Moody’s Investors Service cut Brazil’s credit rating to near-junk status on Tuesday but said the country’s coveted investment grade status is safe for now, proving some relief to investors and the government of President Dilma Rousseff.
Moody’s decision comes two weeks after competing ratings firm Standard & Poor’s warned Brazil could lose its investment grade in the coming year if fallout from a number of corruption investigations further weigh on economic growth.
In contrast, Moody’s said it believes Latin America’s largest economy has the ability to achieve a turn-around in growth and fiscal performance in the second half of Rousseff’s four-year term, which started Jan 1.
“Even though Moody’s expects the economic environment to remain poor and political dynamics to remain relatively unstable in 2015 and 2016, the rating agency does not currently expect so severe a deterioration in debt metrics as to threaten Brazil’s investment-grade rating,” the agency said in a statement.
Moody’s cut Brazil’s rating to Baa3, its lowest investment grade level, from Baa2. It also assigned a stable outlook to the new rating, which means it is not likely to change over the next 12-18 months.
Brazil needs economic growth of 2% coupled with a primary budget surplus of 2% of GDP to stabilize its debt ratios, Moody’s analyst Mauro Leos said in a phone interview. Government revenue has plunged since the beginning of the year, however, as Brazil sinks into a deep recession expected to last through 2016.
Further clouding the economic outlook is a growing political crisis that has raised questions about Rousseff’s ability to serve out her term.
Leos said it was tough to know how a possible impeachment of Rousseff would affect the rating. “If there are unexpected events that complicate the outlook, such as this one you mentioned, then we would have to assess how significant they are,” he said.
The possibility of a downgrade has spooked politicians as well as investors as it would increase borrowing costs to the government and Brazilian companies alike.
Finance Minister Joaquim Levy said the Moody’s statement “shows the priorities that we need to have with regard to maintaining the quality of our public debt.”
Planning Minister Nelson Barbosa said he thought Brazil would not lose the investment grade rating, calling the country’s fiscal trajectory “sustainable.”
Levy has been pursuing a series of spending cuts and tax hikes aimed at curbing budget deficits that had spiraled during Rousseff’s first term in office.
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The quality of our sovereign debt is not dependent on any foreign evaluation. I think an abuse, one Bullying evaluations of these Western companies regarding other countries. Brazil should stop accepting visits and stop providing data to these companies of Western speculators.Aug 12th, 2015 - 11:05 am 0
We will never be completely independent while we think than we need them for something.
Westerners are leeches who try in every way to keep the good life of its citizens at the expense of the suffering of the rest of humanity.
If any country wants to develop has to stay away from those vampires!
Mid-term growth rebound!Aug 12th, 2015 - 12:12 pm 0
HA, HA, HA.
That's like when you went to the cinema as a child and watched the serial cowboy that had ended the week before with the hero hanging off a cliff edge and about to fall to his death: but NO, with one bound he was free!
Ha, ha, ha.
Moody's need a better crystal ball if they think the corruption scandal isn't going to sink the economy for at least the next 10 years.
Oh Brasileiro you poor deluded fool.Aug 12th, 2015 - 12:38 pm 0
The rating is a reflection of what Brazil has done to itself.
Not anyone else.
Not the west.
If you don't like what you see when someone holds up a mirror then don't do what you are doing.
Brazil, Russia, China, the BRICS can pass judgement on the west if they want and as much as they want.