Moody’s Downgrades Brazil’s Credit Rating

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Credit ratings agency Moody’s downgraded Brazil’s ratings on Tuesday (August 11th) from Baa2 to Baa3, but improved the country’s outlook from negative to stable. According to the ratings agency, a weaker economic performance, a lack of political consensus over fiscal reforms and the government’s rising debt burden were key factors for the downgrade.

With the change in the rating, the country is now one level from being downgraded below investment grade.

“In Moody’s view, Brazil retains a number of credit strengths that are reflected in its Baa3 rating: its ability to withstand external financial shocks given ample international reserve buffers; a government balance sheet with relatively limited exposure to foreign currency debt and non-resident debt holdings compared with its peers; and a large and diversified economy,” stated a note released by the agency, justifying a more optimistic outlook.

Finance Minister, Joaquim Levy, told reporters Tuesday afternoon that the downgrade by Moody’s indicated the direction the country must head to improve its debt administration. “The statement was very detailed and transparent and is an indication of the priorities we must adopt to maintain the quality of the public debt,” said Levy to reporters.

At the end of July, risk classification agency Standard & Poors announced it was changing its outlook for Brazil’s credit rating from stable to negative stating that the country was facing challenging political and economic circumstances.

The investigations of a large-scale corruption scandal at oil giant Petrobras, which includes many politicians and businessmen, and the resistance by the country’s Congress in approving fiscal reform measures has led several risk agencies to revise their outlooks on the country.