S&P affirms BB- sovereign credit rating for Brazil; outlook stable

RIO DE JANEIRO, BRAZIL – S&P Global risk rating agency maintained Brazil’s long-term foreign currency sovereign credit rating at BB-, with a stable outlook, stressing that the country is expected to have a slow fiscal consolidation until 2024, but that economic recovery this year should help contain indebtedness.

In a report, the agency also stated that the window of opportunity for reforms will narrow as the 2022 elections approach, and that in the absence of a faster pace of structural measures approval, economic growth should remain moderate in the medium term.

S&P expects Brazil’s GDP to grow by 4% this year, with an increase of 2.2% per year over the 2022-2024 period.

The long-term “BB-” sovereign credit rating is in speculative territory, three steps below the minimum for “investment grade” (BBB-), for which a country receives a “good payer” seal of approval.

“The stable outlook reflects our expectations for economic recovery in 2021 and a gradual reduction in the fiscal deficit, which should result in a slower pace of debt accumulation over the next two years, as well as solid external performance,” S&P said. “We expect the slight improvement in the fiscal trajectory and ample liquidity reserves to help preserve market confidence and adequate financing conditions for the government in local markets.”

The expected fiscal improvement this year is attributed to reduced emergency spending and “dynamic tax revenues” amid recovering growth.

On the 2022 elections, S&P said that President Jair Bolsonaro and ex-President Luiz Inacio Lula da Silva should be “competitive candidates, despite their high rejection rates.” “Policy initiatives after the election and the ability to forge strong coalitions will be critical to Brazil’s credit quality.”

Persistent fiscal weakness over the next two years that leads to new financing pressures for the government at higher debt and inflation costs, could also lead to a downgrade of Brazil’s rating. Should fiscal improvement occur faster than expected, on the other hand, the rating could be upgraded, S&P said.

Last week, Fitch Ratings affirmed Brazil’s rating at “BB-” with a negative outlook, highlighting the deterioration in fiscal accounts and the debt burden in light of uncertainty with the course of the pandemic and the vaccination process.

Source: Infomoney