Brazil Suffers First Ratings Cut In A Decade
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Standard & Poor’s on Monday cut the credit rating on Brazil’s long-term bonds from BBB+ to BBB-, reported Bloomberg, ending a decade-long stretch of upgrades for Latin America’s largest economy.
Standard & Poor’s on Monday cut the credit rating on Brazil’s long-term bonds from BBB+ to BBB-, reported Bloomberg, ending a decade-long stretch of upgrades for Latin America’s largest economy.
“The downgrade reflects the combination of fiscal slippage, the prospect that fiscal execution will remain weak amid subdued growth in the coming years, a constrained ability to adjust policy ahead of the October presidential elections, and some weakening in Brazil’s external account,” the rating agency said in a note.
Both cyclical and structural factors are behind the weaker growth outlook, S&P added, pointing to low investment last year, at only 18 percent of GDP.
“Combined, these factors underscore the government’s diminished room for manoeuvre in the face of external shocks,” it said.
In recent years, Brazil has suffered from slow growth, averaging about 2 percent. According to Reuters, President Dilma Rousseff has tried to revive the economy with tax cuts and social spending, yet has been criticised for intervening too much and resorting to sometimes opaque accounting moves to meet budget targets.
[quote]”Brazil had already been losing credibility,” told Nathan Blanche, a partner at the Tendências consulting firm in São Paulo, to the Wall Street Journal. “This cut is a confirmation of the loss of credibility by the country, principally in fiscal issues.”[/quote]Unsurprisingly, Brazil’s Finance Ministry criticised Standard & Poor’s move, claiming the downgrade was “inconsistent with the country’s economic conditions.”
“The move contradicts Brazil’s strong fundamentals,” said a Finance Ministry statement, saying the country’s 2.3 percent growth last year was still higher than most of the G-20 countries.
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At BBB-, Brazil’s credit rating remains at investment grade, though it is just one level above junk status. Fortunately, S&P also changed Brazil’s outlook from negative to stable, indicating lesser risk of a further downgrade in the near future.
Both Moody’s and Fitch, which still rate Brazil two notches into investment-grade territory, have indicated that they do not intend to downgrade Brazil before the elections.
