Moody’s rating agency affirmed Brazil’s ‘Ba2’ credit rating and raised the country’s outlook to ‘stable’ from ‘negative,’ arguing that risks to growth have decreased and that the next government must adopt measures capable of halting the increase in public debt.
“In short, Moody’s believes that the downside risks to growth and uncertainty regarding the reform momentum that led to the assignment of the negative outlook to the Ba2 rating in May of last year have receded,” Moody’s said in its report.
In a statement, Moody’s says that it expects the next government to adopt reforms that preserve fiscal sustainability and stabilize debt metrics in the medium term. The credit risk agency also forecasts that improvements in economic growth, underpinned by previous structural reforms, should aid in fiscal consolidation.
“Following the presidential elections in October, Moody’s expects the incoming administration to resume efforts to approve further reforms that will be needed, in particular to social security, to comply with the constitutionally-mandated spending ceiling. There is a consensus among political leaders that the economic and political costs of failing to comply with the expenditure ceiling are too high to ignore,” said the credit risk rating agency.
According to Moody’s forecasts, the Brazilian fiscal deficit should gradually decline from 7.8% of Gross Domestic Product (GDP) in 2017 to 7% of GDP in 2018/19, while government indebtedness should stabilize at 82% of GDP around 2022. The debt repayment capacity should also improve with the decline in the ratio of interest on revenue to 18% in 2017 and 16% in 2018, from a peak of 29% in 2015.