugo Chavez, faces a complex economic panorama of slowing growth, widespread shortages of basic products, and the highest inflation rate in the Americas.

Economic growth slowed sharply to 0.7 per cent during the first quarter of this year, from 5.9 per cent in the same period last year, while a lack of hard currency means businesses are struggling to import key consumer products.

“GDP (gross domestic product) growth is decelerating sharply this year and we expect it to approach zero. Inflation is increasing and may reach close to 40 per cent by year-end,” S&P said.