SOVEREIGN AND SUPRANATIONALSECTOR IN-DEPTH 29 February 2016ContactsIrina Baron Asst Dir-Research AssociateMAirina.baron@moodys.comXian Li 212-553-1404Senior Research AnalystMAxian.li@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.In republication, South Africas Sovereign EDF measure, mentioned on page 2, was changed from 18% to 0.18%. In addition, the reason for the vulnerability of South Africas economy to the Fed rate hike was revised to the countrys persistent, although shrinking, current account deficit.Sovereign Risk ReportCrude Collapse Fuels High Default Probability in VenezuelaDespite falling sharply from their recent highs, measures of credit risk in Venezuela still suggest it is the likeliest sovereign defaulter by a wide margin. The five-year Sovereign EDFTM (Expected Default Frequency)1 measure for the oil-rich country nearly-doubled since the beginning of the year from 17% to 30% as of February 15, before declining to its current 15.42% (Figure 1). With consumer prices increasing 180.9% year-on-year in December, strict currency controls, and shortages of basic goods, Venezuelas Sovereign EDF measure is higher than the 69 other sovereign entities in our dataset, ahead of second-place Greeces EDF measure of 3.95%. Notably, Venezuelas elevated Sovereign EDF measure is in line with Greeces Sovereign EDF measure three months prior to its March 2012 distressed-debt exchange.Exhibit 1Five-Year Sovereign EDF Measures of Selected Latin American Countries (%)Source: CreditEdgeMOODY'S ANALYTICS SOVEREIGN AND SUPRANATIONAL2 29 February 2016 Sovereign Risk Report: Crude Collapse Fuels High Default Probability in VenezuelaLow crude oil prices have hit Venezuelas economy, where oil accounts for 95% of the countrys exports and nearly half of the governments revenue. As the price of West Texas Intermediate dr...
