MercoPress. South Atlantic News Agency

How did Fitch rate Brazil in its last report? Last time around it was negative

The agency mentioned a “better-than-expected evolution of public finances”

The worldwide-known risk rating agency Fitch Thursday released a new report in which the outlook for Brazil's public debt has been moved up from May 2020's negative grading after the onset of the COVID-19 pandemic.

Brazil has been graded BB-, three notches below investment grade, a guarantee that the country is not at risk of defaulting on its public debt. After Thursday's announcement, Fitch is not likely to change the country's rating in the coming months or years.

In a statement, Fitch said the decision “reflects the better-than-expected evolution of public finances amid successive shocks in recent years, since we assigned the negative outlook in May 2020. This is because, after record government spending in 2020, public accounts improved in 2021 and 2022.”

The rating agency pointed out that in 2021, Brazil recorded the first primary surplus (saving resources to pay the interest on public debt) since 2013, under the Central Bank's criteria. Last year, the consolidated public sector (Union, states, municipalities, and state-owned companies) had a primary surplus of 0.75% of Gross Domestic Product (GDP).

Fitch also projects a drop in the government's indebtedness in 2022. According to the agency, the General Government Gross Debt/GDP ratio should end the year at 78.8%, after standing at 80.3% last year and reaching the record level of 88.6% in 2020 because of spending on the covid-19 pandemic.

Despite the recent developments, Fitch pointed out that the improvement in the public accounts occurred in the short term. For the process to be sustainable, the agency recommends the approval of structural reforms in the Brazilian economy.

Brazil's Economy Ministry said in a statement that it “reaffirms its commitment to the fiscal consolidation necessary for the continuity of the economic recovery scenario”.

The last time Fitch had downgraded Brazil's rating had been in February 2018, when the country's rating was reduced to three notches below investment grade. This is the same rating granted by Standard & Poor's (S&P).

Moody's classifies the country two notches below investment grade. Both S&P and Moody's attribute a stable outlook to the Brazilian debt. Only Fitch maintained a negative outlook until now.

Meanwhile, the US dollar rose Thursday to R$ 5.43 and the stock market fell to its lowest level since 2020 as a result of a volatile global scenario.

(Source: Agencia Brasil)