S&P Global improves economic outlook for Brazil – 06/14/2023 – Market

The risk rating agency S&P Global Ratings improved this Wednesday (14) Brazil’s long-term perspective on the global scale, revising from “stable” to “positive”, but maintained the long- and short-term sovereign credit rating, which is in B in the local currency.

The change in perspective reflects, according to S&P Global, the country’s economic growth better than expected, in addition to signs of greater certainty of stability in the conduct of fiscal and monetary policy, which could support a reduction in the basic interest rate, the Selic.

“Continuous GDP growth [Produto Interno Bruto] added to the emerging framework for fiscal policy could result in a lower-than-expected public debt burden, which may support monetary flexibility and sustain the country’s net external position,” the report says.

After the release of the report, the Secretary of the Treasury, Rogério Ceron, said this Wednesday that the favorable outlook for Brazil’s risk classification given by the agency helps to avoid setbacks in the government’s agenda and predicted that the country could recover the investment grade in 2026.

“Yes, it’s not impossible, we have the support of Congress, of society,” Ceron told Reuters.

S&P, however, said it could revise its outlook further downwards if there is an inadequate political framework or if economic policy results in limited growth in the country, “leading to further fiscal deterioration and a greater debt burden than than expected”.

In this sense, the approval of the new fiscal framework will help limit the deterioration of the Brazilian fiscal framework, according to the agency.

What can raise Brazil’s credit rating, according to S&P, is the Brazilian government’s ability to adopt pragmatic economic measures that manage to contain “vulnerabilities in the country’s public finances”. “The key to this would be the passage of additional reforms – among them a tax reform currently under debate,” he said.

Brazil’s current score (B) indicates that the country is more vulnerable to adverse business, financial and economic conditions, but still has the capacity to meet its debt commitments.

“In our opinion, the lack of capacity to quickly deal with economic deficiencies prevents Brazil from growing at a faster pace and consistent with other emerging sovereign markets at a similar level of development”, justifies S&P.

“It also limits Brazil’s ability to deal with a rigid budget structure, which contributes to large fiscal deficits and a high debt load”, completes the agency.

With Reuters