BRAZIL: Moody’s Changes Outlook on Brazil’s Ratings to Stable from Negative; Ba2 Ratings Affirmed

Wednesday April 11 2018

On 9^th  April 2018, Moody’s Investors Service (“Moody’s”) changed the outlook on Brazil Government Ratings to stable from negative.

Moody’s Investors Service (“Moody’s”) changed the outlook on Brazil Government Ratings to stable from negative.

The change in the outlook on Brazil’s Ba2 ratings was driven by the following factors:

• Moody’s expectation that the next administration will pass the fiscal reforms needed to stabilise debt metrics over the medium term; and that,
• Higher-than-expected short- and medium-term growth prospects, backed by structural reforms, will support fiscal consolidation efforts

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 decision to affirm the Ba2 ratings reflects credit strengths that offset weak fiscal metrics compared to similarly rated peers. Moderately strong economic and institutional factors are in line with regional and Ba-rated peers, and external vulnerability is very low. Fiscal consolidation is expected to continue.

These ratings are subject to change and Moodys’ warns that the ratings could be downgraded. A downgrade would be caused by a re-emergence of political dysfunction, such as a failure to pass social security reforms. Such a scenario would also signal institutional weaknesses not already captured in Moody’s current assessment and would add further downward pressure on the rating.

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