06/27/2024 – 21:50
The risk rating agency Fitch maintained, this Thursday (27), Brazil’s credit rating at BB, two ratings below investment grade. The agency maintained a stable outlook, which indicates that the country’s assessment will not change in the coming months.
The last time Fitch had raised Brazil’s rating was in July last year, when the The country’s rating went from BB- to BB. In December, the agency maintained the country’s rating and outlook.
Related news:
Among the positive points for maintaining the rating, the agency cites the “diversification of the Brazilian economy, high income per capitastrong external finances and resilience to shocks and low share of foreign currency debt”. Although there was no change, Fitch issued warnings. In a statement, the agency highlighted that the country’s rating is limited by the weak potential growth of the economy, the rigidity of the government’s budget and the growing and high public debt.
The text calls for the continuation of reforms in mandatory expenses to reduce the public deficit, even after the approval of the new fiscal framework.
“The uncertain prospects for reducing large budget deficits, despite the implementation of the new fiscal framework, continue to be an important source of macroeconomic vulnerability, with adverse repercussions for market confidence and monetary policy,” highlighted Fitch.
For this year, the agency projects a primary deficit (result of government accounts without interest on public debt) of 0.7% of the Gross Domestic Product (GDP, sum of wealth produced in the country) in 2024. In May, the Ministry of Planning estimated a deficit of R$ 14.5 billion for this year (0.1% of GDP), within the zero deficit tolerance margin, with the possibility of a deviation of 0.25 percentage points of GDP up or down .
In Fitch’s assessment, without extraordinary collections occurring in 2024, the fiscal outlook from 2025 onwards “is even less clear”. According to the agency, the growth of some indexed mandatory expenses “will require a strong compression of discretionary expenses [não obrigatórias] to meet the maximum expenditure limit”.
Understand Fitch’s rating
Fitch Ratings periodically assigns ratings related to the credit risk (known as ratings) and the investment grade of certain financial products or assets, issued by companies or governments, around the world.
In its assessment, Fitch assigns ratings and classifies the agents issuing public (governments) and private (companies) bonds according to their credibility and degree of risk, for example, of non-payment of debts within the established term. These ratings are divided into two large groups: speculative and investment.
In speculative grade, the lowest grade is D, which indicates a high risk of default. This is the “speculative default grade”.
As the likelihood of non-payment to investors decreases, Fitch Ratings’ risk ratings evolve to C, CC, CCC. On this scale, the ratings for the speculation category are then assigned, in ascending order, B-, B, B+, BB-, BB and BB+.
Based on grades BBB-, BBB, BBB+, a country obtains investment grade, but with average quality. Finally, the highest investment grade grades vary, in ascending order, they are A-, A, A+, AA-, AA, AA+ and AAA. The latter is the highest quality investment grade.
Fitch is one of the three main international agencies that evaluate Brazil’s public debt. In December of last year, S&P Global raised Brazil’s rating from three to two notches below investment grade, the same rating granted by Fitch. Moody’s has rated the country two notches below investment grade since February 2016.
#Fitch #maintains #Brazils #credit #rating #stable #outlook