Credit rating agency also affirmed country’s BB- rating
07/15/2022
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Fitch says revision reflects better-than-expected evolution in public finances amid successive shocks in recent years — Foto: Matt Lloyd/Bloomberg
Fitch has revised Brazil’s outlook to stable from negative and affirmed the country’s long-term foreign currency rating at BB-.
According to Fitch, the revision of Brazil’s outlook reflects the better-than-expected evolution in public finances amid successive shocks in recent years since the firm assigned a negative outlook in May 2020.
“Last year, Brazil recorded its first primary fiscal surplus since 2013, highlighting revenue outperformance and the authorities’ commitment to withdraw stimulus implemented during the pandemic,” the agency says. “A sharp reduction in the public debt ratio in 2021 is projected to be followed by another mild fall in 2022, considerably improving the starting point before a gradual projected rise in 2023 and beyond.”
According to the agency, “near-term growth dynamics have outperformed Fitch’s prior expectations, and incremental progress on reforms could benefit medium-term investment prospects.”
“The central bank’s decisive monetary policy tightening, supported by its new formal autonomy, highlights its commitment to addressing inflation,” the agency added.
The agency stresses in the statement that fiscal and growth challenges persist, and the October elections pose uncertainty around how these will be addressed.
“Nevertheless, these challenges are already captured in Brazil’s BB- ratings, and Fitch expects broad macroeconomic policy continuity after elections.”
Fitch added that Brazil’s ratings are supported by its large and diverse economy, relatively high per-capita income, and capacity to absorb external shocks underpinned by its flexible exchange rate, robust international reserves, sovereign net external creditor status and deep local debt market.
“This is counterbalanced by high government financing needs and indebtedness, a rigid fiscal structure, weak growth potential and a difficult political landscape hampering policy predictability and timely progress on reforms.”
The Economy Ministry said in a note that it “affirms its commitment to the fiscal consolidation necessary for the continuity of the economic recovery scenario.”
*By Eulina Oliveira — São Paulo
Source: Valor International