September 29, 2008 / 2:58 PM / in 9 years

S&P affirms Venezuela's credit rating at BB-

NEW YORK, Sept 29 (Reuters) - Standard & Poor’s on Monday affirmed Venezuela’s “BB-” sovereign credit rating, saying it was supported by its robust external and fiscal balance sheets, which continue to improve as a result of high and increasing oil revenues.

Standard & Poor’s also said that the outlook on Venezuela remained stable.

“We expect that Venezuela’s public sector will be in a net external creditor position of 25 percent of current account receipts in 2008, which is one of the strongest of any issuer in the ”BB“ category and significantly higher than the 1.5 percent net creditor position for the ”BB“ median,” said analyst Roberto Sifon Arevalo in a statement.

Venezuela’s financial and nonfinancial private sectors also are net external creditors.

On the fiscal side, S&P expects net general government debt (including open market operations of the central bank) will fall to 5 percent of GDP in 2008, compared with the “BB” median’s 30 percent.

“Political factors continue to be the main constraint on the ratings,” Arevalo added. “Changing and arbitrary laws, price and exchange controls, and other distorting economic measures that have hurt Venezuela’s domestic economy have deterred foreign direct investment and will continue to limit the ratings for the foreseeable future.”

Political factors have become even more relevant in the run-up to the Nov. 23 regional elections, in which 23 out of 24 states and 335 municipalities are set to elect their governors and mayors.

After the government’s defeat in the December 2007 referendum, it has been hard pressed to increase its popularity among its traditional electorate and is increasingly worried that it could lose in many key states, especially those where the majority of the population resides.

Also, increasing risks are emanating from the rapid growth and deterioration of credit quality in the financial sector. Domestic credit has expanded by 70 percent in 2007, and S&P expects it will expand another 50 percent in 2008. At the same time, nonperforming loans -- albeit still at low levels -- grew to 2 percent in 2008 from 1 percent in 2007.

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