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S&P downgrades Venezuela over default risk

Caracas (AFP) - Ratings agency Standard & Poor's lowered Venezuela's credit rating Tuesday one notch to CCC+, saying "continued economic deterioration" put it at risk of a debt default in the next two years.

The downgrade puts the struggling South American oil giant deep into "speculative grade" rating territory, a warning to investors that the country faces "at least a one-in-two likelihood of default over the next two years," S&P said.

The agency also issued a negative outlook for Venezuela, indicating the possibility of a new downgrade over the medium term.

"Economic recession, high inflation and growing external liquidity pressures will continue to erode the government's capacity to pay external obligations over the next two years," S&P said.

The announcement came as worries mounted in Venezuela over the solvency of the government, which owes debt payments of nearly $6.5 billion next month, one-third of its declared reserves.

Venezuela has the world's largest oil reserves, but has been hit by a foreign exchange crisis, chronic shortages of basic goods and rampant annual inflation of more than 60 percent.

Critics accuse the socialist government of President Nicolas Maduro, the political heir to late leftist firebrand Hugo Chavez, of distorting the economy with lavish subsidies and strict foreign exchange controls.

S&P predicted the Venezuelan economy would contract by up to 3.5 percent this year.