The outlook for Venezuela's economy and financial markets has deteriorated significantly in recent months, a fact that BMI has highlighted on numerous occasions. Against a backdrop of increasing investor selectivity and scrutiny of emerging markets (evident by rising yields across many EM fixed income markets), we believe that Venezuela's troubles have to some degree flown under the radar, failing to garner the attention the country's serious imbalances and political risk suggest are warranted.
We have become increasingly wary of the possibility of an external debt default in 2014, and this Special Report brings together relevant Macro, Financial Markets, and Industry analysis over the past several months, which highlights some of the key issues that underscore our concern.
We have included an analytical overview on the likelihood of a sovereign external debt default sometime this year, with consideration of both the fundamental pressures, which will intensify over the medium term, as well as the government's escalating antagonism towards the private sector. The yield on the government's US$ 2027 global bond has reached multi-year highs, reflecting dim prospects for economic growth, the fiscal picture, and rising political risk. While a 2014 default is not our core scenario, we believe that the risk of a credit event is high.