Standard & Poor’s cuts Brazil’s outlook to stable

Credit rating agency Standard & Poor’s (S&P) reduced the outlook on the rating of Brazil’s public debt from positive to stable. The decision was unveiled on Monday evening (Apr. 6) and comes four months after the agency indicated it could increase the country’s rating.

The stable outlook means the agency does not intend to change the country’s rate for the next two years. As it stands today, S&P grants BB- for Brazil, three notches below investment grade—a guarantee that the country runs no risk of default in the public debt.

In a statement, S&P mentioned factors behind the decision. The first is a slowdown or decrease in the country’s gross domestic product this year, stemming from the pandemic of the new coronavirus. The second is the increase in spending by the government to tackle COVID-19 and prevent layoffs en masse. Higher expenditures increase the public debt.

The agency, however, also cited political tension as an aggravating driver. The note talks about an increase in uncertainties regarding the capacity to advance the agenda of structural reforms after the pandemic, due to the lack of mutual understanding between the Executive and the Legislative.

Since January 2018, S&P has rated Brazil three notches below investment grade, the same rating granted by Fitch, another major risk rating agency. Moody’s rates the country two levels below investment.

After being contacted by Agência Brasil, the Economy Ministry said it will make no comments on the downgrade of Brazil’s outlook by S&P.