Standard & Poor's on Monday cut Venezuela's debt rating by one step citing the impact of the oil price plunge on government finances.
S&P said the government has failed to address growing economic challenges, leaving it with few politically viable policy options to restore growth and rebuild foreign reserves.
S&P lowered the country's sovereign rating to CCC, a rating deep in junk bond territory that denotes that the country has a significant risk of not being able to pay its debts.
"Although to date the government has prioritized external debt servicing over current expenditure, we believe pressure is growing for the government to reschedule some of its market debt or undertake a liability management operation to refinance some of its maturing debt over the next year or two," S&P said.
Venezuela’s economy, dependent on crude oil exports yet struggling for years under poor management, has been hit hard by the 50 percent fall in oil prices since mid-2014.
The economy shrunk by 4.4 percent last year and could further contract 7.0 this year, according to S&P.
"Economic recession, high inflation, and growing shortages have weakened public support for the government, likely reducing its political room to introduce difficult corrective economic measures that would improve its external liquidity position," S&P said.
S&P appended a "negative outlook" on its rating, implying the possibility of a further downgrade.
"The government may not be able to implement adjustment measures (such as a devaluation or fiscal adjustment) effectively because of the growing social and political discontent and disagreements within the government coalition," it said.
"Failure to act in time to diminishing liquidity could lead to a downgrade."