By Lise Alves, Senior Contributing Reporter
SÃO PAULO, BRAZIL – Five and a half months after withdrawing Brazil’s investment grade rating, Standard & Poor’s Ratings Services lowered its long-term foreign currency sovereign credit rating for the country from ‘BB+’ to ‘BB’ and the long-term local currency sovereign credit rating to ‘BB’ from ‘BBB-‘. According to the entity the outlook for the country is now negative.
“The downgrade reflects our view that Brazil’s credit profile has weakened further since Sept. 9, 2015, when we last lowered the ratings,” said the statement by the ratings agency.
“The political and economic challenges Brazil faces remain considerable. We now expect a more prolonged adjustment process with a slower correction in fiscal policy, as well as another year of steep economic contraction.”
In September 2015 S&P was the first of the three main risk agencies to downgrade Brazil’s credit ratings. In December Fitch also downgraded Brazil’s credit rating to junk status, with Moody’s being the only main risk agency to continue to render the South American giant with investment grade status.
According to S&P there is a greater than 1–in–3 likelihood that it will further downgrade the country’s risk level due to Brazil’s fluid political dynamics and inconsistent policy initiatives’. The risk agency noted that the Petrobras corruption scandal, the government’s inability to pass some necessary budgetary measures, and the possible start of impeachment proceedings against President Dilma Rousseff by Congress will weigh heavily on the Administration’s effort for economic stability.
Brazil’s Finance Ministry stated late Wednesday afternoon that the additional downgrade by S&P would not alter the perspective of the recovery of the Brazilian economy in the medium term. According to the Ministry, Brazil continues to work to return the economy to a fiscal balance and create conditions for economic growth. The Ministry reiterated Brazil’s capacity to honor its financial commitments.
“Due to this great combined effort, the Finance Ministry is certain that the downward revision of the Brazilian credit rating is temporary and will be reversed as soon as the results of measured underway start to produce the expected effects in the economy,” added the statement sent to investors and the press.