With Puerto Rico being the latest in an ever growing list of countries defaulting on their debt, investors need to pay special attention to the latest credit ratings countries are getting. Moody’s has rated seven countries several tiers lower than Ba1, with three getting two of the worst ratings possible: Caa3 and Ca.
Hit very hard by falling oil prices, Venezuela has been constantly downgraded by all three major credit rating agencies since 2014. Considering that over 94 percent of Venezuela’s export market is oil, the drop in the price of a barrel of crude oil, from over $90 down to barely over $50 in a few months has significantly increased the country’s risk of a default.
With its current government debt at 39.6% of GDP, Moody’s is currently predicting that Venezuela’s balance of trade will go from a 2% surplus to a 2% deficit by the end of this year.
Probably the most talked about country after China, Greece’s 2015 government debt is 172.7%, with per capita debt of $26,773.
Greece already defaulted on $138 billion of its debt in 2012, making that largest sovereign default that was ever recorded. Debt restructuring and a return to the international bond market which followed the default gave a glimmer of hope for some kind of economic recovery, but that hope was soon dashed.
The severe austerity measures which accompanied the previous debt restructuring only exacerbated an already difficult financial situation, and with the latest measures imposed this year, it probably only be a matter of time before it is on the ledge again.
Ukraine’s banking system has not looked pretty since 2009, but it reached a new low when it was downgraded from Caa3 to Ca this year. The new rating almost makes it below junk level, and reflects the extreme banking restrictions, highly likelihood of asset erosion, and very volatile funding options.
Ukraine’s main issue, which is exacerbating the country’s financial problems, remains its conflict with Russia over the Crimea. With debt at 94.1 percent of GDP, the IMF gave a green light to a restructuring package in March. However, its credit rating is still falling, and as Moody states, “the likelihood of a distressed exchange, and hence a default on government debt taking place, is virtually 100%.”