WASHINGTON, United States (AFP) — US sanctions against Venezuela have accelerated the already catastrophic decline of the oil-rich nation’s economy, and are pushing it to a debt default that economists say could happen as early as this week.

The aim of the latest US action is to choke off funding to Venezuela by blocking access to foreign currency.

The Trump administration announced the latest sanctions against Caracas on August 24 after labelling Venezuelan President Nicolas Maduro a “dictator.”  They follow an earlier set imposed on July 31.

The impact will be in “stopping any new direct investment into the country, and in making any future debt emissions or renegotiation practically impossible,” said Shannon O’Neil, an expert at the Council of Foreign Relations.

The Maduro government on Friday called foreign creditors to a meeting November 13 in Caracas to renegotiate the debt but economists are dubious about the prospects.

Still the situation is critical. Venezuela is rich in oil resources, with the largest reserves outside of the Middle East, but is fast running out of cash.

The central bank’s stockpiles of foreign currency “are now just US$9.7 billion, compared to total external debt of about US$110 billion,” said Edward Glossop, economist at Capital Economics in a note published Monday.  

Fitch and Standard & Poor’s each cut the rating on Venezuela’s foreign debt on fears default could be imminent, and Moody’s on Monday cut the rating for state oil company PDVSA.

With the situation deteriorating, Andres Abadia, economist at Pantheon Macroeconomics, said, “The most recent sanctions have added to the pressure on  Maduro, making it practically impossible to secure funding.”

As the Maduro regime has become further isolated “the propensity of international investors to hold the country’s debt has diminished,” he added.

Even if there was appetite to hold the debt, US sanctions prohibit Venezuela from borrowing or selling bonds in the US financial system, and Citgo, a Venezuelan-owned oil company based in the United States, can no longer repatriate dividends or profits to Caracas.

By removing all potential sources of funding, with the exception of those from Russia or China, funding inflows, which already have fallen by more than 75 per cent in the last five years, have been further curtailed.

As a result, Abadia notes, imports have been slashed to “shocking levels,” to save scarce dollars, which has “deepened the humanitarian crisis.”