Venezuela on verge of default as oil prices fall

© Isaac Urrutia
The country with the world’s biggest crude reserves could default on its $122.9 billion external debt as early as this month. The plunge in oil prices puts Venezuela’s ability to pay creditors in doubt.

Caracas is scheduled to make a $1.5 billion external bond repayment on February 26.

Despite the crisis the country has managed to pay bondholders on time so far. But with 96 percent of the Venezuela’s export earnings coming from crude sales, the drop in price from over $100 per barrel in mid-2014 to the current $30 per barrel has wreaked havoc on the country's economy.

READ MORE: ​Venezuela adds new currency market to save ailing economy

In January Venezuelan President Nicholas Maduro claimed the country will be able to service its debt obligations despite low oil prices.

“Venezuela has ethics, morals and commitments, first with the people and the fatherland, but also has the commitments that the republic has honored and will continue honoring,” he told the Wall Street Journal.

Venezuela currently holds a CCC credit rating from Standard & Poor with its foreign-currency assets at $35.5 billion in the third quarter of 2015. The country’s ability to pay is increasingly in doubt as foreign exchange reserves are rapidly running out.

Venezuela’s economy contracted by 10 percent last year, inflation reached 141 percent between September 2015 and the year-end, according to government statistics. The International Monetary Fund (IMF) predicts further recession.