Home Business Standard & Poor’s pushes Brazil credit rating to ‘BB-minus’

Standard & Poor’s pushes Brazil credit rating to ‘BB-minus’

Nation now at same level as Bangladesh, Macedonia and the Dominican Republic

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Lisa Schineller, Managing Director of Sovereign Ratings

 

International credit rating agency Standard and Poor’s on Thursday pushed Brazil further into junk territory, lowering the long-term ratings of Latin America’s biggest economy to BB- saying that it had advanced more slowly than expected “in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis.”

S&P said that despite “various policy advances” by the government of President Michel Temer, “Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis.”

The ratings agency lowered its long-term sovereign credit rating on one notch from BB to BB-. S&P initially junked Brazil in 2015 while Dilma Rousseff, the former president, was still in power. The nation lost S&P’s investment-grade stamp in September 2015 and was further cut into junk in early 2016, a move that was followed by Moody’s Investors Service and Fitch Ratings.

Brazil paid the price for failing to approve President Michel Temer’s flagship pension overhaul as S&P Global Ratings downgraded Latin America’s largest economy further into junk territory.

“Despite various policy advances by the Temer Administration, Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis,” S&P analyst Lisa Schineller said in a statement.

The decision marks a defeat for Finance Minister Henrique Meirelles, who late last year met officials from the three major rating companies to fend off a downgrade. Lower house speaker Rodrigo Maia in recent days criticized those responsible for the pension revamp, an indirect slight at Meirelles that raised concern Temer’s unpopular measures will be further disrupted.

Brazil’s government gave up on efforts to vote on a social security reorganization in 2017 after struggling for support in Congress, kicking the bill back to this February and raising the prospect that nothing will be done about the country’s ballooning pension obligations until after this year’s October presidential elections.

“Despite various policy advances by the Temer Administration, Brazil has made slower-than-expected progress in putting in place meaningful legislation to correct structural fiscal slippage and rising debt levels on a timely basis,” S&P analyst Lisa Schineller said in a statement.

The nation lost S&P’s investment-grade stamp in September 2015 and was further cut into junk in early 2016, a move that was followed by Moody’s Investors Service and Fitch Ratings.

Brazilian financial markets oscillated last year in tandem with the changing fortunes of the pension overhaul plan. The iShares MSCI Brazil exchange-traded fund dropped 0.7 percent to $42.80 after the close of regular trading in New York, following a gain of 1.9 percent on Thursday.

The rating cut could also make it more expensive for Brazil to raise money in capital markets while rates are relatively low. Argentina paid 1 percentage point less this month to sell bonds than it did a year ago.

“The absence of cohesive political support for corrective economic measures that we have seen thus far diminishes the prospects for such a solid and prompt response following the 2018 elections,” Schineller said.