Fitch downgrades rating on Brazil

Credit rating agency Fitch Ratings downgraded Brazil's sovereign debt rating to -BB with a stable outlook. The previous status had been BB with a negative outlook. The move brings Brazil closer to junk level.

The decision is reported to have been made on account of significant and persistent fiscal deficits and the bulk of the government's debt, still on the rise, in addition to the lack of overhauls that could improve public finances.

The Brazilian government's decision to put off the vote on the pension reform was also mentioned by Fitch as a major factor. This “represents a key setback in the agenda of reforms that undermines the medium and long-run confidence on the trajectory of the public debt and the political commitment to address the problem.”

The political scenario for 2018 is still a challenge, and major efforts in political and governability leadership are necessary to advance the reforms, boost growth, and reduce concerns regarding the sustainability of the debt in the medium and long run.

Investment grade

Last month, ratings agency Standard & Poor's (S&P) lowered Brazil three notches below investment grade, with a stable outlook. Another major credit rating company, Moody's, still has not changed its rating on the country, and Brazil remains two levels below investment grade.

Late in December, Finance Minister Henrique Meirelles talked to the three main credit ratings agencies on a teleconference. He had urged S&P, Fitch, and Moody's to wait until the pension reform was brought to vote—which was likely to take place in February—before making any decision on Brazil's rating.

“The federal government would like to highlight the strides made with the approval of measures such as the public spending cap, the labor reform, the fiscal recovery program for the states, the revamping of credit policies at the National Economic and Social Development Bank, and the new long-term interest rate,” the Ministry of Finance remarked in a note following the downgrade.

Translated by Fabrício Ferreira