Fitch retains negative outlook for Brazil
Credit rating agency Fitch kept its outlook on Brazil’s public debt negative. The decision was announced late on Wednesday afternoon (Nov. 18) and takes place six months after the agency lowered the outlook on the country’s rating.
A negative outlook means the agency may reduce the country’s rating in the coming months or years. As it stands today, Fitch classifies Brazil as BB-, three notches below investment degree (a guarantee that the country runs no risk of defaulting on its public debt).
In a statement, the agency listed the risk of Brazil’s public accounts going haywire in an environment of political uncertainties aggravated by the COVID-19 spikes worldwide. Among other drivers, the text names collapse risks facing the spending cap due to ongoing pressure to raise government spending.
“The Negative Outlook reflects the severe deterioration in Brazil’s fiscal deficit and public debt burden during 2020 and persisting uncertainty regarding fiscal consolidation prospects, including the sustainability of the 2016 spending cap (the main fiscal policy anchor) given continued spending pressures,” Fitch writes in its report.
The agency recommends the resumption of structural reforms in the coming years; however, it warned about the risks of political difficulties in implementing this agenda. “While the economic team is committed to returning to its reform agenda in 2021, the political environment remains fluid, reducing the visibility and predictability of the process,” the report reads.
Fitch rose the estimated reduction in Brazil’s gross domestic product (GDP) to five percent. In September, the agency projected a 5.8 percent shrinkage in the Brazilian economy for 2020. The gross public debt is likely to close out the year at 95 percent of the GDP, with a nominal deficit—the negative result in government accounts, including public debt interests—going up to 16.7 percent of the GDP this year, as per the agency’s forecasts.
The last time Fitch had downgraded its rating for Brazil was in February 2018, when it was brought three notches below investment degree. This is the same rating given by S&P, another major credit rating agency. Moody’s, in turn, classifies the country with two notches below investment degree.
