The sanctions imposed on Venezuela, and the failure to pay, are the reasons why their credit rating took a strong blow this year
In June 2018, the main risk assesmente agencies considered that countries such as Venezuela, Barbados and Mozambique had one of the lowest grades in credit rating with respect to long-term foreign currency debt, placing them in the Select Default category. SD). This is mainly due to factors of non-payment of interest on the sovereign bonds issued by each country.
Leer en español: Venezuela: entre los tres países con peor evaluación de riesgo
However, countries such as Bolivia, Ecuador, Angola, Nigeria and Iraq obtained a reduction between 2017 and 2018, although not in the same category mentioned above. In them, possible vulnerabilities of non-payment were detected, even though they have the capacity to comply with their financial commitments.
What caused the breach?
Regarding Venezuela, some factors were added to the failure to pay interest that influenced the negative management of the debt, among them the financial sanctions imposed by the United States and the fall in oil production that cut the nation's income even in a framework of growth in oil prices. For its part, Barbados currently faces critical levels of international reserves, which has affected public finances and payments of external commercial debts, which could only be met through the assistance of the International Monetary Fund (IMF). Likewise, Mozambique, who is waiting for the IMF to implement a financial aid program that will allow it to improve its macroeconomic and fiscal crisis, after a default in January 2017 in the payment of interest on the only bond listed on the international financial market. debt, previously restructured and issued on March 9, 2016.
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Index of Economic Freedom (ILE), positive or negative?
According to the report published by Heritage Foundation that refers to the Index of Economic Freedom, Venezuela decreased by 1.8 points with respect to 2017, which places it in 179th place among 180 countries, ranking last in the region. This, in a context of significant fall in the monetary, business freedom and integrity of the government.
On the other hand, Barbados grew 2.5 points for the year 2018 with respect to 2017, as a result of the significant improvements in the judicial effectiveness and the integrity of the government, whose indicators were above the decreases registered in the freedom of investment and labor. Within the region, Barbados ranks 24 out of 32 countries and has an economy highly dependent on tourism and offshore banking. According to statistics from the World Bank (WB) and the IMF, tourism has experienced continuous and robust increases since 2014, assisting the travel trade balance.
On the other hand, Mozambique, whose economy is highly dependent on subsistence agriculture and where more than half of the population remains below the poverty line, faces, among other things, an unsustainable debt burden, a dynamic drop in capital inflows and weak economic growth. This led the country to occupy position 170 with respect to the Index of Economic Freedom, which meant a decrease of 3.6 points with respect to the previous year.
Projections of the International Monetary Fund (IMF)
In this sense, the IMF "foresees for Venezuela an economy stuck in a deep recession and towards hyperinflation due to wide fiscal imbalances, widespread distortions and restrictions to import intermediate goods. They estimate that respectively between 2018 - 2019, inflation will be 13,865.0% and 12,875.0% with a contraction of GDP between 15.0% and 6.0%. They also expect both the unemployment rate and the debt / GDP ratio to increase over the period. "
Simultaneously, the outlook for Barbados is based on the growth of the economy in 1,157% in 2018 - 2019, and reduction of the Debt / GDP ratio in the same period, which will be achieved with fiscal consolidation in conjunction with structural reform. Regarding inflation, although the economy has a fixed parity with the US dollar, growth is projected for 2018 of 5.4%, due to increases in oil prices, which will affect the price of fuel, but in the next year, they expect to fall to 2.9%.
The projections for Mozambique are not encouraging with regard to the sustainability of external debt since they foresee growth of the indicator between 2018 and 2019. Regarding inflation levels, they expect a drop of 1 point in the period from 6.688%. And on the levels of growth, they warn that they can remain practically constant.
LatinAmerican Post | Rosangela Morillo
Translated from "Venezuela, Barbados y Mozambique: Los países con la peor calificación de riesgo"
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