S&P Global Ratings affirmed Brazil’s ratings and maintained stable outlook

RIO DE JANEIRO, BRAZIL – S&P Global Ratings affirmed Brazil’s long-term and short-term local and foreign currency sovereign credit ratings. The long-term outlook remains stable.

It also affirmed the national scale rating of ‘brAAA’, and the outlook remains stable. The transfer and convertibility assessment remains ‘BB+’.

The stable outlook reflects the base case assumption that Brazil will maintain its fiscal anchors over the next two years despite a rising interest burden, avoiding significant fiscal slippage and limiting the increase in its already high debt burden.

The outlook also incorporates moderate economic growth, high but declining inflation, and a strong external position.

Brazil’s notes also reflect a complex institutional framework that anchors its macroeconomic fundamentals.

He explained that this framework would continue to constrain key economic policy changes and result in slow progress in addressing the fiscal and economic rigidities that have led to poor GDP growth over the past ten years.

The ratings are supported by Brazil’s strong external position, flexible exchange rate, and an inflation-targeting monetary policy conducted by an autonomous central bank.

In addition, deep domestic equity and debt markets mitigate the sovereign’s funding risk and allow the government to maintain a favorable debt composition, mostly denominated in local currency.

DOWNGRADE SCENARIO

S&P could downgrade the ratings over the next two years if fiscal outcomes are worse than expected, indicating weaker institutional capacity to implement corrective fiscal measures, further eroding public finances.

A looser fiscal policy could also sustain high inflation for extended periods and reduce the sovereign’s monetary flexibility. A worsening of Brazil’s current strong external position could also result in a downgrade.

UPSIDE SCENARIO

S&P could raise the ratings in the next two years if better-than-expected policy implementation results in faster and more sustainable GDP growth and structurally stronger fiscal performance.

With information from Valora Analitik