Fitch improves the score of the city and state of São Paulo – 08/27/2023 – Market

The credit rating agency Fitch revised the national long-term ratings of four states and two cities in Brazil. The state and municipality of São Paulo, as well as the states of Rio de Janeiro, Alagoas, Paraná and the city of Niterói (RJ) went up from the ‘AA(bra)’ to ‘AAA(bra)’ level. All have stable outlook.

The changes came in the wake of the upgrade of Brazil’s sovereign rating to ‘BB’ on July 26th.

At the time, the agency stated that the decision reflects a better-than-expected macroeconomic and fiscal performance, in addition to the reform agenda put into practice during the government of Luiz Inácio Lula da Silva (PT ), with the advancement of the Tax Reform and the framework tax in Congress.

Also weighing in on Fitch’s reassessment were the pension reform and the independence of the BC (Central Bank) —measures taken during the Jair Bolsonaro (PL) government.

“The ratings of the state of São Paulo, the state of Alagoas and the state of Rio de Janeiro benefit from intergovernmental financial support and are equalized to the implicit rating on the national scale of the Brazilian sovereign,” the agency said in a statement.

According to Fitch, the national scale scores assess “relative vulnerability to default on statutory obligations only for local issuers in Brazil, excluding transfer and convertibility risks.”

In addition, national ratings reflect the relative strengths and weaknesses of each issuer in a specific jurisdiction, the agency says, designed to help local investors differentiate risk.

Fitch points out that the rating does not compare with the agency’s international rating scales or with the national rating scales of other countries.

In a note, the state secretary of Finance and Planning of São Paulo, Samuel Kinoshita, said that the classification puts the state at the highest level on Fitch’s national scale, indicating that São Paulo’s credit profile has strengthened.

“Being in Fitch’s highest classification is a sign for investors that in São Paulo it is possible to find security and guarantee, given the solidity and prospects of the São Paulo economy”, said Kinoshita, in a note.

The São Paulo Finance and Planning Secretariat also stated that, in recent months, the agency has highlighted positive points for the São Paulo economy, such as “the robustness of state revenues, high fiscal autonomy, with low transfer rates, and moderate control expense growth, with solid operating margins”.