Moody’s reaffirms Brazil’s rating at ‘Ba2’ and maintains ‘stable’ outlook

RIO DE JANEIRO, BRAZIL – The risk rating agency Moody’s informed on April 12 that it maintained Brazil’s rating at Ba2, with a stable outlook.

The maintenance of Brazil’s rating is explained by three major factors, according to the agency:

• Structural changes in fiscal and monetary policies adopted in recent years;
• Improved fiscal performance should mitigate the impact of interest rate increases on the country’s debt;
• Strong external position of the country, with foreign currency reserves.

“The stable outlook reflects Moody’s expectations that the recent fiscal and monetary policy reforms are structural and will be largely preserved,” the agency said.

Brazil remains in the range associated with “speculative grade” by the three major rating agencies, as Fitch Ratings and S&P both assign Brazil a “BB-” rating – three notches below the minimum to be considered investment grade (“BBB-“). Moody’s rating leaves the country two notches below.

In the statement, Moody’s said that the Brazilian economy has shown strong resilience in the coronavirus pandemic, with a robust recovery in Gross Domestic Product (GDP) by 2021, and pointed out that the government has “regained momentum in approving key fiscal and structural reforms.”

“Moody’s expects fiscal reforms to be maintained, results to improve gradually, and debt to stabilize,” the agency said.

Moody’s also said that it expects the business environment to improve with the approval of the independence of the Central Bank, the divestment of assets promoted by the federal government, and the growth of private sector participation in infrastructure investment.

GROWTH IS EXPECTED TO SLOW DOWN

For 2022, Moody’s projects a “considerable” deceleration in economic growth due to the increase in the basic interest rate (Selic) and the weakening of consumption in a scenario of high inflation.

“In addition, relatively subdued consumer confidence ahead of the presidential elections affects short-term investment decisions,” it pointed out.

Moody’s also forecasts that debt should end this year at 82% of GDP, just above that in 2021 (80.3% of GDP).

“The improvement in fiscal results last year created fiscal space to accommodate the expected rise in interest payments without a large increase in debt levels,” he highlighted.